The Government has told Housing New Zealand to buy, sell or redevelop about 10,000 state houses over the next decade.
Applicants have declined nearly half the houses offered by the corporation, which says a third of its properties are either in poor condition, or the wrong size or area for tenants.
Of the 55,000 offers made by Housing New Zealand in the year to March, applicants declined more than 20,000. In that time, 8000 people were housed.
People on the waiting list for state housing get three offers for a house before Housing New Zealand starts talking to others on the list.
The corporation says the reality is its stock of state houses is either too small, too large or in the wrong area for some tenants.
It has spent nearly $248 million either maintaining or upgrading properties in the last financial year.
Housing Minister Phil Heatley says he expects the corporation to improve its housing stock over the next 10 years and every state home will be insulated in two years' time.