The authors of the working paper said individuals in the lowest income brackets were worst-affected.
This finding came from analysis of 22,000 New Zealanders' income, net wealth, mortgages and house prices, which were used to measure whether they would be able afford a home. If an individual or couple had to use more than 30 per cent of their gross income to service their mortgage, they were considered unable to afford a home.
The figures showed couples had higher home ownership rates - around 63 per cent, compared to 42 per cent of individuals.
While relationship status, ethnicity, age, and location were all important factors in whether a person could afford a house, the Treasury made a surprising discovery - there was no statistically significant relationship between a person's income and their likelihood of home ownership.
But the report's authors did find that people with higher levels of education were more likely to be homeowners.
"Additional years of schooling are positively associated with the likelihood of home ownership. This suggests that people's lifetime earnings, rather than income at a point in time, may be a more important determinant of whether one owns a home."
The paper showed that while Auckland remained the most expensive place to live in New Zealand, growth in house prices between 2004 and 2008 was greater in other main centres. This had a knock-on effect for housing affordability.
The report said: "By 2008, affordability levels in other regions had deteriorated such that they were much closer to those of Auckland."
While all properties rose in price in the late 2000s, houses at the lower end of the scale increased in value much more than top-end properties.
This was believed to be because most rental homes were lower-quality, so the demand for low-end houses was greater.
The paper also said that fixed land prices meant returns were better for people who built large, high-quality houses, so the supply of cheaper housing may have suffered.
This finding matched a Productivity Commission inquiry last year which showed that land price as a share of house value had increased, which led to greater investment in large expensive houses.
People who were not New Zealand European, particularly Pacific Islanders, were less likely to be able to afford a home. The report said this could partly be due to the fact that many ethnic groups settled in Auckland, where house prices were higher.
Couple pool savings - but it's still not enough
Alyssa Longville says it'd be impossible to buy a home in Auckland without the help of her fiance, Callum Carter.
The couple, both 22, are struggling to find a three-bedroom house with a garage and backyard within their $450,000 price range. They have moved back in with Miss Longville's parents in Kumeu and delayed their wedding while they search and save.
Despite having a pre-approved home loan of 6.6 per cent and a deposit of about $30,000 - including a first-home subsidy from KiwiSaver - the couple's six-month search has proved fruitless.
"We've been forced to look in west Auckland because the prices everywhere else are so expensive," Miss Longville said.
They are among thousands not able to access their KiwiSaver savings because they are looking at properties above the $400,000 threshold - but anything below that wasn't worth looking at, she said.
The production assistant earns $41,000 a year, while Mr Carter earns $56,000 as a refrigeration technician. They each bank $300 a week and hope they'll have enough to secure a home by the end of the year.
But she said potential restrictions on home loans, making it harder to get a mortgage with a deposit of less than 20 per cent, would delay their dream.
