Housing Minister Phil Twyford has hit back at Treasury's dramatic revision of the financial forecasts for his flagship KiwiBuild programme.

Industry leaders and the opposition said they were disappointed but unsurprised by the revisions, which halved the $5 billion of Kiwibuild-induced "additional nominal residential investment" over the next five years to $2.5b.

Judith Collins, National's housing spokesperson, said the forecast halving was a huge disappointment but she was not surprised and the scheme was a dud before it really got off the ground.

"This is a significant backdown and the Government should come out and admit it's already a failure," she said this afternoon.

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Treasury said bottlenecks in the booming construction sector resulted in it halving its forecast rate of progress on KiwiBuild.

The new forecast makes assumptions about how much extra activity the KiwiBuild scheme will induce and about the impact of government policies to alleviate construction sector constraints.

Twyford has hit back and said that he didn't accept Treasury's assumptions.

"The Ministry of Business, Innovation and Employment have a better handle on KiwiBuild than Treasury bean counters," he told the Herald.

David Whitburn, a residential developer and investor and former Auckland Property Investors Association president, said even going at half-speed, KiwiBuild could exacerbate issues in the industry and add to the construction and housing sector woes.

"This shows broken promises," he said reacting to the Treasury forecast. "We need to get more housing but we need to balance the private sector's needs. KiwiBuild could actually fuel house price and construction inflation. The Government's seen the problem and said 'let's throw money at it' but it could have the opposite to the intended consequences," Whitburn said.

Whitburn said Budget 2018 was "a little bit of a miss because KiwiBuild is deeply flawed".

He was disappointed the Budget did not address the critical skills shortage in the construction sector, which he said would leave New Zealand continuing to import builders and other tradespeople from Asia, England and India.

The head of an organisation with multi-billion investments in commercial, retail and industrial property gave guarded approval of Budget 2018 but said he was not surprised by Treasury's major downgrade of the Government's ambitious KiwiBuild scheme.

"I'm rating it a cautious hit," said Property Council chief executive Connal Townsend of the Budget. "From a fiscal point of view, it's beautifully balanced but in terms of economics and the view of our nation - we will just have to wait and see."

He supported funding for research and development and the KiwiBuild national house-building programme to provide 100,000 residences.

"But there's nothing in the Budget for high-growth areas outside Auckland and that's a notable absence," he said.

Lack of detail on the new Urban Development Authority which Housing Minister Phil Twyford has promised and the big KiwiBuild downgrade were disappointments, Townsend said.

Pete Evans, Colliers International's residential project marketing national director, said the Treasury revisions was "understandable because no one in the industry thought the Government thought they could deliver the volumes they forecast. That's due to issues with roading, water, transport and other infrastructure.

"In the short-term, the constraints are too great, particularly with the sector's inability to delivery in the volumes the Government had originally proposed via the Labour Party," Evans said. "What they'd like to do is great but most people were very sceptical."

More housing was desperately needed, with the new supply insufficient to meet market demand, Evans said.

"The undersupply of new dwellings, particularly in Auckland, means first-home buyers who don't qualify for KiwiBuild houses will need to compete with established homeowners who are seeking new apartments in the CBD and city fringe, and terrace and standalone homes in the suburbs," Evans said.

Bindi Norwell, Real Estate Institute chief executive, was not happy about the forecasts of reduction in KiwiBuild spending.

"We don't want any reduction in the volumes. In Auckland, we have a deficit of around 60,000 homes and taking longer to build will exacerbate problems. We need economies of scale," she said.

Steve Evans, chief executive of residential and land development at Fletcher Building, said his company would next month announce details a new Auckland panelisation factory which would speed construction.

Evans refused to say if he was surprised by Treasury's revision: "Fletcher will tell the Government what we're already doing and encourage it to make more land available for KiwiBuild homes which we would build. We're already building homes that satisfy the KiwiBuild criteria in Massey and on the former Manukau Golf Course."

"We have a panelised factory that's being negotiated now. We're in the process of negotiating a lease and it will be in Auckland," he said referring to faster construction techniques after Fletcher unveiled its house-in-a-day at Hobsonville Point.

"In June, we will prove it works for terraces homes at Hobsonville Point as well," Evans said.