Minister for Building and Housing Nick Smith is dismissing claims that the HomeStart scheme will not get more people buying their first home.
The scheme, which comes into effect today, gives first-time buyers grants of up to $20,000 and lets eligible KiwiSaver members use more of their funds on their first property. The government expects it will help up to 90,000 New Zealanders into their first home over the next five years.
Labour's housing spokesperson Phil Twyford told Morning Report the scheme would stoke an overheated housing market.
He said the subsidy was not enough to get first home buyers into the market, especially in Auckland, where high prices meant they won't be able to service a mortgage.
But Dr Smith told the programme the grants applied to new homes and that would encourage the building of cheaper housing.
"Too much of the new housing being built at the moment is in the very high end of the market. We've got to change both the regulatory environment as well as create the market demand for more homes in that affordable range."
He said the Government had doubled the number of new houses it built each month since it came into power.
Finance Minister Bill English has said the scheme makes home ownership a realistic option for people who currently have quite low deposits.
House price debate
Labour Party leader Andrew Little said the Reserve Bank and Treasury had both raised concerns that the scheme risks driving house prices even higher.
"The change they are making is to assist in the building of new homes. There are still a whole heap of people for whom that is still out of reach and owning any house is still out of reach.
"If they apply the scheme for those who are buying existing homes they are going to put pressure on house price inflation and so they don't cure the problem that way."
Mr Little said HomeStart would not go far, especially in Auckland, where house prices were going up $1700 a week.
"What it shows is this Government simply does not understand the significance and the magnitude of the housing problem.
"They declared happily two weeks ago that there is no housing crisis - there is if you are a first home buyer or even if you are a young couple building your first home. There is still a major problem."
During question time yesterday, Dr Smith debated the merits of the scheme with Labour's Phil Twyford, who said the scheme would drive up property prices.
The minister took the opportunity to have a dig at Labour.
"Firstly, I would note that house price inflation under this Government has been significantly lower than what it was under Labour.
"During 1999 to 2008 house prices more than doubled, they went up by more than 28 percent in a single year."
Dr Smith said the Government did not control house prices but could help young buyers pull together a deposit for a home.
Prime Minister John Key defended the HomeStart scheme.
"The Treasury don't like it because it is giving more money to first home buyers and they fundamentally at the core of that don't want to do that.
"I think it is very important, I think it's a great way of ensuring that New Zealanders do get into their first home, it's a significant increase in the amount that they get."
Mr Key said the scheme was consistent with what other countries were doing around the world.
Other law changes taking effect today include lower ACC levies for employers and the self-employed, changes to child support obligations, and an increase to paid parental leave to 16 weeks.