Homebuyers could find it harder to get a mortgage as the Government studies ways to curb lending to cool the housing market and control inflation.
But the options officials are studying have been criticised by the National Party and some economists for risking an implosion of the housing market that would hit the economy.
The Reserve Bank yesterday revealed details of the study it and the Treasury are doing on options other than interest rate rises to control inflation. Officials have until the end of January to report.
Finance Minister Michael Cullen said on Tuesday that he had asked officials to consider ways to slow the economy, but noted that the options were not "exactly attractive".
The Reserve Bank is worried continued interest rate rises are not flowing through to mortgage lending and the housing market, which continues to be a key driver of inflation.
One option being considered is limiting the amount banks can lend on a property's value. Some lenders, including Government-owned Kiwibank, now lend up to 100 per cent of a property's value.
There has been speculation about options this week including a capital gains tax - dismissed by Dr Cullen - and a review of the amount of capital banks must have to back their lending.
Talk of options emerged after Reserve Bank Governor Alan Bollard warned in two recent speeches about imbalances in the economy from a debt-financed spending binge.
National's finance spokesman, John Key, said the Government was playing with fire and risked a "complete implosion" of the economy.
"The Government should be looking at getting its own house in order before it looks to decimate thevalue of everybody else's."
ANZ National chief economist John McDermott said the moves looked "absolutely insane".
"It feels like people are losing faith in market pricing signals."
Westpac chief economist Brendan O'Donovan said intervention through credit controls would be misguided and could backfire.
"If they force a marked housing slowdown, then it's goodnight nurse for the economy in the short term and the economy would go through a very tough transitional period."
He warned that a credit squeeze could hit many small businesses as their owners often secured their lending over residential mortgages.
David Tripe of Massey University's banking studies centre said the options had the "face of Muldoon all over them" but he suspected it was just talk.
"If the Reserve Bank are serious about getting housing prices under control they should be much more aggressive on the official cash rate.
"Market forces must make the housing market come a gutser anyway."
Consumers' Institute chief executive David Russell said the moves would make it far more difficult for first-home buyers, but the potential benefit was that steam would be taken out of the market, making it more affordable.
But, he said, perversely, even signals of Government moves to cut credit availability could fire the market up in the short term as people rushed to get in.
Another option the Government is considering is axing or restricting tax vehicles such as Loss Attributing Qualifying Companies, which allow taxpayers to allocate losses from their rental property against their other income, reducing their tax liability or giving them a refund.
Auckland Property Investors Association president Andrew King said intervention would not be prudent but he doubted restricting or axing LAQCs would achieve much as people could access similar tax advantages as individuals anyway.
But Mr Tripe said there was scope to amend LAQC rules as there was a "great racket" going on with people transferring ownership of their own homes to the companies to reduce their tax liability.
Real Estate Institute national president Howard Morley said it was overkill to blame inflation problems and increasing house prices on homeowners.
"The Government should be looking at their own spending. Inflation is brought about by overspending."
Dr Cullen refused to comment yesterday.
- additional reporting: Adam Bennett