A top banker's dire warning about New Zealand's overheated house prices shows the market is in crisis and an immigration rethink is needed, Labour says.

In a strongly worded opinion piece, ANZ chief executive David Hisco has warned Auckland property prices are over-cooked and the end would likely be messy.

He has joined several leading establishment figures in calling for stronger action on housing, and warns yesterday's Reserve Bank lending restrictions did not go far enough.

Hisco's comments come after Finance Minister Bill English and Housing Minister Nick Smith signalled they expected property values to slow or drop. Both told first home buyers to ride the bubble out before buying.


Labour finance spokesman Grant Robertson said Hisco's message reflected the fact the housing market was in crisis.

"This is the kind of warning from inside the system that should, if nothing else, shake the Government."

Labour policy is to ban foreign buyers, extend the "bright line" test to five years so investment properties on-sold within five years have to pay a tax on the capital gains achieved, fast-track the building of affordable homes and begin consultation on ending negative gearing.

Robertson said immigration policies should be reviewed.

"Immigration should be good for New Zealand. But quite clearly if it puts as much pressure on as it does, then you've got to review the settings, and we would certainly do that."

Associate Finance Minister Steven Joyce said: "The Government would agree with some of the things he says and disagree with others. In terms of the issues around housing, one thing we'd definitely agree on is a comprehensive response - it involves the Reserve Bank, it involves councils and it involves the Government.

"And that's why we have a comprehensive plan that works in a range of areas to ensure that the matter is addressed," he said.

"My experience is, in associate finance now for seven or eight years, different people in the commercial sector have different views at different times. And the job of the Government is to govern for the whole of the country and the whole of the economy and we just work our way through that.


"From the Government's perspective, we've been taking a steady and conservative approach for many years - and we'll continue to do so."

Labour's housing spokesman Phil Twyford said: "The Government clearly won't listen to opposition parties, like Labour, on the housing crisis. But surely it must listen to what is a growing chorus of voices - even traditionally conservative voices - who are raising alarm about the housing crisis.

"When the head of the country's biggest mortgage lender speaks out in such a direct way, you don't have to read between the lines to see that this is a damning criticism of the Government's handling of the housing issue."

Economist Shamubeel Eaqub said Hisco's comments showed a sign of the times.

"It's funny that the banks are saying that something must be done. It's a complete crisis when you've got Hisco and all these guys coming out saying the same kind of thing -- even businesses and people you'd think would be the supporters.

"It's only a reflection of how bad things have gotten."


Green Party finance spokeswoman Julie Anne Genter said ANZ's call for more restrictions on lending spoke volumes about the state of the housing market.

"It definitely feels like a bubble. And I can understand why the Reserve Bank and others in finance and economics are very concerned."

The Government needed to remove tax advantages for property speculators and get involved in building more affordable homes, Genter said.

The Greens would support looking at a temporary reduction in immigration levels, until the needed infrastructure and other steps were taken to meet housing demand.

"There's nothing wrong with immigration ... but, until we have the infrastructure in place it might be necessary to take precautions and slow it down a bit."

NZ First leader Winston Peters said Hisco's warning of a "messy end" was totally predictable and avoidable but had been ignored by the Government and others for too long.


"There will be a correction. It is going to be enormously painful for hundreds of thousands of New Zealanders and that's the sad part about it. Many people will lose their equity. But any conception such a build up in the house price bubble could go on shows what enormous denial the political system is in."

Peters said English and Smith were trying to stave off the inevitable. He did not believe the Reserve Banks' moves this week to increase loan to value radios for investors from 30 to 40 per cent deposits would have much impact.

"It's crude, it's blunt and not helpful."

However, he disagreed with Hisco's suggestion overseas investors could leave in a "stampede" if property values started dropping.

"Those who have bought it as a bolthole to come here or to secure their money from offshore interference, they won't be stampeding. The motivation for them is different from the motivation for a normal investor."