Prime Minister John Key says his Government has not changed its mind about controlling the demand for housing in New Zealand, despite telling the Reserve Bank to target investors in the housing market.

Key reiterated today that he wanted the central bank to crack down on property investors immediately, saying that stricter loan-to-value ratios (LVRs) could have been introduced "overnight" to stem the level of investor activity.

However, that did not mean that the Government had softened its stance on demand-side measures for housing.

Policies which curbed demand were "not terribly effective" at slowing up house prices, Key told reporters in Auckland this afternoon.


"I remember when everyone said to [introduce] the equivalent of a bright line test, it will solve the issues. Well, it really didn't."

The bright line test, introduced in October, required people who bought and sold a property within two years to pay tax on the capital gain.

It was credited with helping to slow house price inflation in late 2015 and early 2016, though prices have since taken off again, driven by high levels of investor activity.

Labour leader Andrew Little is not ruling out a tougher bright line test as part of his party's housing policy package for the election, to be announced on Sunday. One option is to extend it from two years to five years.

The Inland Revenue Department (IRD) has investigated a three-to-five year test for the Government, but concluded that it would capture house sales "that were acquired without an intention of resale".

Mr Little ditched the policy of a capital gains tax in 2014 after Labour had taken it to two elections and lost.

Key also said he would not bow to calls from the Reserve Bank to stem immigration.

In a speech yesterday, the bank's deputy governor Grant Spencer told the Government to consider reviewing the number of migrants and the skills they were bringing to the country. Such a move could help moderate imbalances in the housing market, he said.


Key said high net migration was driven by returning New Zealanders, Australian migration, and student and work visa holders.

The first two categories could not be controlled, and the second two did not tend to buy houses, he said.

That left the skilled visa category, which Key said was constantly reviewed.

He rejected the Reserve Bank's suggestion that the "number and composition of skills" needed review. More than 50 occupations had been removed from the list by the Government as workforce demands changed, he said.

Net migration is now nearing 70,000 a year, prompting the Reserve Bank to say that its impact on housing demand could not be ignored.

Out of 124,700 migrants who arrived in New Zealand in the year to May, a quarter were returning New Zealanders and another quarter were on work visas.