Auckland housing market a risk to NZ economy - Bill English

The Auckland housing market remains a risk to the New Zealand economy, Finance Minister Bill English says.

"The longer it goes rising at 20 to 25 per cent a year, the more of a risk it becomes," the minister told reporters this afternoon.

"You've got the median house prices about nine times the average income. That can't last."

Mr English made the comments after making a speech to a social housing conference in Wellington.

In the speech, he said the Government would come under huge political pressure to provide assistance to middle-income families if interest rates rose.

"As households get a bit stretched in meeting the rising cost of housing, it inevitably creates pressure for government to lift the cash transfer programmes."

He said that in the mid-2000s, interest rates of 8 to 9 per cent meant the Government had to compensate by making big increases in Working for Families subsidies and by introducing interest-free student loans.

Mr English said the Government would rather "get the market right" than have to provide more assistance to families.

The Government was introducing new rules to increase the supply of housing over the next few months.

Central government also "needed to get a bit closer" to the council decision-making process "to make sure its working for the whole economy", he said.

The Productivity Commission this week recommended that if residential land prices became too disproportionate to other land prices, the Government should step in and require councils to free up land.

Mr English said he needed more advice before considering a maximum threshold for residential land prices, but he would not rule it out.

Responding to HSBC's listing of New Zealand's economy as vulnerable, the minister said the bank was probably overstating the risk.

"They probably over did it last time when they called New Zealand a rock star economy and they're probably overdoing it now."

Another forecast by Westpac Bank predicted unemployment rates would rise to 6.5 per cent in New Zealand, up from 5.8 per cent.

Mr English said this would be a turnaround from previous forecasts.

But he noted that positive net migration was making it harder for young people entering the labour market because "New Zealanders just aren't leaving" the country.

In the past, the large number of New Zealanders leaving for Australia had kept unemployment down, he said.

Despite this trend, Mr English had no plan to alter immigration settings such as the number of student visas.

"I'm a bit more optimistic about unemployment... We back the economy to keep on producing new jobs."