Houses stand in the Herne Bay district of Auckland, New Zealand, on Monday, Sept. 24, 2007.  New Zealand's economic growth probably eased in the second quarter as record-high interest rates slowed consumer spending and a stronger currency curbed exports.  House sales fell to an 18-month low in August, according to the Real Estate Institute. Annual immigration growth in August was the lowest since February last year.  Photographer: Chris Gorman/Bloomberg News

Lending restrictions have done little to dent New Zealand's surging house prices. Photo: CHRIS GORMAN

Tighter lending restrictions imposed by New Zealand’s central bank may be strengthening bank balance sheets there but have yet to put a cap on booming Kiwi house prices.

The median New Zealand house price has increased by $NZ27,000 ($25,500) since the Reserve Bank of New Zealand placed loan-to-valuation ratio (LVR) restrictions on mortgage lenders last October.

Regulators both in Australia and around the world have been closely watching the impact on the New Zealand housing market of the new lending restriction rules.

Under the measures, banks are not allowed to issue more than 10 per cent of new residential loans to customers who have an LVR of more than 80 per cent, ie their deposit is less than 20 per cent.

The head of Australia’s bank regulator, the Australian Prudential Regulation Authority, John Laker recently signalled he would engage with banks before going down the path of using so-called macro-prudential tools.

“We’ve used those tools in the past ... but there are a range of other actions a prudential supervisor can take before recourse to macro-prudential instruments.”

Meanwhile the Reserve Bank of Australia has dismissed talk that Australia’s housing market is experiencing bubble-like conditions, despite a jump in prices across some cities.

RBA governor Glenn Stevens last month said the central bank had been debating internally over whether it should adopt similar measures to New Zealand and he had had preliminary decisions with APRA about the issue.

However, Mr Stevens said he does not have an ‘active plan’ to deploy such measures at this time.

In the final quarter of 2013, the median house price across Australia’s eight capital cities rose 2.8 per cent to $540,000, according to RPData.

But New Zealand continues to grapple with rising prices.

Prices continued to soar despite a 15.4 per cent fall in the number of houses sold from September to December.

The national median price in New Zealand hit a new record in December at $NZ427,000, up from $NZ400,000 in September, an increase of 6.8 per cent, according to data from the Real Estate Institute of New Zealand.

In the same period, the number of houses sold under $NZ400,000, a category most first home buyers fall into, dropped by 23.9 per cent.

Despite fewer houses being sold, the number and total value of loan approvals increased since the LVR restrictions were put in place. As expected, the value of new loans with an LVR above 80 per cent fell dramatically.

Reserve Bank of New Zealand data shows that the number of loan approvals increased 31 per cent until they peaked in December, before tapering off over Christmas and New Year.

The annual Demographia International Housing Affordability Survey declared both Australia and New Zealand among the most unaffordable housing markets in the world, ranked only behind Hong Kong.

HSBC chief Australia and New Zealand economist Paul Bloxham says rising house prices could prompt the RBNZ to start considering hiking cash rates.

‘‘The RBNZ is going to have to lift interest rates very soon to respond to the fact that the economy is firing on all cylinders and the housing market, in particular, is continuing to boom.’’

‘‘We think the housing price boom is continuing and so [the LVR restrictions] really are not necessarily acting as a good substitute for higher interest rates,’’ HSBC’s Australia and New Zealand chief economist Paul Bloxham.