UPDATED 7:20pm: The much-maligned capital gains tax is back in the limelight as the Reserve Bank frets about the two-speed housing market.

Deputy Governor Grant Spencer says he'd like to see fresh consideration of policy measures that reinforce the expectation of high rates of return based on untaxed capital gains.

Spencer alerts to the fact that since late 2014 the market's become increasingly unbalanced, leaving us vulnerable to rising global interest rates or a downturn in the global economy.

Spencer warns banks would be under severe pressure if that happened because 60 percent of lending is in residential mortgages.

The Labour party is backing the Reserve Bank's calls.

Labour leader Andrew Little says the Reserve Bank seems to be sick of picking up the pieces and trying to stem the tide with tools that are too blunt.

"This is probably the clearest indication I've ever seen of a senior Reserve Bank official, saying that the government's policy in that particular area is fairly wrong."

The Green Party believes the Government has been left red-faced by the Reserve Bank's call.

Green MP Kevin Hague says it's an amazing statement from the Reserve Bank and must be hugely embarrassing for the Prime Minister.

"To be called out effectively by the Reserve Bank saying essentially that Government has failed to take this significant and essential step to correct the housing market in Auckland."

 

 

ASB chief economist Nick Tuffley anticipates that as long as property is treated like any other investment, people will put their money into it.

"Take the tax deductions that they get from the interest rate costs and reap the tax free capital gains, so the Reserve Bank has suggested looking at that area again."

Tuffley points out the Reserve Bank is also concerned about the serious undersupply of houses in Auckland.

New Zealand Property Institute CEO Ashley Church says Mr Spencer is now acknowledging that the housing problem, particularly in the Super City, can only be fixed by solving the supply problem.

He told Newstalk ZB that's a first.

"Up until now I'm surprised that people didn't know that the Reserve Bank has pretty much ignored that and had been focusing on trying to dampen down house price inflations simply by stopping people buying, which was...an act like King Canute."

However, Church doubts the Government will consider the introduction of a capital gains tax.

"There is a form of capital gains tax that's been in place as long as I can remember, but the idea of a new capital gains tax specifically for the market, to effect everybody but house owners, I think that is very unlikely."