Speculation that last week’s cut to the OCR will further drive Auckland’s rapidly rising prices has been widespread.

Yet the example of Canterbury suggests that expecting continued Auckland house price growth is not a one-way bet, according to the ANZ’s latest Property Focus newsletter.

Auckland house prices remain stretched relative to both incomes and rents, it states.

However, historically low fixed mortgage interest rates, tight dwelling supply, and high net immigration continue to drive demand - and prices.

There is speculation that lower mortgage interest rates will further ignite overheated Auckland market prices, ANZ chief economist Cameron Bagrie says in the newsletter.

“We’re not convinced. We expect the combination of stretched affordability and pending RBNZ and government policy changes to cool investor demand, with a softer economy also helping to level out price movements.”

It is the combination of supply and demands factors that are keeping prices elevated.

Bagrie says one way of looking at the issue is to assess whether the supply of dwellings is keeping pace with the demand poised by a growing population and demographic changes.

And it isn’t.

Estimates vary but the newsletter emphasises that Auckland has a growing shortfall of houses.

While domestic and foreign property investors are blamed for pushing up property prices, the issue is really that there are insufficient dwellings for a fast growing population.

Bagrie thinks the upcoming Reserve Bank and government measures will have a noticeable impact on overall demand, as well as investor demand.

However, he says quite marked shifts in demand and supply will be required to bring greater balance to the Auckland market.

Not only will a concerted strengthening in building activity be necessary for the next few decades, but a different type of construction sector response - involving increased densification - is needed.

Market mechanisms will work in time, Bagrie says, but Auckland runs the risk of pricing itself out of the market for capital and labour relative to lower cost centres.