The Government has set its sights on New Zealand cities' urban planning rules as part of its drive to improve housing affordability.

Finance Minister Bill English has asked the Productivity Commission to investigate the rules and processes behind urban planning, which was central to housing costs and the productivity of the economy.

Mr English wanted a "first principles" review which would help develop a more flexible system.

"Many parts of the regime are out-dated and unwieldy, having been developed over the years in a piecemeal fashion," he said.

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"International best practice has moved on and so must New Zealand."

The commission would look at the most appropriate system for allocating land use in cities "to achieve positive social, economic, environmental and social outcomes".

Chairman Murray Sherwin said cities across New Zealand faced a range of challenges.

"Fast growing cities like Auckland are finding it difficult to provide enough capacity to house their rising populations, while others face the problem of maintaining essential services and infrastructure with flat or declining populations.

"Urban areas need a planning system that can respond effectively and efficiently to these pressures."

Mr Sherwin said the inquiry would compared New Zealand's performance in this area to other countries. The commission would not draft new laws itself, but it would set out what a high-performing system would look like.

As part of its inquiry, it would consider the Resource Management Act, the Local Government Act, the Land Transport Management Act and also parts of the Building Act, the Reserves Act and the Conservation Act which affected land use in urban areas.

Mr English said he was not proposing to get rid of these pieces of legislation.

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"But I think everyone -- local government, planners, developers, certainly politicians, are getting to end of their tether around further minor adjustments to the planning rules," he told TVNZ.

The planning process had become expensive and long-winded, he said, and this had created housing affordability problems.

Last month, the commission released its findings on the obstacles to improving the supply of housing in New Zealand.

The review concluded that urban planning laws were complicated, slow to respond, and did not meet the needs of cities.

The Government has proposed major reforms to the Resource Management Act. But it has failed to get support from its coalition partners, who believe the changes could undermine key environmental protections.

Property Council support review

Property Council chief executive Connal Townsend said: "We are unconditional supporters of this review."

"It has never been more timely to look at all aspects of how we plan and fund the growth of our cities. For so long, we have been saying that a holistic and comprehensive approach must be applied.

"The Resource Management Act, the Local Government Act and the Land Transport Management Act suffer from a lack of cohesion, seamless integration and logical connection. Instead of complementing each other, they compete with each other.

"We desperately need to limit the financial and economic risks currently emanating from our urban planning system, and until we do, our cities will suffer from a shortage of skilled workforce, productivity and competitiveness."

Mr Townsend said the Government must quickly implement the recommendations contained in the Productivity Commission's Using Land for Housing report and progress a national policy statement for urban development.

"Unresponsive planning rules are causing delays and reducing certainty, which add costs. An OECD report found that regulations add between $32,500 and $60,000 per dwelling in subdivisions and $65,000 and $110,000 per apartment.

Too often, these costs bring projects to a grinding halt."

Until these planning rules are addressed, Mr Townsend said, Auckland and other growth areas such as Tauranga, Whangarei, Waikato, and Wellington, will suffer from constraints on growth and expensive house prices, which in turn decreases their desirability as cities.

- Additional reporting: Bernard Orsman