Let's play a game of guess the city: What major Australasian metropolitan area has house prices that are rising twice as fast as inflation and average wage thanks to low interest rates and a lack of supply?

Got a good fix on which city I'm talking about?

Well, if you said Auckland, you'd be wrong. I am in fact referring to Sydney, though you will be forgiven on this occasion for falling for the classic bait-and-switch tactic because of similarities.

House prices in Australia's most populous city rose by 6.1 per cent in the 12-months to the end of June, outstripping a 2.4 per cent rise in inflation and a 3 per cent increase in wages over the same period.

And that's not even the highest in the country. In Perth prices rose 11 per cent on the same basis while Darwin recorded increases of 7.7 per cent. In fact only two cities, Adelaide and Hobart, saw property prices rise at a slower rate than inflation.

What this shows is that we are not the only country facing a housing crisis, although our problem is concentrated in Auckland.

According to the latest figures, house prices in New Zealand's most populous city rose 13.9 per cent in the June year, a massive margin on an inflation rate of 0.7 per cent and wage growth of 1.7 per cent.

The parallels haven't been lost on the Australians, with pundits starting to speculate whether the Reserve Bank of Australia (RBA) will follow the New Zealand central bank's example and pull the macro prudential trigger to cool their housing market.

For those of you who have been living under a rock in our property obsessed country, the Reserve Bank will limit the amount of low equity lending banks can take on (those worth more than 80 per cent of the property value) to no more than 10 per cent of their total loan book as of October.

It's easy to see why the Australians are interested.

Loan-to-value (LVR) restrictions are designed to be an economic cruise missile targeted at the fiscal instability created by an overheating housing market and the lending practices that drive it.

Their use should theoretically forestall the need for interest rate hikes, equivalent to carpet bombs if we extend the military metaphor, which could destabilise an otherwise fragile economic recovery.

The problem with LVRs is they're a band aid that does nothing to address the reason we have sky high house prices on both side of the Tasman: a lack of supply.

Australian policymakers, it seems, have the same aversion to building new homes as their New Zealand counterparts, preferring denser, more compact cities as a way of keeping infrastructure spending and urban sprawl in check.

What you end up with is tight controls on land supply, which is absurd when you consider that there are only 22 million people in a country so big you could drop all of Western Europe into it and still have room to spare.

It's further complicated by the face that state government feel they bear most of the costs of city growth but little of the benefits.

It's a similar situation with New Zealand. Our research shows only 1 per cent of the country is built upon, and that's including all the landfills and roads.

Our government is starting to see the value of releasing land for building, but more needs to be done at a local council level to free up the roadblocks that have slowed supply to a trickle even as household creation has boomed.

It's important we remember unaffordable housing is not inevitable, but a result of policy settings and incentives that have fallen out of alignment with the market reality.

The challenge is for us to have the courage and good sense to realign them correctly - and who knows, by getting it right here, we could be helping our cousins across the Tasman.

Source: We're not alone in the housing market