The Resource Management Act should be scrapped and replaced with one law that covers both housing and the environment, a report says.
The Productivity Commission is urging an overhaul of urban planning laws.
In its 516-page report, the commission said the current system was complex, cumbersome and failed to respond to rising housing demand or adequately protect the environment.
The commission recommended replacing the Resource Management Act with legislation that covers both housing and the environment.
But there was "no simple fix," said commission chairman Murray Sherwin said.
"It's not just a case of changing legislation."
While the commission favoured one law, environmental considerations remained important.
"We're certainly trying to make sure development gets a better run than it's getting at present.
"But we are very clear for the need for clear environmental limits in all of this, and noting in the report that the existing regime isn't doing that well for water quality, the air quality and other considerations within urban environments, and it needs to."
The commission favours fewer rules and more market-based tools to ensure houses are built faster and cheaper.
"There is a real place for getting more visibility of what's going on in real estate markets to help shape and influence the way that councils and other regulatory authorities respond to growing pressures in the market place," Mr Sherwin said.
One recommendation is "competitive urban land markets" that allow the private sector to invest in developments beyond the existing city limits.
Mr Sherwin said these could sidestep land bankers' stranglehold on land supply and avoid additional burdens on councils for infrastructure.
"We certainly don't envisage councils paying anybody to do that."
The government is pushing its Resource Management Act changes through Parliament, but Mr Sherwin said that did not preclude it adopting the commission's recommendations further down the track. "I suspect they'll struggle to find anything that is more solidly based than this."
Finance Minister Steven Joyce told Morning Report the government will get current reforms through parliament while deciding whether to adopt the commission's proposals in National's election campaign.
The commission favours a wider set of funding tools to build infrastructure such as roads, water and sewerage. User and congestion charges should be part of the mix, along with targeted rates on the increase in the land values of property owners.
Easing debt limits for fast growing regions like Auckland should also be considered, Mr Sherwin said, "but that's dependent on there being revenue growth linked to infrastructure provision."
Regional councils, with public input, should plan 30 to 50 years ahead, Mr Sherwin said, setting out where development would occur, including roading and other infrastructure needs, as well as future public open spaces and areas of cultural significance and conservation value.
The commission is also promoting the use of independent hearing panels, similar to ones used in Auckland and Canterbury, to scrutinise land use rules.
The Environment Court would keep its role in hearing appeals on points of law.