However, when viewed annually Auckland's housing affordability still deteriorated and the city is still the nation's least-affordable region, the report finding it was 35 per cent less affordable than the national average.
The report's author, Professor Bob Hargreaves, did not anticipate the downward trend to continue.
"If you take into account the comments of the Reserve Bank Governor recently about interest rates increasing, you could say there are some headwinds on the horizon," he said. "The outlook for affordability is a bit grim I'm afraid."
Dr Smith said he didn't put too much weight on a single quarterly measure of housing affordability, "although I do note that it has improved substantially since housing affordability reached its all time low in 2008 under the previous Labour Government".
He said the Government was committed to addressing housing affordability, particularly in Auckland and Christchurch, but did not accept there was a crisis.
The Labour Party's housing spokesman Phil Twyford said Dr Smith was "deluded".
"After five years in Government house prices in Auckland have gone up 13 per cent in the last 12 months, thousands of first home buyers are locked out of the housing market by home mortgage lending limits and interest rates are heading north of 8 per cent. I'd call that a crisis."
