The majority of homes in the Christchurch suburb of Brooklands have been told it is not economically viable to repair their land.
The 417 homeowners join more than 5000 Cantabrians already classified as part of the residential red zone.
Brooklands residents will now have the option of selling either their house or their land, or both, to the government for its 2007 rateable value.
The homes were in the orange zone and had been awaiting an answer from the government since the 22 February earthquake.
Another 341 orange-zone residents have seen their properties declared green and will be allowed to rebuild on their land using new foundation standards introduced by the government at the end of October.
In another change, 8,300 non-residential properties that have been in the white zone have now been declared green, meaning redevelopment can take place.
The properties include commercial premises, government-owned land, parks and churches.
It's hoped that the owners of more than 900 homes that remain in the orange zone will know the fate of their properties by February 2012.