An economist wants the Reserve Bank to restrict lending to investors who have racked up lots of debt, to stop them from continuing to buy houses and driving prices up.
The median price nationwide is now above $720,000 after posting a double-digit rise in both measurements.
While earlier this year most economists tipped house prices to fall thanks to the COVID-19 pandemic, the reverse happened - fuelled by low interest rates, the removal of loan-to-value restrictions (LVRs) and New Zealand's successful elimination of the virus.
Last week the Reserve Bank said LVRs for investors would likely be back, but not until March next year. Banks will likely require investors to have deposits of around 30 percent to get mortgage lending.
Economist Cameron Bagrie says the Reserve Bank should add debt-to-income (DTI) ratios to its toolkit - this would prevent people with lots of borrowing taking out extra loans to buy more property.
"DTI limits I think would be an additional tool that could help around the edges," he told The AM Show on Tuesday.
"But we've got this real polarised story where we need lower interest rates to help out the broader economy, but those lower interest rates are probably propping up the property market a little bit too far. Of course, what goes up can come down the other side."
The Reserve Bank has been looking at DTI ratios for some time, concerned that people with a high DTI are less able to withstand income shocks - such as interest rates going up or losing their income - and reduce their spending as a result. Last year interest.co.nz reported the DTI ratio for most buyers had been gradually declining, and restrictions wouldn't be needed.
Bagrie says the latest surge in house prices may have changed the Reserve Bank's thinking.
The relative strength of the New Zealand economy - at least compared to expectations - also means negative interest rates look unlikely, Bagrie said.
"It partly reflects the fact the New Zealand economy is tracking along an awful lot better than what anybody expected four to five months ago, and it brings New Zealand more in line with what we're seeing in the UK, Australia and the US. Expectations in those jurisdictions is basically interest rates are going to zero, in fact they're already effectively there. But they were stopping short of pricing in a negative cash rate.
"New Zealand was a little bit of the exception to the rule - the market has pared back, pulled us in line with where things are internationally. I was never a big fan of negative interest rates, so I think the market movement has been a pretty welcome addition."
Despite record house prices, Bagrie says the Reserve Bank won't be putting interest rates up anytime soon.
"They're a long way off achieving their remit, their mandate of getting us back to full employment and inflation back towards 2 percent."
Unemployment is currently at 5.3 percent, up from 4.2 percent at the start of the year. Inflation has been under 2 percent almost consistently since the global financial crisis.
Banks have already started to bring LVRs back, including ASB, Westpac and ANZ.