"You have seen some big increases and I think actually over the last 20 years you've seen very big increases in Auckland which are not sustainable.
"They don't need to go up that quickly - there is a way of resolving that issue and I think it is dealing with those structural issues, which is basically supply."
Read more of the Herald's Auckland housing stories today:
Auckland property: Winners, losers in rates change
More land needed to be released and more houses needed to be built quickly, Mr Key said.
First home buyers also needed to look at different options for getting onto the property ladder, he said.
"Some people will have to consider going into an apartment for instance, that has been the international change.
"If you're a young person buying your first place in Sydney or Melbourne or Brisbane, in most instances you'll be going into an apartment."
The KiwiSaver programme could also help people with a deposit, Mr Key said.
"Buying a house has never, ever been easy.
"People sort of look at it today and say 'It's incredibly difficult', and yes home ownership rates generally have been on a long-term decline.
"The real magic here is what's driving those [price] increases - it's land."
The Government should not intervene to subsidise projects such as Auckland's rail to help control rates rises, but the council did have to manage its resources "appropriately", Mr Key said.
"And that's one of the reasons why we're not looking to rush to bring forward the rail, in terms of the CBD rail link, because if we do, the other portion of that has to be borne by the rate payers."
Mayor: No rush to decide a rates outcome
Auckland Mayor Len Brown told Radio New Zealand today it was not known how much the council expected to collect in rates next year.
"We presently collect about $1.4 billion worth of rates, we are proposing an average rate increase...of 2.5 per cent and we've had a 2.5 per cent rate increase last year.
"So $40 million extra per year, to a $1.4 billion budget - so that's not impacted upon by the valuations at all."
The council would be analysing the valuation figures over the next few weeks before deciding a rates outcome.
Buyers were not locked out of the Auckland market because the council was involved with the Government on a housing accord and with the private sector on getting supply into the housing market, Mr Brown said.
"This year we're expecting under the housing accord we will see 9000 new building consents and permits given to enable homes to be built.
"We are seeing a significant growth in housing supply coming through."
The economy was going through a "boom", he said.
"The building sector is responding to that, we're responding to that by ensuring that building consents and resource consents go through quickly.
"Everyone is gearing up to ensure that housing supply and the variety of housing supply...is available."
In the special housing areas three or four houses had been built and they were in Manurewa, Mr Brown said.
"That's not many, but what we're doing is going through the process...of enabling these new consented areas to actually get going."
There were 32 consents for the areas issued, he said.
"We provide the consent, the builders actually do the building - we don't do the building - if they don't get into the building as soon as the consent's provided that's not our problem."
