Opposition parties argue the government's $1 billion infrastructure plan is desperate and piecemeal, and will do little to address the housing crisis.
But Prime Minister John Key said it would help to increase the amount of affordable housing.
The government announced yesterday a new infrastructure fund it said would help councils break the deadlock on new house building, and signalled it was prepared to wield its statutory powers to stop land-banking.
Mr Key said councils would be expected to repay the funding they received "over time or as development occurs".
"And so this is just a way of us essentially up-front financing that, bridging that finance if you like, and as the development contributions and rates come in they can repay us, so it's a tidy way of them not having to take it on their balance sheet."
Labour Party leader Andrew Little said a $1bn credit line was not going to solve a multi-billion dollar problem.
"This is a desperate bid to look like they're doing something, so talk about a billion dollars because it sounds like a big number, put it on the councils because we know this government doesn't have a good relationship with local government anyway and make it somebody else's problem."
James Shaw Photo: RNZ/Elliott Childs
Green Party co-leader James Shaw said the move was not enough to create the kind of affordable housing that New Zealand needed right now.
"It's not focused on actual investment in houses, it's just focused on the roads to get between those houses.
"What that means is that it's basically a subsidy for developers, so there's no assurance, and John Key did not mention the idea of affordable homes at all."
Mr Key said one requirement for the fund may be that a certain number of houses were priced as affordable homes.
"It depends. Some of the special housing areas have those conditions where there has to be a certain number under a price," he told Morning Report.
"When we go and do this it's very bespoke - so we can go to the councils and say 'show us the proposition, show us the houses, show us what the deal is, show us how you're going to do it, how fast you're going to release it, what's the conditions here?'."
Mr Key said supply was essential to having affordable housing.
"What's driving up house prices has been a lack of supply, so this allows councils to develop a lot more space more quickly because effectively we're paying the bill and by the time they have to pay us back the cash has come in from the developers."
Mr Key said there were signs more affordable homes were coming on the market in Auckland now.
John Key made the announcement at the National Party conference in Christchurch. Photo: RNZ / Chris Bramwell
Bill English Photo: RNZ / Elliot Childs
The government would have to borrow the $1bn, which would increase net debt until it was repaid.
It would pay the interest on the loan to councils, so they did not have to pay it.
Finance Minister Bill English conceded that did mean that taxpayers across the country would foot the bill for the high-growth areas that got money from the fund.
"There'll be a small subsidy, but I'll have to say it'll be quite small compared to the current large rental subsidies.
"We spent $2bn a year on rental subsidies, and the biggest and the largest proportion of that is paid in these high growth areas."
James Shaw said because the fund was actually a loan it would mean it appeared as an asset on the government's books.
"I think that the idea of making it a loan, rather than a true investment fund, is so that Bill English can keep his books tidy, and make it look like it's a government asset rather than an actual liability."
Photo: RNZ / Cole Eastham-Farrelly
Housing minister keen for Auckland fringe development
Five high-growth councils, led by Auckland, will be able to access the interest-free loans to accelerate the roll-out of roads and pipes to new housing developments.
Minister for Building and Housing Nick Smith wants more land developed beyond the urban boundary and more competition among developers on the city's perimeter.
He accepted the loans might be granted for developments that could be further from the urban limit - so not necessarily an Auckland Council priority.
Dr Smith hoped councils would begin bidding early next year for the interest-free loans.
The government is also considering creating Urban Development Authorities to help boost the supply of new housing.
The government is also considering creating Urban Development Authorities to help boost the supply of new housing.
They would have streamlined powers to override barriers to large-scale development.
Land banking action considered
Dr Smith said the Cabinet would consider over the next few months whether to allow the authorities the power to invoke the Public Works Act to take land back off a land banker.
"Obviously the issue of overriding private title for development is a big call, but my view is if we are going to get the quality of urban development, particularly in the redevelopment area where you can often have a real mix of little titles that makes doing a sensible development difficult, in my view it's one of things well need to consider."
Mr Key said the government had always been clear that land tagged for redeveloped in Special Housing Areas was not to be landbanked.