Reserve Bank Governor Alan Bollard is talking down the threat of rising house price inflation as the property market begins to show signs of life.

Speaking to Parliament's finance and expenditure committee, Bollard told politicians the bank expects to see a "significant increase" in property investment funded through lower debt levels. That will include more new starts in Auckland, which is suffering from a shortage.

"We're not expecting to see very much pressure on pricing, principally because we think that house prices are fully priced and possibly over-priced already, and that New Zealanders sort of understand that," Bollard said. "We're not hearing New Zealanders are expecting a lot of upside on house prices."

A tight house supply and stalled reconstruction effort in post-earthquake Christchurch has seen property prices bid up as demand exceeds the number of available listings, and building consents rose to a two-year high in March to help alleviate those constraints.


The Reserve Bank's six-monthly financial stability report, released today, said tight supply has been a factor in driving up house prices, but they are unlikely to achieve the momentum they had during the boom between 2002 and 2007.

Bollard told the committee the next round of construction will differ from the experience of the past decade, "which had a lot of price pressure and a lot of interest in investor housing."

"We're seeing people expressing interest in housing for that old-fashioned reason, for living in houses," he said.

The government is looking into housing affordability after the Productivity Commission final report into the issue, including evidence that local government attempts to strictly apply urban limits have limited access to affordable property.

In response to questioning by National Party MP David Bennett, Bollard talked down the prospect of a split property market in Auckland where rising prices in exclusive areas are dragging up the citywide average.

"We're not convinced that that's a big change in the middle of the market," he said.