New Zealand's lead advisor to the Government on economic and financial policy expects house prices to increase more than 10 percent in 2022 - after a 29 percent rise in 2021.
Treasury's latest economic and fiscal update, known as HYEFU, shows house prices are forecast to increase 10.4 percent next year, meaning the median house price - currently $925,000 - will rise to more than $1 million.
And it could be even worse. In Treasury's Budget update in May, it forecast house prices to rise by 17.3 percent, but its latest update shows prices went up by 29 percent. That means the 10.4 percent increase tipped for next year could prove to be a major underestimation.
The 29 percent increase was the fastest since the 1980s. It occurred despite near-zero net migration and booming residential construction activity that increased supply.
ACT Party deputy leader and housing spokesperson Brooke van Velden says New Zealanders have been "let down" by successive governments.
"Being a property-owning democracy was an essential part of the New Zealand story. People have come here for generations so that they could become property owners.
"Now, we're in danger of becoming a neo-feudal society with a property-owning class on the one hand, and the house-nots on the other.
"We need new ways to fund and build infrastructure, new coordination between central and local government, new rules for consenting land, and new ways of accessing building materials."
House prices have been significantly inflated thanks to cheap borrowing and historically low interest rates. This is now tipped to change, however, with the Reserve Bank increasing interest rates and tightening conditions for mortgage borrowing.
ASB Bank expects house prices will fall in the second half of 2022 as supply meets demand, interest rates increase and credit conditions tighten.
Interest rates are now expected to "rise more rapidly and to a higher level than previously assumed", according to Treasury, which is expected to ease house price growth.
"The key reason we expect house price inflation to slow is interest rates," officials say, with house prices to decrease by 0.2 percent in 2024, 0.4 percent in 2025 and 0.6 percent in 2026.
Treasury does, however, acknowledge the Government's policies in March aimed at helping first-home buyers into the market, including the controversial move to end tax deductions on interest costs for rental properties, after it was revealed investors made up the biggest share of buyers in the housing market.
In its Budget Policy Statement released alongside HYEFU, the Government admits that housing affordability "remains a major challenge".
It's not hard to see why. Home ownership rates have continued to fall - 44 percent of people aged 25 to 29 lived in owner-occupied homes, down from 61 percent in 1990.
A recent survey by data insights firm Kantar showed two out of five Kiwis wanted the Government to forcibly bring down house prices. It reflected the latest Ipsos New Zealand Issues Monitor findings that showed housing was the top issue for Kiwis despite the COVID-19 pandemic.
In a rare display of bipartisanship, Labour and National in October jointly announced a law change to speed up the process of forcing councils to allow more apartment blocks throughout the biggest cities in New Zealand.
Tier 1 councils - Auckland, Hamilton, Tauranga, Wellington and Christchurch - must enable intensification in their plans by August 2022, brought forward by one year. The new law allows three homes up to three storeys, to be built on most sites without the need for resource consent.
ACT, the only party to vote against the new law, says it's meaningless without giving councils the incentive to build housing infrastructure.
"ACT is proposing a GST-sharing scheme, we'd remove barriers to finance for build-to-rent schemes, and we'd introduce a Public-Private Partnership Agency," says van Velden.
The Government has allocated $3.8 billion for infrastructure and those tier 1 councils have to deliver at least 200 new homes to be eligible. ACT's idea to share GST with councils to incentivise infrastructure building has not been picked up.
The good news is supply is increasing. In the year to October, 47,715 new homes were consented, up 26 percent.