Prime Minister John Key says councils who refuse to release land for building houses will soon be breaking the law.
At a post-Budget speech in Auckland today, Mr Key said an upcoming national policy statement would link land prices to demand, and if prices are rising too quickly, the council will be forced to open up more.
"If they don't do that, they'll breach the law," the Prime Minister told attendees at a lunch at the Langham Hotel.
"There won't be a debate about whether they release more land -- they'll release more land."
The Government has been criticised for the lack of attention paid to Auckland's housing crisis in the Budget, delivered by Finance Minister Bill English on Thursday.
Auckland has seen double-digit price rises year-on-year for nearly a decade, putting pressure on nearby cities including Hamilton and Tauranga.
Mr Key says previous court rulings have set a precedent that the national policy statement won't require legislation to be enforced. It will be targeted where land prices are rising fastest.
"The national policy statement has to be met, and they have a link to economic issues -- what is the land price vis-a-vis the demand that's in the economy. And if the land price is going up too quickly, they have to amend their plans to release enough land."
If a developer asks the council to zone land residential and the council refuses to do, Mr Key says the developer will win any court battle that results. The same will apply to commercial land.
Auckland's metropolitan urban limit, implemented in 1992, was an experiment in preventing sprawl which "utterly failed", says Mr Key.
"The theory was it was going to contain growth in a certain area, but fundamentally what it did was it encourage people to landbank outside of that area because they knew it wasn't sustainable."
The Government's so far taken a cautious approach to building outside that limit, teaming up with Auckland Council to open up special housing areas. Despite promises they would deliver tens of thousands of houses a year, they've had a slow start and failed so far to dent house price inflation.
Mr Key says builders can't "magic up houses overnight", but 40 new homes are being built in Auckland every day -- twice the rate eight years ago.
"It takes time for that process to work through"
The Government has ruled out using tax to keep house prices in check, except for its 'bright-line' test, which guarantees capital gains tax must be paid on any houses sold within two years of being bought, that aren't used as the family home.
Mr Key says "tens of millions" has been invested in more tax inspectors to enforce the rule.
"If you miraculously buy and sell lots of properties and claim they're your family home and your intention was to live there forever, you'll get a knock on the door from the taxman."
Wider capital gains taxes don't work, says Mr Key, pointing to fast-rising prices in Sydney, Dubai, London and New York, and the best data the Government has collected so far suggests foreign buyers aren't behind Auckland's unaffordability crisis either.
"The number of people who wake up in Guangzhou in the morning, get an atlas and spin it, close their eyes and put their finger on the atlas and go, 'a ha! I'm going to buy a house in Auckland! Never been there, never heard of it, don't know anyone there, but I'm going to buy a house' -- very low."
Mr Key says post-quake Christchurch is a good example of how opening up land for building can keep prices and rents down.