Tauranga and Invercargill have been chosen for the first 1000 to 2000 sales of state houses.
Housing NZ Minister Bill English and Social Housing Minister Paula Bennett said the two cities were chosen "because they have stable demand for social housing and active community housing providers keen to consider the next steps".
They said they had not yet decided how many houses would be sold in each place, but the Government target of selling 1000 to 2000 this year suggests that all 1250 existing state houses in Tauranga and all 370 in Invercargill will be up for sale if willing buyers can be found.
"In both regions, Housing NZ owns a significant number of houses so there is potential for more than one organisation to acquire houses," Mr English said.
"The next step is to consult with iwi and hapu in the two regions to identify any particular interests under the Treaty of Waitangi, before deciding whether to proceed to market sounding."
Two iwi organisations are already registered community housing providers in Tauranga: Nga Potiki a Tamapahore Trust and Mangatawa-Papamoa Blocks Inc, both representing Maori in the Papamoa area. A trustee of both trusts, Victoria Kingi, has said in the past that they were keen to buy 149 state houses in their rohe, and she said today that they were also interested in joining a collective approach for the wider area.
"The priority is the housing in our particular tribal rohe, but it depends on a number of factors - whether there is potential for a collective approach across various providers and iwi," she said.
She said Nga Potiki could go ahead by itself if necessary because it was already an established tenancy manager and developer. It will sign a heads of agreement with a development partner this month to build a 240-home, $55 million development on the Te Houhou Block in Tauranga's eastern growth corridor.
The only other Tauranga-based registered community housing provider, Tauranga Community Housing Trust, has not previously expressed interest in buying state houses, but may become part of a consortium because the purchasers must be registered providers.
The other two registered providers active in the area, Habitat for Humanity and Accessible Properties, are both national organisations. Accessible Properties, owned by IHC, is the country's biggest existing community housing provider and chief executive Andrew Wilson said it could be interested in buying some or all of the 1250 state houses for sale in Tauranga, serving all social housing tenants not just people with disabilities.
"We are interested where there is an area of high social housing need," he said.
"We would prefer to look at significant scale if there is something we can offer of better value. Our preference has been packages of about 1000 units to be able to develop that scale. Invercargill is not really of interest to us because it's outside the areas we have looked at as packages."
Officials said Accessible Properties and Habitat were the only two registered providers in Invercargill, but they expected others to register now that the Government had signalled an intention to sell houses there.
Mr English said houses would not be sold "unless tenants get better services and taxpayers get fair and reasonable value".
"Existing tenants will continue to be housed for the duration of their need and their rights will not be affected if their landlord changes," he said.
"Any transfer of houses will not affect the rent tenants pay or their eligibility for subsidised housing, and properties transferred as social houses will also have to stay as social housing unless the Government agrees otherwise."