A report to the Government is urging councils to release more greenfield land for development to make housing more affordable.
The Productivity Commission says more building will also be needed on already developed land.
The Commission's final report on housing affordability says urgent steps are needed to find and release land for development in Auckland and Christchurch.
Commission head Murray Sherwin says squeezing in more housing on developed land means councils are going to have to relax current planning rules.
The Government says it will formally respond to the report's recommendations in the next few months.
Auckland Council has dismissed the recommendations as ideological.
Acting Mayor Penny Hulse says the commission has ignored the higher costs associated with sprawl.
She says the most sensible direction for Auckland is to develop towards a compact city.
Ms Hulse says the commission may well have made up its mind at the start of its work and ignored evidence which did not fit.