Auckland's population will continue to grow at a rapid pace, with about 290,000 more people expected to settle in the region over the coming decade, say economists at Westpac.

"Despite the growing need for new buildings in Auckland, headwinds in the construction sector mean we're expecting only subdued growth in residential construction over the coming year," they report this week.

"And recent developments indicate that growth in construction could be even softer than we're assuming."

The economists say several factors are holding back much-needed home building. These include developers having difficulty getting bank finance.

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"This is particularly important in Auckland, given the greater prevalence of medium- to high-density housing developments, for which finance can be a significant hurdle," say Westpac's economists.

Apart from getting finance, builders are facing a shortage of skilled workers who are able to raise their pay rates accordingly. Westpac says the cost of building a new home in Auckland went up by about 40 per cent over the past five years.

"This rise in building costs has come at the same time as the housing market in Auckland has been softening," they say. "Homes prices in Auckland are down 4 per cent since the start of this year, and sales are at their lowest level since 2011.

"Many developers will be nervous about building into a slowing market. These headwinds have sapped the momentum in Auckland's construction sector."

Market sluggish
Market activity, measured by the number of valuations run by banks to support loan activity shows a bleak end to the winter season and indicates sales volumes for August are likely to continue on from the already low sales turnover experienced in July, writes Nick Goodall of CoreLogic.

"The already strong drop in sales volumes combined with market activity now ambling along at seasonally low levels up to 30 per cent below last winter tells us the market slowdown remains," Goodall says.

"Property value change is variable too, with some areas of the country now showing value decreases."

He says analysis of the firm's buyer classification data shows a major change has occurred.

"The surge of investors buying in Hamilton over the past two years is well and truly over.

This will be due to a combination of rising values in Hamilton reducing gross yield plus the difficulty in securing mortgage funding."

In Auckland prices are starting to drop. Homes in Mt Wellington, for example, have lost 3 per cent of their value since April, says Goodall.