Tax reform needed to solve New Zealand's housing crisis - economist

A major tax reform is needed to help solve New Zealand's overheated housing market, according to one chief economist.

It comes as Auckland's median house price reaches $1 million and median prices across the country are up by almost 20 percent.

Westpac chief economist Dominick Stephens also believes a capital gains tax is the best way to solve this problem.

"I think the best solution is tax reform," Stephens said.

But his preference of a capital gains tax has been ruled out by the Government, with Prime Minister Jacinda Ardern saying "other solutions" are being considered. However, those other solutions won't be another form of major tax change like a land or wealth tax, she added.

Stephens said as more people are locked out of the housing market, they'll end up demanding tax change.

"I think the social tensions between the housing haves and the housing have-nots are going to reach boiling point in the next five years and I think that will create a constituency for change," he said.

The Real Estate of New Zealand (REINZ) is focused on another piece of the housing puzzle - asking the Government to make changes to the Home Start Grant.

The grant gives $5000 or $10,000 for first home buyers who are required to purchase properties below a certain price cap.

But REINZ CEO Bindi Norwell said as house prices rapidly rise, she has concerns.

"There are not many properties now that actually qualify, in fact only 33 percent across the country qualify," she said.

That's all properties, not just those for sale.

Ardern said she is "not satisfied" with what is happening in the housing market.

"We know that we need more intervention and we're going to keep looking at the best options," she said.

Property Institute CEO Ashley Church said first home buyers may find it even tougher to purchase their first homes in years to come.

"In seven to 10 years' time, house prices around the country, the median house price will be at least twice what it is now that's the reality," he said.