The use of the tool would involve imposing ''speed limits'' restricting the share of new bank lending with a high LVR. Details of the changes were likely to be announced soon by the Reserve Bank, he said.
The Reserve Bank announces its latest official cash rate thinking tomorrow, with most analysts predicting no change to the current 2.5% rate.
Prime Minister John Key yesterday reaffirmed his commitment to helping first-home buyers access affordable housing.
Higher LVRs meant home buyers would have to find a deposit of about 20%, which could mean some first-home buyers were shut out of the market unless they could find finance from sources other than banks, such as family members. Critics of LVRs say their introduction will favour wealthier buyers at the expense of new purchasers.
Mr Tuffley said house prices had steadily lifted since early 2011.
Initially the increase was in Auckland and Canterbury, due to under-supply. Since the Canterbury earthquakes, the challenging repair and rebuild process meant Canterbury's housing stock remained substantially reduced.
Strong and steady population growth in Auckland had put pressure on a region that had been under-building since the 2008 recession.
Building activity in Auckland and Canterbury had responded to supply shortages and increased over the past year. However, the supply response had been slow and it would be several years before the supply and demand imbalance was fully restored, he said.
A concerning development on the supply response was the strong growth in land prices last year, which had muted the price signal to build more homes rather than buy an existing one.
More recently, housing demand had gradually lifted, becoming a contributing factor to broader housing market dynamics over the past six months.
Low interest rates, a recovering labour market and increased consumer confidence had contributed to increased housing demand, Mr Tuffley said.
In Auckland and Canterbury, house prices were now growing at double-digit rates. Outside those areas, prices were growing at 4% to 5% per annum.
From a monetary policy perspective, the Reserve Bank would be mindful of the wealth impacts of stronger house prices and the spillover to stronger consumer demand, he said.
From a financial stability perspective, the central bank was concerned house prices, and debt levels, had increased from already-elevated levels relative to fundamentals such as household income.
Nationwide house prices were five times disposable incomes.
The International Monetary Fund saw the ideal level as below four times. Based on ASB house price inflation forecasts, house prices were likely to rise to 5.3 times by the end of 2015.
Low interest rates had contributed to high house prices, Mr Tuffley said. Very low debt-servicing costs, as a share of disposable income, had maintained affordability of home ownership and reduced buyer resistance to the increase in house prices.
Higher interest rates would reduce affordability and limit the growth in house prices.
''With inflation prices muted, the Reserve Bank has been wary of lifting the OCR. Instead, it is seriously considering alternatives such as macroprudential tools.''
