LONDON  - Rising borrowing costs and new government policies will stunt turnover in Canada's housing market this year and the lack of supply will drive up home prices faster than previously thought, a Reuters poll found.

But any increases will be a sharp slowdown from the 8.5 percent gains made in 2017 when soaring prices stoked record levels of household debt compared to income but did support economic growth.

Strength in the market since the 2007-2009 financial crisis has swelled consumer debt, and borrowers have already borne three interest rate hikes from the Bank of Canada since July with the central bank expected to raise them twice more this year.

Alongside higher borrowing costs, tighter mortgage lending rules introduced at the start of the year have already dampened house resales.

Meanwhile British Columbia - home to Canada's most expensive real estate market - announced last month it would crack down on property speculators by expanding its foreign buyers tax and introducing a new speculation tax.

"Tighter regulation and rising interest rates have led to an increase in uncertainty in the market which will weigh on buying intentions," said Michael Dolega at TD Economics.

"Moreover, the cost of transactions has directly risen in some markets, like British Columbia and Ontario, further denting the appetite to purchase/sell properties."

Eleven of 15 respondents to an extra question expected turnover to be lower this year than last while four said it would be the same. None said it would higher.

Adding to the slowdown in the turnover, groundbreaking on new homes will tail off, with housing starts falling from 215,000 this quarter to 199,000 in the final three months of the year.

Still, 13 of 19 analysts who answered another extra question in the poll said they were not concerned the Bank of Canada would raise rates too fast and slow housing market activity significantly.

"When interest rates rise, that means the economy is performing well, people are making more money, and more people are more likely to buy a home. People don't need to panic," said Christopher Alexander at Remax Integra.

Canada's economy enjoyed strong growth in 2017 and it is expected to expand 2.2 percent this year, supported by an unemployment rate holding below 6 percent until at least July 2019.

That strength, and with fewer homes coming to market, means prices are now expected to rise 2.5 percent nationally this year, faster than the 1.9 percent predicted in a December poll. Next year they will rise 2.8 percent and then climb 3.2 percent in 2020.

Forecasts were based on a variety of indexes.

Toronto price gain expectations have barely changed since December, with increases forecast at 2.1 percent this year and 3.0 percent next.

In Vancouver, where increases touched an annual rate of over 30 percent last year, home prices will rise 6.0 percent this year and 3.1 percent in 2019.

Unsurprisingly when asked to rate house prices on a scale of 1 to 10, where 1 is extremely cheap and 10 extremely expensive, the median answer for Vancouver was 9.

Toronto scored 8 and Canada as whole was 7. The national rental market was lower at 6.5.​