Mind the gap: The flaw in Auckland's great house building plans

What is this funding gap people are worrying about?

Well, if we have one, it will be bad news for the Government - which continues to talk up the prospects of new supply coming to the rescue for first-home buyers and others concerned about the overheated housing market.

It's been hot topic among senior business figures for the past few months.

But what does it actually mean?

In short, it's the idea that New Zealand's property sector may lack the capital to build enough houses to meet demand.

The big Australian banks are widely considered to be taking a more cautious approach to New Zealand property lending.

Meanwhile we don't have a second-tier lending sector on the scale we once did because most of the finance companies went bust last decade.

So, never mind the political battle over zoning and land supply? You can unlock all the land you like but someone has to actually stump up some money to build on it.

Whether we are actually facing a funding gap is up for debate.

In the past few months the plug has been pulled on some high-profile residential development with rising costs and tighter bank lending criteria taking the blame.

The banks, for the record say there hasn't been any official policy changes. But, at the discretionary margins its seems they are erring on the side of caution.

From a long-term financial stability point of view that's a good thing.

It's a development our Reserve Bank is pleased to see.

The Reserve Bank has voiced concerns that the property market is overheated and is trying to ensure that a crash, if and when it occurs, doesn't take our economy down with it.

It last year imposed tighter loan-to-value-ratio lending restrictions on the banks to mitigate that risk.

And it's telling that in most cases the banks have embraced those rules with little or no dissent.

Or, you could look at it from the point of view of the Australian head offices and their shareholders. New Zealand appears to be in the later stages of a property boom.

No one knows when it ends but history would suggest we are well over halfway through.

So it doesn't make a lot sense to be increasing exposure.

In fact, why would you maintain a loose lending policy to help enable a building boom that may ultimately end in an oversupply of housing, and big price falls.

If nothing else, it is clear that the cost of borrowing is rising, putting bank margins under pressure.

But for those with a stake in improving housing affordability, nervous banks are the last thing we need if we're hoping to dramatically lift the level of new residential building by another 30 per cent.

Council estimates suggest we need to hit 13,000 new dwellings a year to keep up with population growth. Latest data showed we've just topped 10,000 in the year to November.

Certainly some of the more established developers say they aren't experiencing any issue with their funding at the moment.

On The Economy Hub this week financier James Kellow, from New Zealand Mortgages and Securities - says he is optimistic about the prospect of new builds ultimately catching up with demand.

He believes it is business as usual for those developers with established track records and good long-term relationships with their banks.

And he is optimistic that the level of new dwellings consented will continue to rise.

Still, it seems the funding situation is going to be tight.

We are going to need more capital to get the job done, one way or another.

The political equation is finally balanced too.

Heading into an election where housing promises to be the hottest issue, National needs to be seen to be making progress on affordability.

In the past week Bill English has been quite explicit about his confidence that we'll see supply continue to grow, and that this will balance the market.

That's going to make the potential funding gap a very interesting issue for 2017.