The Prime Minister has sacked Housing Minister Phil Heatley and Conservation Minister Kate Wilkinson in a reshuffle which sees Nick Smith reinstated to the Cabinet.
John Key announced that on Tuesday that Dr Smith will take the housing portfolio off Mr Heatley on the same day an international study says housing affordability in New Zealand is bad and getting worse.
Dr Smith also takes conservation off Ms Wilkinson, who late last year resigned from her Labour portfolio over lax mining safety standards.
Nick Smith, a Nelson MP, resigned his Environment, Climate Change and Local Government portfolios early in 2012 over an ACC case and Mr Key had strongly indicated that he would return. He is now No.13 on the Cabinet list.
John Key says Dr Smith's expertise will be welcomed - particularly in the housing portfolio.
"He's a guy with lots of energy and ideas and he doesn't leave too many stones unturned, and I think you can see in the housing sector him thinking right across the spectrum of that and working with a lot of different ministers to get results."
In a surprise move, Mr Heatley and Ms Wilkinson move out of Cabinet to the backbenches.
Mr Key says he told Ms Wilkinson on Monday night and Mr Heatley on Tuesday morning that he was sacking them, and both were surprised.
Auckland Central MP Nikki Kaye is appointed to the Cabinet where she will become Minister for Food Safety, Youth Affairs and Civil Defence and Associate Education Minister.
The third new minister is National's senior whip Michael Woodhouse, who will serve outside the Cabinet as Immigration and Veterans Affairs' Minister, as well as Associate Transport Minister.
PM 'rejuvenates' Cabinet
John Key said he wanted to rejuvenate his Cabinet, and by removing Phil Heatley and Kate Wilkinson he has opened up new positions.
Another to benefit from the change is Simon Bridges, who moves into the Cabinet, having earlier been a minister outside. He will be Minister of Energy and Resources and of Labour.
Among existing ministers, Nathan Guy will take over from David Carter as Minister for Primary Industries, with Jo Goodhew assisting him as Associate Minister, while Chris Tremain picks up Mr Carter's Local Government portfolio.
Mr Carter has been nominated as Speaker of the House to replace Lockwood Smith, who will become the next High Commissioner to London
In another change, Mr Key is giving responsibility for the problem-plagued teachers' pay system, Novopay, to senior minister Steven Joyce.
Defence Minister Jonathan Coleman has been promoted to No.10 and Environment Minister Amy Adams to No.15 in the Cabinet.
All the changes take effect on 29 January.
Groups support Smith
Nick Smith is delighted to have been reinstated as a Cabinet minister, saying he is looking forward to the new roles and feels very strongly about housing affordability.
"I want to take take time to really study the detail of the Productivity Commission's report, where the Government's got up to and its response, spend some time with the officials before getting into the prescription for the way forward, albeit the challenge of making sure that we make progress. Housing affordability's incredibly important to me."
Dr Smith says he wants to bring a pragmatic, balanced and practical approach to his new Conservation portfolio.
Major Campbell Roberts, director of the Salvation Army's social policy and parliament unit, told Radio New Zealand's Checkpoint programme on Tuesday the housing portfolio is in need of strong leadership and welcomes Nick Smith's appointment.
"The action has been been too slow and too late. I think if the minister can come in and really put a bomb behind some of the ideas and get things going, then I think there will be a lot of support for that because housing's a critical issue both for New Zealand's economic and social future."
Environmental groups are happy Dr Smith has been reinstated as a minister.
Forest and Bird says it is important the Government has someone like Dr Smith in its Cabinet to provide some environmental perspective.
General manager Mike Britton says he is looking forward to working with him.
"We don't always agree with him, but we do believe that he's got real drive in some areas and we think that he'll be able to carry that through.
"He was one of the key instigators in the establishment of the land and water forum and also the Mackenzie country forum, and we hope that he will help to push the implementation of the recommendations of both those forums through."
Environmental Defence Society chairman Gary Taylor said Dr Smith is one of few National Party MPs to have any real understanding of environmental issues.
Opposition parties critical
Labour Party leader David Shearer criticised the return of Dr Smith as a Cabinet minister.
"It's a pretty short spell out in purgatory for Nick Smith. It just shows that John Key's boast about having a government that is ethically higher in standards than previous Labour governments is a bit of an empty one - particularly his attitude to keeping John Banks ... in his current portfolio as well."
Mr Shearer says Dr Smith is a retread and his appointment does nothing to refresh the Cabinet.
The Green Party says the Prime Minister is just trying to make his government seem more environmentally friendly by reinstating Nick Smith as Conservation Minister.