Both major political parties are failing to encourage more house building, particularly in Auckland, says the Property Institute.
The Labour Party is defending its plans to crackdown on property investors if it gets into power and is rejecting claims its latest housing policy will drive up rents.
Its leader, Andrew Little, yesterday unveiled a plan to scrap tax breaks for landlords and investors, preventing them from using losses on property to offset tax on other income.
He said it would help level the playing field for first home buyers.
Labour housing spokesperson Phil Twyford said the top 20 percent of income earners were reaping 60 percent of the gains from the current tax rules.
However, Property Institute chief executive Ashley Church said while National had not done enough, Labour's plan would make the country's housing crisis much worse.
"National should be doing things right now, dropping the LVRs on property investors who build new properties - all sorts of things they could be doing - but this policy would make it considerably worse.
"Because not only would we have the existing landscape which is not particularly condusive to building a new dwelling if you're an investor but it would also be putting a disincentive in place to be involved in the market at all."
He called the party's policy a direct attack on small-time investors and said average people would suffer.
"They actually perform, to a large degree, a pretty important public service in that they provide rental accommodation for the market.
"If those people weren't providing that accommodation then it would almost certainly fall back on the taxpayer because if the government has to build additional houses it is the taxpayers that pays."
Mr Church said the policy risked making the country's housing crisis much worse.
Mr Little said most so called "mum and dad investors" did not use the loophole now.
"Most of those one-house property investors are in it for the long term, they're not there to make a loss.
"The people we are going after are the multiple property owners who deliberately set up their property portfolio to run at a loss and demand the taxpayer subsidy."
Mr Little told Morning Report it was unfair to have first home buyers having to compete against speculators who had a tax advantage.
Labour plans 'effectively a new tax on property - National
The National Party said the plan would discourage house construction and drive up rents.
Prime Minister Bill English told Morning Report Labour's policy was not a new one, and would have the opposite effect to what the party intended.
"Firstly, it's not a new policy, they had it at the last election," he said.
"Right now we need more houses, this is extra tax on housing, it creates uncertainty.
"Just when we need more houses they're putting in place policies that will have the effect of less houses."
Finance Minister Steven Joyce it would effectively be a new tax on property which would push up rents and reduce the amount of construction taking place.
"There will be less investment in the housing market and presumable that is exactly the opposite from what the Labour Party are seeking to achieve.