A report prepared by Infometrics, for mortgage insurer QBE LMI, predicts that house prices in New Zealand could increase by as much as 11 per cent nationally in the coming year, and by 24 per cent in the next three years.

The report identified low interest rates, combined with a shortage of new housing, as factors driving up prices.

"With lack of available finance for developers, a significant shortage of new housing was developing and was expected to continue into 2010," said QBE LMI chief executive Ian Graham.

Due to the rise in net migration and a fall in New Zealanders moving overseas, the underlying demand for new houses was 21,000 a year. Mr. Graham said: "This undersupply of new dwellings, will contribute to an increase in property prices over the next three years."

An improvement in housing affordability has been seen on a national level, and the intensity of demand among buyers was up.

The house sales volumes were seen to be up by 41 per cent over the June quarter compared to a year earlier, declared the report titled 'QBE LMI New Zealand Residential Property Overview,' published on Tuesday.