A tenant generation will be created in New Zealand if house prices don't come down, ACT leader John Banks says.

The former Auckland mayor says the average price in the city has reached $589,000 - more than 10 times the average Aucklander's income.

"It's a recipe for creating a tenant generation, the proportion of 35 to 44-year-olds renting has doubled since the mid-1990s," he said.

"If New Zealand is to offer opportunity for its younger citizens, then they must realistically be able to buy their own patch of it."

Mr Banks says unaffordable housing is creating a society of haves and have-nots.

"Only those with wealthy parents or high incomes can get into the housing market," he said.

"This is a drag on the entire economy - as Kiwis bid against each other for a limited supply of housing they must pay additional mortgage interest, reducing the amount of disposable income they have to spend elsewhere."

Mr Banks says local authorities must release new residential land because constraints are creating housing scarcity.