New Zealanders might return from Australia if housing gets cheaper here, an Australian analyst company says.

Macquarie Research said the slowdown in net migration to New Zealand this year had coincided with increased departures, particularly to Australia.

"Relative housing affordability between the two countries appears to be an important piece of the puzzle in explaining why so many are moving across the Tasman."

But with the gap between interest rates in the two countries narrowing, and the New Zealand housing market slowing down, the flow might start to reverse, Macquarie analysts said.

They note house prices have been more buoyant in New Zealand since 2004, but flattened out somewhat in the latter half of 2006, coinciding with rising rates in Australia.

The slowdown in New Zealand's net migration this year made it likely "that housing in New Zealand will become relatively cheaper over the next six to nine months".

Tighter monetary policy was beginning to take the steam out of the housing market, with home sales plunging and house prices flat for the best part of five months.

"It also appears that the Reserve Bank of New Zealand is comfortable with the current settings of monetary policy, and this is the peak of the tightening cycle."

Meanwhile in Australia, house prices were beginning to rise strongly, with housing markets in the eastern states showing signs of life after a subdued performance in the past two years. If net migration to New Zealand rose again, interest rates were not expected to increase for that reason, as the RBNZ had already factored in a modest pick-up, Macquarie analysts said.

In any case, they thought it was more useful to address housing supply than using interest rates to try and control the housing market.

"Rising interest rates doesn't alleviate the underlying need for more housing driven by population growth and household formation, but may weigh on the supply response as investors shy away from building new homes for renting."

- NZPA