The Green Party says urgent action is needed on house prices but Jacinda Ardern wants to continue seeing "small increases" in already skyrocketing prices.
In a press conference on Monday Prime Minister Ardern said most homeowners "expect" the value of their most valuable asset to continue to rise.
She added the current housing growth is "unsustainable" whereas smaller increases are to be expected.
"The growth that we’ve seen is unsustainable. So, if anything, it is much more sustainable to have those much smaller increases. I think people expect that you see that in the market.
"For most New Zealanders, their house is their most significant asset. A significant crash in the housing market - that impacts people's most significant asset."
Her comments follow a damning report from Stats NZ which showed home ownership has plummeted to its lowest rate since 1951.
StatsNZ says homeownership rates have fallen for all age groups since the early 1990s, but particularly those in their 20s and 30s.
In 1991, 61 percent of those aged between 25 and 29 lived in an owner-occupied home. But this had dropped to 44 percent by 2018. For those in their 30s, the rate dropped from 79 percent to 59 percent.
Data from both the Real Estate Institute of NZ (REINZ) and Trade Me found the median price of a home in Auckland is now more than $1 million and nationwide above $700,000.
Green Party co-leader Marama Davidson says it is "unacceptable" to have ongoing increases in house prices.
"We need our Government to take urgent action to take the heat out of the housing market," Davidson told Newshub.
"This includes a rapid community housing build and a capital gains tax so some of the windfall gains from property speculation fund desperately needed public infrastructure and services."
Ardern has ruled out a capital gains tax, saying lack of public support means she cannot push the legislation through and "the appetite for some of these policies also needs to come from the public".