The Government could legislate to force councils to rezone land outside city limits for new housing as it tries to ease pressure on low-income families struggling to get a foot on the property ladder.

In its long-awaited response to a Productivity Commission housing affordability inquiry yesterday, the Government said opening up more land for development both within city limits and on city outskirts was the answer, and said there would be greater direction given to local authorities to increase land supply.

Finance Minister Bill English said if local councils ignored the Government's direction "we would be looking to exert a bit more control over their planning processes". But he conceded that any measures announced by the Government yesterday were unlikely to have an impact on housing affordability for years, and any impact would be gradual.

Apart from a new six-month time limit on council processing of consents for developments of 20 to 30 houses, there were few other concrete measures in the Government's announcement, sparking accusations it had been too timid.

Labour MP Annette King said young families would feel let down.

But Prime Minister John Key said the Government needed to move cautiously.

"I don't think New Zealanders who own their own homes would thank us if we took actions overnight which devalued their most valuable asset."

House prices soared between 2001 and 2006, causing a drop in home ownership rates to 65 per cent from 75 per cent.

The Government says it will work with councils to free up more land both within and outside city boundaries for new housing, and will look at other ways to reduce consent delays.

But the building industry is also set to come under scrutiny as Len Brown, the mayor of New Zealand's largest city, Auckland, points the finger at sky-high building costs in New Zealand compared with across the Tasman.

Brown said a limited supply of land was only part of the answer.

"The [Productivity Commission's] initial findings were it's all about land supply, we just thought that was bunk. It's way too simplistic.

"We've got 18,000 to 20,000 sections available right now."

Lack of demand because of the recession was the reason they had not been developed, though some were starting to come onstream now. But Brown said building costs were also a factor and pointed out the market dominance of Fletcher.

"With very little competition in the market it's very evident that's a major cause for prices being where we are at."

Brown said the new Auckland city plan provided for a rise in population of one million over the next 30 years, about 60 to 70 per cent would be provided for by opening new areas for development within the central city, and the rest on the outskirts.

English said the Government would be considering the "cost structure of the industry" and that was bound to include the dominance of Fletcher.

But Fletcher Building spokesman Philip King said the Productivity Commission had not identified that as an issue.

"There are no monopolies around building material supply in New Zealand."

Soaring land prices were the biggest reason for rising housing costs, while the small scale of most building firms meant every house was customised.

Wellington Mayor Celia Wade-Brown said she did not support endless urban sprawl but there was space in the northern suburbs, such as Newlands, where housing developments could go ahead.

More diversity in housing was also needed, so that people were not restricted for choice.

Porirua Mayor Nick Leggett said endless urban sprawl was not the answer.

NIGHTMARE FOR HOME-SEEKING COUPLE

Finding an affordable home has proved a challenge for Madeleine and Andre Alberts.

The couple, who have a daughter Chandrae, 8, dream of one day owning and living on a lifestyle block. In the meantime they are seeking a low-cost home that needs some renovation, which they would be able to sell for a profit.

The family have been searching for years for a home on the Kapiti Coast and are finding affordable homes only in "shocking" areas.

Houses in nicer areas have been above their budget, Madeleine Alberts says.

Every weekend they attend open homes and meet real estate agents, but they have seen just one property that has fitted their requirements.

"Some houses we have seen are cheap but you can't really do anything with it, you have to break it totally down and rebuild it. [We see] nice houses in shocking neighbourhoods, or in nice areas they are so much money and are out of our price range."

They are renting a lifestyle block in Waikanae for $550 a week.

She says it would help for that sort of spending to be recognised when banks consider how much to lend. "If we can afford to pay almost $600 a week, don't they think we could afford this in mortgage repayments?"

- © Fairfax NZ News