A two-bedroom state house in Queenstown has sold for $665,500 at auction today.

The Frankton Rd property with lake views was put on the market after Housing New Zealand said it could not be tenanted, and despite the resort town's housing crisis.

Bidding started at $400,000 and bounced mainly between two men in the room.

The 90sqm house, on a 496sqm section, was built in 1994 and bought by Housing NZ for $265,000 in 2003.

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Housing NZ's South Island regional portfolio boss Monique Fouwler said the property had been vacant for some time and there was low demand for social housing in the Queenstown-Lakes district.

"It's much better practice to look at selling them and invest the money in areas where there is demand," she said.

Queenstown Lakes Community Housing Trust executive officer Julie Scott said the trust, which has more than 300 households on its waiting list, had discussed taking over or managing Housing NZ's local state housing portfolio.

"We are disappointed that the Government hasn't wanted to take up our offer."

Ms Scott understood the Crown agency used to own about 20 properties in Queenstown and Wanaka, but had been selling "quite a few" on the open market.

Ms Fouwler said Housing NZ also intended to sell a property in Wanaka "in the near future" for the same reasons it sold the Frankton Rd house.