By 3 News online staff
Investors now make up 41 percent of those in the Auckland housing market, with the Reserve Bank seeing an increase in small-time investors and those reliant on credit.
In a speech to the Northern Club in Auckland today, Reserve Bank deputy governor Grant Spencer said the number of investors in the overheated housing market has increased by 8 percent since late 2013 and is increasing the risk in the financial system and beyond.
"Half of the new lending to investors is being written at loan-to-value ratios of over 70 percent.
"This trend is increasing the risk inherent in the Auckland market. The increasing investor presence is likely to amplify the housing cycle, and worsen the potential damage from a downturn, both to the financial system and the broader economy."
However, Mr Spencer believes the measures put in place can help in moderating the risks associated with the housing market.
In May, the Bank announced it would increase loan-to-value ratios in the Auckland region to require a 30 percent deposit.
"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."
One of the main aims of the Bank's policy is make sure the banking system can withstand such "contractionary behaviour in a downturn".
Mr Spencer says the bank recognises low interest rates play a part in the high housing demand and is taken into consideration when monetary policy is set.
However, current weakness in in export prices, economic activity and CPI inflation mean interest rates increases are "likely to be off the table for some time".
Auckland house prices have increased 24 percent over the past year compared to 3 percent in the rest of New Zealand.