Prime Minister John Key says it's "crazy" to suggest Auckland house prices should be crashed by 40 percent.
Former Reserve Bank chairman Arthur Grimes said on RNZ on Monday the Government should deliberately crash the Auckland market.
"Median house prices somewhere between $800,000 and $900,000 is way above most Aucklanders' possibilities of buying," he said.
"We do need the Government to flood the market with housing."
Mr Grimes, now a research analyst, said prices needed to be crashed by at least 40 percent to bring them back in line with where they were four years ago.
"And they were too high then, they were around $500,000," he said.
Mr Key was asked about Mr Grimes comments at his post-Cabinet press conference on Monday.
"I think it's crazy," he said.
"Go and ask the average Aucklander with a mortgage with a bank whether they want to see 40 percent of their equity disappear on a notion from an economist."
Mr Key says what's needed in Auckland, and the rest of New Zealand where there is high growth, is a sustainable housing supply to meet demand.