The Government's state housing relocation grant has used $2.3 million to help almost 500 families to leave Auckland, but Housing Minister Phil Twyford says two-thirds of them just ended up in areas with considerable housing pressure.

Yesterday the Government decided to axe the Relocation from Auckland Assistance policy, which was designed to ease some of state housing pressure in Auckland as well as help homeless people, who could also apply for the grant.

State housing tenants could get $5000 to move out of Auckland as well as a lump sum of $2000 to help them set up in a new community in a social house or $3000 for a private one.

The policy, introduced in June last year, had cost $2.3 million in the 15 months since it started, and helped 488 households leave Auckland - including 140 to Hamilton, 98 to Northland and 65 to the Bay of Plenty.

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"These are all areas where there are quite extreme levels of homelessness, significant state house waiting lists and lots of housing pressure. So two-thirds that moved were going to areas that were really struggling with the housing crisis," Twyford told Radio NZ's Morning Report.

Twyford said Hamilton's state house waiting list increased 53 per cent over the same period.

A spokeswoman for Twyford said at least seven of the 488 households had returned to state houses in Auckland, though there was no requirement to keep reliable data so more households may have come back to Auckland.

Twyford said moving people out of Auckland was not a "credible" housing policy.

"The only credible response to the housing crisis we have is to build more houses."

He said the previous Government had not set up any analysis into how effective the policy had been, but he felt that it was simply shifting the problem, not solving it.

National's housing spokesman Michael Woodhouse said the policy had helped thousands of people to move.

"The housing shortage remains most acute in Auckland and this programme was helping hundreds of families move to the regions where there are lots of jobs and fewer housing pressures, and at the same time freeing up houses in Auckland.

"And on average it was saving the taxpayer $170 a week in subsidised housing costs for every family that moved out of Auckland. With the average grant being about $4637 the Government was seeing a saving in costs well within a year of people moving."

From January 15, no new applications will be taken by the Ministry of Social Development, though it will continue to provide assistance to move people to the private rental market, or to those who need to move town for family or work reasons.

The Government plans to build at least 1000 new state houses a year, as well as add to the emergency and transitional housing stock.

Auckland Community Housing Trust tenancy manager Charles McCulloch said the relocation grant was a "silly policy".‚Äč

"It was really just breaking up communities, and ultimately it was an odd policy because Housing NZ at the same time was selling its provincial housing, so why scatter people to the four winds and sell down as well?"

Twyford added that he no longer wished to restructure Housing NZ into a public service - one of Labour's election campaign policies - because it would undermine his two main goals of building more state houses and changing the tenancy model into a more compassionate approach.

Opposition leader Bill English said Twyford was simply picking up the previous Government's policies.

"[The substantial build programme] is up and running and it would cut across it to restructure Housing NZ.

"And the shift in policy with tenants - other operators are showing that you can be better tenants, and the social investment analysis is showing some tenants should stay in state houses for longer because it works for them.

"They are staying on course with the state housing policy, with the exception of stopping people moving out of Auckland for reasons he couldn't explain, without bringing any other operators into the market."