The Finance Minister agrees rising house prices in Auckland are making inequality worse by shutting low and middle-income earners out of the property market.

Opposition parties say rising inequality is not only hurting those who cannot afford to buy a home, but is also bad for the economy.

Photo: RNZ / Alexander Robertson

Bill English said house prices were making life tougher for low and middle income earners in Auckland and said inequality was a problem.

"We've been concerned about that for some time, that there's parts of Auckland where there's been really no new supply of lower value houses that low and middle-income families can afford."

Prime Minister John Key is also worried about rising inequality, but said he did not believe home ownership was no longer possible for low-income families.

"You certainly wouldn't want to say to a low-income family they can never own a home, because I believe that they can own a home, but we have to work hard to make sure we produce as much supply as we can," Mr Key said.

Labour Party finance spokesperson Grant Robertson believed the problem was worse than Mr Key conceded.

"When we look at something like superannuation and the rates that that's paid at, that's all been predicated on the idea that people would own their own home when they came to retire.

"That's now not going to be the reality for a huge number of New Zealanders.

"So yes, the growth in the Auckland housing market, the housing bubble, is a massive factor in growing that asset inequality," Mr Robertson said.

New Zealand First leader Winston Peters said the gap between rich and poor was ever-widening as house prices went up.

"You can't face serious overseas competition that has the benefit of 1 percent or less interest rates and hope to survive in this market."

Mr Peters said high house prices meant people were paying a lot more on a mortgage, if they could afford one, or on rent.

He said that had a negative effect on the economy because consumers had less money left to spend on other goods and services.

"Go and ask the restaurants. Go and ask the hotels in Auckland. Go and ask the bars what's going on. I mean, some places on a Friday night you can put a gun down the street and you won't shoot anyone."

Mr Robertson agreed inequality causes wider problems.

"As inequality grows, it slows economic growth and that's actually something you can just see in the community.

"If people have less money that they can afford to spend, that means less money going into the retail sector. It means less money being spent generally in the economy," Mr Robertson said.

Mr English refused to be drawn on whether inequality was bad for the economy, but acknowledged people did have less to spend once they paid their mortgage or rent.

"The way planning, urban planning has worked over the last 15 or 20 years, in my view, has had quite an impact on the incomes of low and middle income households, where a bigger and bigger proportion of their income is being spent on housing costs."

Mr English said the Government was keen to get the cost of housing down, so that whether people owned or rented a house they did not use such a large proportion of their income paying for it.

But both Mr Robertson and Mr Peters said the Government was still not doing enough to rein in house price rises in Auckland.