Housing New Zealand plans to build 4,900 state houses in Auckland over the next three years, although the number of new state houses will increase by just 722 in that time as it replaces its worn-out housing stock.

The new Auckland Unitary Plan allows for an additional 30,000 homes to be built on Housing New Zealand land over the next 30 to 50 years, a tenfold increase from the previous plans, chief executive Andrew McKenzie told the select committee at the agency's annual review this morning. A large proportion of those won't be state housing but will be private or affordable supply, which HNZ will use to provide funding for its redevelopment program.

Some of the 4,900 houses HNZ plans to build will replace existing stock and some will be sold, with a net gain of 722 houses expected, McKenzie said.

"We're at a phase where we need to create capacity to utilise the land better - to move our tenants into the new homes, free up land. The numbers obviously accelerate after that - I think the following year the target is around 1,200 new homes net," McKenzie said. "Our stock has come to the end of its life, we're going to have to replace a large amount of it over the next twenty years."

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Phil Twyford, Labour's housing spokesperson, questioned whether that 4,900 goal was realistic as the agency hadn't met its building targets over the past couple of years. HNZ's chair Adrienne Young-Cooper said the agency had met its performance requirement for the year under review and had been undergoing a significant capacity build over the past 18 months along with the Hobsonville Land Company. Including the homes built for the private market the agency built 871 houses in the year, ahead of its target of 845, she said.

At the Ministry of Business, Innovation and Employment's annual review immediately following HNZ, the ministry said that as yet, no new affordable houses have been built on Crown land in Auckland. Overall, the government's building programme delivered 653 completed dwellings in the year, with about 50 percent of those likely to have been affordable housing, MBIE's acting deputy CEO of building, resources and markets Chris Bunny said. That was expected to ramp up in following years with over 1,000 properties in the pipeline, he said.

Labour's Twyford asked MBIE CEO David Smol whether the ministry was doing any work on policy solutions to the high cost of building materials in New Zealand, saying locals pay between 20 and 30 per cent more than Australian consumers for the same building materials and the Commerce Commission is of the view that it doesn't have the legal powers to intervene. In the building supplies market, practices like rebates, discounts and vertical integration have an anti-competitive effect overall, Twyford said.

Smol said he had confidence in the commission as a regulator, and competition law in New Zealand is "fairly in line with good practice internationally", although an MBIE study of the building sector which proposed changes to anti-dumping and tariff legislation had proven contentious. The ministry has provided advice to the Minister of Commerce and Consumer Affairs on the Commerce Act exploring the benefits of changing to an effects-based approach to competition, with Cabinet yet to make a decision on that, he said.

"The challenge we face as a country - and we face this in many markets - is we're a small domestic market so the extent of competition, particularly where there are economies of scale, tends to be limited," Smol said. "We've got to promote competition wherever we can, but the fundamentals are challenging."

The ministry has considered whether government procurement can be used as a lever to promote a more competitive sector, and attempted to do that in the plasterboard market following the Christchurch earthquakes, but wasn't successful.

"To attract a new entrant of scale, the new entrant needs to see a viable forward programme of work that justifies the upfront investment of that initial market entry," Smol said. "Using government scale where we can, and without compromising other outcomes too much, that's the conceptual opportunity. As you've said, in practice it's not easy."