The growing presence of investors in Auckland's property market is increasing the risk of damage to the financial system and the broader economy in the event of a market downturn, says Reserve Bank deputy governor Grant Spencer.

He says investors now account for 41 per cent of Auckland house purchases – up eight percentage points since late 2013. The most notable gain had been “purchases by smaller investors and investors reliant on credit,” he said a speech to the Northern Club in Auckland.

“Half of the new lending to investors is being written at loan-to-value ratios of over 70 per cent.”

Mr Spencer said housing supply in the city was growing “nowhere near fast enough to make a dent in the existing housing shortage”.

“In the meantime, net migration is at record levels, and investors continue to expand their influence in the Auckland market.”

In May, the Reserve Bank announced a tightening of its restrictions on the number of new home loans banks can make at high loan-to-value ratios for Auckland while easing the restrictions for the rest of the country.

The changes come into effect in November.

Mr Spencer reiterated the Reserve Bank’s call for more progress in developing new housing in the city, while welcoming tax changes imposed by the government, including a non-resident withholding tax, a two-year bright-line test and a requirement for tax numbers to be provided by house purchasers.

He said that the Reserve Bank recognised that low interest rates were contributing to housing demand pressures, but that “the current weakness in export prices, economic activity and CPI inflation means that interest rate increases are likely to be off the table for some time”.

“A sharp fall in house prices has the potential to accentuate weakness in the macro-economy, particularly if banks tighten lending conditions excessively, leading to greater declines in asset markets and larger loan losses for the banks,” he said.

The 24 per cent jump in Auckland house prices in the past year, compared to three per cent for the rest of the country, had stretched the price-to-income ratio for the Auckland region to nine – double the ratio for the rest of New Zealand, and “places Auckland among the world’s most expensive cities”.