The Government's plan to hand over state houses to community providers has hit a snag with one group pulling out, but it is vowing to continue on.
It still plans to transfer between 1000 and 2000 state houses to registered community housing providers this year under its Social Housing Reform programme.
But the PACT group, which had applied to buy and manage 348 Housing New Zealand homes in Invercargill, has decided not to continue with the process.
Housing New Zealand Minister Bill English says the group was the only one invited to submit a proposal to transfer the houses.
"We have put this procurement process on hold until we can assess other options," he says.
In an announcement last year, the southern city and Tauranga were chosen as testing grounds for the policy where they'd sell off state houses to providers.
Social Housing Minister Paula Bennett says she's disappointed PACT pulled out of the process.
However, "their decision should reassure social housing tenants that the process is robust and that interested parties have enough information to make the best decision for themselves and the tenants".
Ms Bennett says anything done under the programme must have tenants at the centre.
But the Green Party says the group walking away from the deal is a hit for the Government's already "flawed plan" to get rid of state homes.
"This risk now is that Bill English is going to want to sell these houses off at bargain-basement prices, for far less than they're worth, just to make his sell-off scheme look like a 'success'," social housing spokeswoman Marama Davidson says.
"Bill English needs to take the hint and take the state houses off the market."
She says the announcement comes a day after the Budget where the Government didn't announce any new state house building.
Meanwhile, the ministers say the procurement process of 1134 properties and tenancies in Tauranga is "progressing well".
The Government is also considering a proposal from the Horowhenua District Council to look at a joint transfer of council flats and Housing NZ properties to a community provider.
If it goes through, it'll affect 115 pensioner flats and 250 Housing NZ homes and tenancies in Levin, Foxton and Shannon.
But before any decision is made, consultation will be done with local iwi on their Treaty of Waitangi rights and interests. The process will run until July 1.
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