Housing Minister Nick Smith took reporters on a tour of several sites in Auckland to show where new houses could be built on Government land by private developers.
The plan was a late addition to the May Budget - a bid to boost the supply of new housing and address rising house prices.
One site was Ministry of Education land at 81 Moire Rd.
On December 18 last year, property managers Darroch gave notice to the limited partnership established under the Tamaki collective settlement - under the right of first refusal - that it would be offering the land to the partnership.
Darroch said it still had to offer the land to the original owner but that if it cleared that process, it would be offered to the Tamaki Makaurau collective in 40 working days.
The partnership, known as Whenua Haumi Roroa o Tamaki Makaurau, comprises three groups including Ngati Whatua.
The surplus land is not offered to the Tamaki collective as such but to the limited partnership - although the partnership heard nothing from Darroch after the December letter.
It is thought it was then added to the list of potential Government land that could be built on and sold over the next few years.
The Government takes the view that it may deem Government land suitable for any other Government purpose and there is a specific clause in the Tamaki collective settlement allowing the Government to dispose of housing land if it assists in achieving the Crown's social objectives in relation to housing. But any court challenge to the Crown is likely to argue that privatising land falls outside that provision.
Waikato-Tainui's Tukoroirangi Morgan and Ngati Whatua's Ngarimu Blair said that position was "disappointing".
They had wanted the Government to make a joint approach with iwi to settle the issue for the good of both parties. In a statement, they said: "A joint approach ... could have led to our difference of opinion being settled collaboratively in a matter of weeks and allowed us to be a greater part of the solution to Auckland's housing issue."
Instead, they would "have to go down the old-fashioned path" and take legal action. Iwi planned to file papers with the court this week and hoped it would be given priority.
Mr Key said: "The Government is very sure of its legal position, and that is it's quite entitled to use existing government land for a stated government purpose, which in this case is the provision of housing."
Opposition leader Andrew Little accused Mr Key of being either deliberately misleading about an Auckland land dispute or not being properly briefed.
"John Key said yesterday Ngati Whatua has no right of first refusal and there is no land parcel that can be used as the basis of a legal case to test this provision," he said.
"But now it has been revealed that one of the four land parcels touted by Nick Smith - at Moire Road in Massey - was notified by the Government several months under a limited partnership which includes Ngati Whatua."
Mr Little said it "beggared belief" Housing Minister Nick Smith did not know the site had been notified under 'right of first refusal' provisions when speaking to journalists and Australian property developers.
"The Government's Budget centrepiece housing policy has become a farce. The Prime Minister said yesterday the four sites Nick Smith showed off to journalists were just 'conceptual' and not actually for sale," said Mr Little.
"This follows news last week that another of the four sites - beside the motorway at Manukau City - is not even owned by the Government.
"With Auckland house prices up $115,000 in the past year and the shortage of housing worsening by the day, 'generation rent' deserves more than the half-baked last-minute fiascos that pass for housing policy under this Government."
Ngati Whatua and Tainui say they should have the right of first refusal to the land the Government wants to develop housing on.
"We don't think the Government wanting to provide housing on existing Government land triggers the right of first refusal," Mr Key told Radio New Zealand this morning.
The debate comes as concerns grow over Auckland "ghost houses" ostensibly bought by speculators and then left empty.
But Alan McMahon of Colliers real estate company said it was important not to overstate the problem.
Mr McMahon told TV One precedents existed overseas for fining owners of houses left unoccupied for a year or more.
- With additional reporting from NZME. News Service
