The Productivity Commission's call for more land to be freed up for housing is a challenge to local authorities, says Building and Housing Minister Nick Smith.
In a report issued yesterday the commission said land prices would spiral out of control unless supply increased.
It said urban planning wasn't responding to the market and the system needed to change.
Dr Smith says it reinforces the fact that land supply is the core issue around housing availability and affordability.
"What we see in that report is a five-fold increase in the price of land in Auckland," he said.
"It rightly identified that every time councils pass a rule that protects areas for heritage that sets minimum apartment sizes, that requires balconies... there is a cost impact.
"The challenge from this report is for councils to be far more careful about the rules they impose and the flow-on effect they have on the cost of homes."
Dr Smith says he'll carefully consider the commission's recommendations, although he's cautious about one which says the Government should be able to compulsorily acquire land for housing development.
"Current law allows the Government to acquire someone's private home for a key piece of infrastructure, such as a motorway," he said.
"It doesn't allow us to acquire someone's private property for housing development - that's a big call.
"We're not ruling it out but it's something we would have to give very careful consideration."