Trust House has pulled out of a bid to take over the management of more than 1000 state houses in Tauranga.

The Wairarapa-based company was one of several national and international players behind the Kainga Community Housing consortium, one of three organisations vying to take over Tauranga's state housing, but has since pulled out of the venture.

The Government is selling off Housing New Zealand's 1124 homes in Tauranga and had asked for proposals from groups wanting to buy and manage social housing in the city.

Trust House, which owns and manages about 480 houses in Wairarapa, had planned to provide tenancy management services for the Kainga group, but chief executive Allan Pollard said the deal was simply too risky for the community-owned company to go ahead with.

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"There was just too much risk involved for Trust House in terms of the potential risk of losing money, but big costs. It was just too much for us.

"It was better for us to stand aside and let the big boys from overseas fight it out.

"There was a risk of loss of community money through the bidding process, and I didn't think it was worth the risk," Mr Pollard said.

Australian-owned social housing provider Compass Housing was also part of the Kainga consortium and it had been difficult to clarify the details around how the tenancy management services would be shared between Compass and Trust House, Mr Pollard said.

The venture had been a learning curve but there had been no harm done, he said.

Trust House remained interested in expanding its social housing portfolio but would be looking closer to home in future. "We are still interested in growing our portfolio but in the lower North Island.

"We are really hoping that they release some of the Housing New Zealand portfolio soon, because we believe that we do a better job."

Trust House would not be entering into another consortium arrangement for future bids but would instead seek to find sub-contractors, he said.

Mr Pollard said he believed the Kainga Community Housing group intended to go ahead with its bid for the Tauranga homes.

Accessible Properties, which is owned by IHC, and Hapori Connect Tauranga were the other two organisations shortlisted to put in bids.

Hapori Connect Tauranga is a consortium made up of British-owned Pinnacle Community Housing, Canadian real estate management firm Brookfields Global Integrated Solutions, and the John Laing Infrastructure Fund, which is listed on the London Stock Exchange.

Labour's Housing spokesman Phil Twyford said Trust House's decision to pull out of the Tauranga deal had left the "field open for merchant bankers and overseas investors".

"It is grotesque to be flogging off state houses to overseas companies when Kiwi families are living in cars and garages. On top of that, the Government's sales process has driven out local community housing groups, leaving the field open to merchant bankers and offshore companies.

"Community housing providers are saying the Government's sales process is bureaucratic, risky and expensive, with them having to fork out up to a million dollars just to be in the process which is completely unsuitable for local community organisations," Mr Twyford said.

Last month the sole potential buyer for Invercargill's Housing New Zealand houses, the PACT group, announced it was pulling out of the purchase of the town's 348 state houses.

Bids to buy and manage Tauranga's state houses closed on June 7.