The proposed sale of 249 state houses to a community housing provider in the lower North Island has fallen through.
The government, together with the district council, investigated selling the Horowhenua state houses and 115 council-owned pensioner units as a package.
However, Housing New Zealand Minister Bill English said consultation with local iwi identified complications. The government had decided not to proceed.
Mr English said the two iwi involved had not settled their Treaty of Waitangi claims.
"The government's social housing reform programme has always been about improving the lives of our tenants, and, in this case, a transfer was going to throw up too much uncertainty for many of those involved," Mr English said.
Labour's housing spokesperson Phil Twyford said it was time the government stopped selling state houses.
Mr Twyford said it was the second sale to fail, after the government could not find a buyer for 348 state houses in Invercargill.
"It is untenable for National to be flogging off hundreds of state houses when the country is in the grip of a housing crisis and communities are struggling to cope with rising homelessness."
Horowhenua District Council chief executive David Clapperton said it still intended to sell its pensioner units to a community housing provider. It would seek expressions of interest next year.
"The fact that it hasn't come to fruition, whilst it might be disappointing, it's understandable.
"It doesn't impact our move towards going to the market to sell the pensioner housing stock in the Horowhenua," Mr Clapperton told RNZ News.