The Government is already doing much of what the Organisation for Economic Co-operation and Development (OECD) is recommending to deal with risks to the economy, Finance Minister Bill English says.
In its latest report on New Zealand, the OECD said Auckland's overheated housing market was hurting people's wellbeing as well as threatening the economy.
It said unaffordable housing and high household debt were a risk to the country's financial stability.
Mr English said the report highlighted many of the risks the Government had identified but had some interesting ideas about encouraging local authorities to make it easier for more houses to be built.
"We have the Resource Management Act so we've got a pretty comprehensive legal structure for planning and regulating our housing market but it's a bit unclear what incentives councils have to align with what the wider economy needs."
However, the Government was ensuring that happened through the use of special housing areas, Mr English said.
But Green Party co-leader Metiria Turei said the report was an urgent wake-up call for the Government.
Mrs Turei said it confirmed that a state-sponsored building programme was needed to ensure enough affordable houses were built.
Labour Party finance spokesperson Grant Robertson said the Government should not ignore the report.
"The OECD is signalling some warnings to New Zealand and to the Government that if they don't address issues like housing and inequality then the kind of standards of living that New Zealanders have grown to expect are at risk."
The OECD recommended taking a long-term approach to the economy whereas the Government appeared to be focused on scratching short-term political itches.
Mr Robertson said it was particularly interesting the OECD identified inequality as a threat to economic growth.
"Over the last few years, the OECD has joined what I think is a growing consensus that if we don't address issues of inequality then that not only affects the health of our society it affects economic growth...That's very much what they're saying in this report.
"They've highlighted the fact that as housing becomes more unaffordable, as the gap between those on the highest incomes and those on the lowest grows, that has a detrimental effect on all aspects of economic growth/"
But Mr English said the OECD had still not provided the evidence of that.
"They've got a theory there about inequality and growth. I think they've got some way to go to to show just how big an impact they think inequality has on growth...
"We approach it in a pretty straightforward way. You know in the Budget we put up the lowest incomes by $25 and the minimum wage has gone up because people on those very low incomes for a long time...you know they suffer some real hardship and we can alleviate it," he said.