New Zealand house prices will rise another 17 per cent before peaking late next year as accelerating building scrambles to right the imbalance between a lack of houses and growing demand, says economic consultancy Infometrics.
The Wellington-based firm sees 2017 as a peak for the market. It forecasts a fall-off in demand as the rapid inflow of new migrants starts to ease, while new building eats into the supply shortage.
From that peak, Infometrics predicts a national decline in house prices of 14 per cent in real terms by mid-2020. That would leave house prices 11 per cent above the high they reached in 2007.
"Such a sharp lift in building activity will not come without side-effects, with intense pressures on construction sector resources fuelling increases to building costs," Infometrics chief forecaster Gareth Kiernan said in a statement.
"If building activity hits the levels we are predicting then there could eventually be some softening to house prices in Auckland and regional property markets in the 'halo' around Auckland."
The rapid gain in house prices has been a contentious issue for policymakers who have seen a shortage of new housing in Auckland coincide with record levels of inbound migration.
To try and keep low interest rates from pushing up prices further, the Reserve Bank has introduced a series of mortgage lending restrictions and signalled more are to come.
Mr Kiernan said the bank's macro-prudential tools might slow the market in the short-term, but aren't a long-term solution.
"Ultimately lifting housing supply is the only way to get lasting improvements to home affordability."
A major contribution to improving Auckland's housing supply is expected this week when the city's draft unitary plan is released.
Central government laid most of the blame for the sharp increase in house prices on poor local body planning, and the government will finalise a national policy statement on urban development and resource management reform legislation before the end of the year.