Bank economists are hosing down predictions of a looming housing boom made by Prime Minister John Key this morning.

Key said New Zealand's housing market was set to take off again, particularly in Auckland, as slow planning processes, lack of development finance and internal migration forces up rents and prices.

Speaking on TV One's Breakfast programme, Key was asked whether he thought New Zealand's housing market looked like it would take off again.

He said his personal view for some time had been that for a variety of reasons, such as slow planning processes, and the collapse of a large number of finance companies which provided development finance, the housing market was "going to take off".


"All the indications are that in certain parts of the country, particularly Auckland - I think the rent increases you see, and the housing price increases you see - are a function of the fact that there's a lot of internal and external migration taking place, and not enough supply coming through," Key said.

ASB Bank economist Jane Turner said Key's comments acknowledged the current strength in the housing market, but it was too early to call the pick-up a housing boom.

"In comparison to the low interest rates and strong housing demand, the pick-up in the market is still quite modest."

Turner added that all indicators point towards a tight housing market, particularly in Auckland where housing shortages were very acute. The ASB economist also said that as house price inflation remained at a relatively modest level -between 3 to 5 per cent - it would indicate more of a pick-up rather than a boom in the market

Westpac Bank chief economist Dominick Stevens said the term "housing boom" was a fairly emotive one.

"I don't think anybody would necessarily characterise it [the market] as a boom," he said.

"The reserve bank is forecasting inflation at 5 per cent for 2012, Westpac is forecasting it at 4 per cent which means the economy is quite different from 2011. Although, we are in the middle of a period of stronger house price gains, it is may not necessarily translate into a housing boom."

Generally, Stevens said it was too soon to tell whether NZ was on the verge of a housing boom, despite increasing house prices.

Key this morning said that new housing supply needed to fill demand was "bubbling to the surface, but it's quite slow, and it normally lags demand," he said.

Speaking on TVNZ's Breakfast programme, chief executive Alistair Helm said the tight supply in the market seemed to be driven by the people wanting to re-enter into the property market.

He said that before 2004 there were 120,000 housing sales a year. When compared to last year's annual figure of 60,000 housing sales, Helm was unconvinced about a prospective housing boom.

"We're not back at the 80,000 or 90,000 we were when the reserve bank were relaxing financial constraints, when interest rates were significantly higher and when the property market took off."

Helm said that he was not seeing much of an investor market - when this happened, it was more likely to see the market bubbling.

Key's comments this morning come after Finance Minister Bill English said on Sunday that, while there was some pressure in the Auckland housing market, there were no signs of some runaway bubble.

"And bear in mind here that neither the banks in New Zealand nor the people who lend to our banks are going to finance some housing bubble right now. So even if there's a few prices spiking up at the moment, credit growth - the amount of money actually leant for new mortgages - credit growth is actually around zero," English said on TVOne's Q&A programme.

Asked about a rise in 90 per cent-plus loan-to-value mortgage lending, English said if there was a shortage of housing in Auckland, "then you're going to have a bit more lending in order to enable the construction of more houses to alleviate the shortage."

"So, yes, we would expect a bit more money going into the housing sector. That is how you get more houses that respond to the demand that's there," English said.

"What we're saying to banks is they have to comply with the now stricter requirements on their capital arrangements, which will prevent them from financing a runaway housing bubble. But some sign of growth and lending from banks is actually positive for the economy and positive for the Auckland housing market," he said.