He said a $300,000 limit would mean finding sections in Auckland for $50,000 - an impossible feat. He said homes would end up being tiny and way out of the city.
In an attempt to counter the policy, National introduced more affordable housing to its development in Hobsonville.
The development aims to be one of the country's biggest "affordable" housing projects.
Of the 3000 homes to be built in the next 10 to 15 years, 300 will cost $400,000 or less and another 600 will have a price tag of between $400,000 and $485,000.
Auckland Council and the Government will create a working party to look at urgent issues relating to Auckland's housing crisis.
After previously being at loggerheads over the issue, Mayor Len Brown and Housing Minister Nick Smith made the announcement following a meeting in March.
Dr Smith earlier said more land should be made available for housing on the city's urban fringes, and flagged the possibility of intervention to speed up land rezoning.
Mr Brown has said Auckland's housing challenges cannot be solved by land supply alone.
The establishment of a working party would give the council an opportunity to work even more closely with the Government on some of the more pressing housing challenges facing Auckland, said Mr Brown.
The council and Government agree there is an estimated shortage of 20,000-30,000 houses in the city.
