Young Aucklanders need to look to apartments as a first home option as they do in big Australian cities, Prime Minister John Key says.

Key also expressed concern over what will happen to some people with large mortgages when interest rates eventually rise.

Housing and the related issue of record immigration levels dominated Key's interview with Newstalk ZB's Leighton Smith this morning.

Smith told the prime minister that he knew of long-term National voters who were extremely concerned that their children had no real prospects of buying a first home, despite being well-qualified and earning good money.


Key said if the same couples in their late 20s were living in Sydney or Melbourne their expectations could well be different.

"I tell you where their first house is - it's an apartment... that is the reality of a first home for a young couple in Australia and many other parts of the world.

"We are going through quite a big change as a society, I think in these fast growing areas where it is quite likely that people will start in apartments, it's more than likely they will move out to a house with a little bit of land as they have children, and they will very likely move into an apartment as they retire.

"You are seeing the market responding. The quarter-acre section is less prevalent."

Key repeated recent comments that house prices in Auckland went up by about the same level under Helen Clark's Labour Government as during his time in power.

"The numbers are bigger, but in percentage terms they have moved about the same."

He expressed concern about what could happen when interest rates rise.

"[Currently] you need a bigger deposit in nominal terms...and you are servicing a bigger mortgage. At the moment that is not really a huge issue because interest rates are very, very low.


"But the concerning thing is, if you are not on a fixed rate, what happens when interest rates eventually go back up."

Asked if it was time to reduce immigration levels until the heat was taken out of the property market, Key said he viewed the fact many New Zealanders were choosing to stay in the country or return from overseas as a positive.

Net migration levels reached 68,000 people in the year to June. A large proportion of arrivals are settling in Auckland, where housing demand is outstripping supply. That has prompted calls to curb immigration.

The Reserve Bank recently told the Government to consider reviewing its immigration settings to stem rising house prices.

The Labour Party and New Zealand First believe migrant numbers should be immediately reduced to ease the pressure on jobs and housing. The Green Party wants a review of current immigration settings.

The public also appears to be in favour of new immigration controls. A Newshub poll released last month showed that 60 per cent of New Zealanders want the Government to let fewer immigrants into the country.

However, a recent research paper, commissioned by the Government, concluded that the main drivers of rising prices in the city are low interest rates, investor demand, capital gains expectations and New Zealanders returning from overseas.