Wiping the debt of people who have been staying in motels for emergency accommodation would not be fair to others in the system, the Social Development Minister says.
More and more people are running up debts of tens of thousands of dollars living in emergency accommodation like motels, according to community housing groups.
One woman with eight children is facing a debt to Work and Income of up to $100,000 for emergency housing.
The Labour Party says the government should write off that debt, but Social Development Minister Anne Tolley said that wouldn't be fair.
It could be a challenge dealing with people in crisis and who might, for example, struggle to find a landlord who would have them as tenants, Ms Tolley said.
The government was a place of last resort, and would keep supporting them, but she said that would not mean wiping existing debt.
"Well it might be a help to these people in particular, but what about the people who have worked really hard and paid their debt off in the past, and how much debt do you forgive, and when do you start?"
Mrs Tolley said while there was a time limit for a special needs grant, there was no time limit for staying in emergency accommodation.
New figures reveal the total amount of debt beneficiaries owed to Work and Income is more than $417 million.
The figure is the total debt owed to the end of June 2015, but it's not known how much of that is attributable to emergency housing.
Speaking to John Campbell, Mrs Tolley said Work and Income recovered around $300 million a year from people that were in debt.
She said the Ministry of Social Development may consider leasing entire motels to help those in need.
"Actually in Christchurch we leased a whole motel as emergency housing."
Labour Party social development spokesperson Carmel Sepuloni said until it was known how much money had been spent on motel accommodation as an emergency option, then the full extent of the problem would not be known.
"When we hear about the government spending about $1500 a week on emergency accommodation for people in a motel, then we're concerned that actually that money could be better off spent elsewhere," she said.
Speaking to John Campbell Ms Sepuloni said some families she had spoken to would rather sleep in their car then have debt build up from sleeping in a motel.
Labour Party leader Andrew Little said it was outrageous that people who went to Housing New Zealand or Work and Income looking for help were stuck with exorbitant motel bills.
"These people are in a situation that is not of their making. It's largely a failure of government and that debt should be written off, put a line under it.
"Let's start again, let's get a Housing New Zealand that is actually doing its job and let's make sure we can get people into homes where they can be safe, warm and dry."
Social Housing Minister Paula Bennett said a cap would not be put on how much people could borrow, because she was worried people would go to fringe lenders and get themselves into a worse financial situation.
She also said she was concerned about the debt people were building up, and the situation would change from September, although the debt currently being racked up would still stand.
"We're making a change that no longer for emergency housing purposes, people who borrow would have to pay back.
"I've now got to go through the process of changing our whole IT system to allow that to happen and retraining staff into how that happens and what happens there.
"So I certainly don't agree with it, which is why I am changing the policy."