Tenants can be found ineligible if they are paying market rent or earning high incomes. They are assessed on whether they can afford to move into private accommodation, whether they will be able to stay there in the long-term, and how difficult it is for them to find houses in the open market.
MSD's service delivery associate deputy chief executive Marama Edwards said the number of state house tenants moving into the private market was a "great success" because it freed up state houses for people on the waiting list.
The ministry also "never envisaged" how many people would be able to buy their own property.
The 87 ineligible tenants remained in their state houses for now, but would be required to find alternative homes. If they failed to do so, they would be given a 90-day notice.
Ms Edwards said 26 MSD staff were currently employed to review tenancies.
Labour's housing spokesman Phil Twyford said the policy required huge resources, created anxiety for tenants, and produced few results.
When it was introduced, Housing Minister Nick forecast that 1000 people would be moved out in 2015/16, and 2000 the following year.
That estimate was based on the 4006 Housing NZ tenants who already paid market rents because their incomes were too high to qualify for income-related rents.
State house tenants pay a maximum of 25 per cent of their incomes in rent in both community and state housing.
Mr Twyford also accused MSD and Housing New Zealand of failing to reduce the waiting time for state houses in Auckland.
While the list of people waiting for a house in Auckland had fallen in the last two years, the waiting time has risen to around 170 days. Mr Twyford said many of these people were living in cars, caravans or campsites.
Ms Edwards said the delays were the result of an acute housing shortage in Auckland.
