The Government says advice from the Treasury proves Labour Party plans to build 10,000 new houses will not bring down house prices.
Treasury says the effect of this would fade over time as private sector developers respond by building fewer houses.
Housing Minister Nick Smith said the advice shows Labour's housing plans are a gimmick.
He said people serious about high house prices need to deal with five things: the cost of land, the cost of building materials, cost of labour, cost of the infrastructure, and the cost of complaince.
Dr Smith said spending huge quantities of Government money on new housing will reduce the price by 1% at most and only for a short term.
Labour housing spokeperson Annette King said builders and developers had said cheaper houses could be buillt and housing costs brought down considerably.
Under the scheme, she said the Government would provide the funding which would be repaid when the houses are sold.