Whatever it does, coalition has to convince market it will pounce if prices take off again.

The new Government has a problem in housing but not quite the one it expected when it committed itself to a range of policies to contain runaway house prices several years ago.

The scale of that inflation was evident in the new valuations released by the Auckland Council and featured on the Herald's front page yesterday. The average across Auckland has risen 45 per cent since the council's last revaluation three years ago.

But for the past year house prices have been flat. This week the Real Estate Institute's house price index was down 0.8 per cent on the Auckland isthmus over the year, which is negligible. More telling, the number of sales was down 16 per cent on the previous year and in Auckland they were down 21 per cent.

Economists attribute this to political uncertainty, which heightens the Government's difficulty in deciding what to do now. It will not want prices to fall drastically and wipe out the equity of highly mortgaged first-home owners. Yet if the low volume of houses on the market is because investors are waiting to see what the Government will do, a decisive move could see them start to unload property quickly.

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Labour had much to say about these "speculators" when it was in Opposition. It resolved to extend National's two year bright-line test for capital gains tax to five years and stop owners of rental homes using losses on the property to reduce tax on other income. Little has been heard of those plans since the Government was formed. Housing Minister Phil Twyford has talked more about boosting the supply of "affordable" houses through a state-financed building programme, working with private developers, removing urban limits and finding new ways to finance infrastructure.

None of that is likely to happen fast enough to cause prices to fall drastically. In fact the latest NZREI index contained the good news that while the average price in Auckland had barely moved over the year, the median price (the midpoint in the number of sales) had fallen 3.2 per cent across the region and 17 per cent on the isthmus. The median falls when the number of low-priced houses increases without the price of existing houses falling, and that is what has happened.

The median has fallen because a large number of apartments have come onto the Auckland market, particularly in the CBD where the median has fallen 24 per cent. Apartments might not be what the Government envisaged as affordable homes, and not what first-home seekers would prefer, but they suggest that an increase in stock in the lower half of the market will not reduce the equity of those who bought their houses when the Auckland median was rising to the $1m it exceeded last year. Now it is down to $850,000.

The Government wants to build houses for sale at up to $600,000 but it needs to find enough builders in an industry short of them. It might instead offer state land to private developers with covenants on the size, quality and sale price of a proportion of the houses. Buyers would have to be bonded not to resell the house at the market price for a number of years.

But whatever it does, the Government needs to keep the market convinced it will act if house prices look like taking off again. Many investors must be sitting, waiting to see if Labour means business.