Housing Minister Nick Smith says the country is facing a housing "challenge", rather than a crisis.

Despite the International Monetary Fund finding New Zealand house prices increased at the second fastest rate in the world last year, Dr Smith maintains they're more affordable under National than they were under Labour.

Only Dubai saw greater price rises, but he's sticking to the line that all's good under his watch.

"Actually, houses today are more affordable than when National became the Government," he says.

"The issue that Labour and [housing spokesperson] Phil Twyford always want to overlook is the fact that interest rates are at the lowest level they've been at in 50 years."

He points to the results of Massey University's home affordability index, which showed a modest improvement.

Auckland affordability improved by 3.1 percent in the last year, according to the report, largely due to falling interest rates.

"Interest rates are pretty important in terms of people's capacity to be able to buy a home, so both in New Zealand and in Auckland, houses are more affordable now than when National became the Government," says Dr Smith.

But with house prices up 70 percent in Auckland since 2011, there are concerns what might happen when interest rates eventually rise, a likely scenario sometime in the life of a typical 25- or 30-year mortgage.

Newshub.