Finance Minister Bill English has responded to a warning about a "sharp correction" in the housing market, saying that skyrocketing house prices "cannot go on forever".

Mr English was this morning asked about comments made by Reserve Bank Governor Graeme Wheeler, who said last week that rising house prices in Auckland and Christchurch were one of the main risks to the economy.

In a speech, Mr Wheeler said: "The more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability."

Asked whether a "sharp correction" could mean the bursting of a housing bubble, Mr English said: "Well, you'd need to talk to the Reserve Bank about that.

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"All I know is there's no asset price can go up at over 10 percent a year forever, so sometime it will stop. And in this case we are really starting to get more supply coming at speed into the market.

"Of course, we would have liked it to have been faster but we've gone about as fast as we can so in the next three to five years the supply situation in Auckland will change."

The minister said the Government was doing as much as possible without taking over councils' functions.

He said the Government's focus was on supply, and it was up to the Reserve Bank to decide whether it would intervene in the housing market.

Mr English said he understood the Reserve Bank was consulting with banks about the definition of investor housing.

He did not say whether he would support a move to tighten lending to investors, but he said he supported the bank taking measures to maintain financial stability.

He said the bank first needed to make a case that there was a threat to financial stability before it used any tools to cool the housing market.

Asked whether the bank had made the case for intervention, Mr English said: "Well I think the Governor's speech [last week] started to make that case."

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Labour's housing spokesman Phil Twyford said Labour would support any move by the Reserve Bank to tighten lending restrictions for investors who owned multiple properties.

But he said this alone would not solve the housing problem, and the Reserve Bank should not be expected to "pick up the tab" for Government's "failed" housing policies.

Mr Twyford said there was no evidence that the housing market was about to crash, but it was clear that it was "extremely over-heated" and house prices were "wildly inflated".

"I think everyone knows the social and economic consequences of that are terrible for Auckland and terrible for New Zealand," he said.

"The Government has to deliver increased supply and it has to do something about the rampant property speculation in Auckland... Instead it's tinkering with the [Resource Management Act] and selling off state houses."

He said the current rate of consenting was only half of what Auckland needed "just to stay still".

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