The Government may intervene in deciding where urban sprawl stops and green fields begin in an attempt to make house prices cheaper.

City limits - which are set by councils to stop city housing encroaching into farmland and other green spaces - have been blamed by the Government for helping push house prices to unaffordable levels.

Yesterday Environment Minister Nick Smith said some local councils had been setting limits without taking into account the impact on house prices.

"Central government needs to have some input into the impacts of [city] limits on house prices, and the broader economic impact that we saw over the last decade of section and house prices skyrocketing out of control."

A 2007 study by economic consultancy Motu found city limits could drive up residential section prices by limiting the supply of land.

Dr Smith stressed work on city limits policy was at a very early stage.

Officials would look at that and other urban design issues as part of the second, slower, phase of reforming the Resource Management Act over the next two years, he said.

Other planned changes included downscaling the Ministry for the Environment by transferring some of its functions to a new Environmental Protection Agency, and beefing up compensation for people whose land is taken compulsorily for national projects such as roading.

Auckland Regional Council's Regional Strategy and Planning Committee chairman Paul Walbran said land prices were only one factor in working out the cost of city limits.

Transport, water and sewage costs rose as people moved further towards the edges of cities, he said.

Evidence suggesting moving city limits would lower housing costs was debatable, he said.

"There is a very strong stream of evidence that shows the more dense a city is, the lower the housing cost per capita."

Mr Walbran said the council had its eye "very much on the economic ball" when it was setting city limits.

The Royal Commission on Auckland Governance found that accommodating population growth by letting the city spread out had increased infrastructure costs and placed pressure on the natural environment.

Mr Walbran said the region was getting better at developing housing in a compact area but had not met its target of accommodating 70 per cent of new population growth in existing areas and 30 per cent around the edges.

In 1999, Auckland councils agreed to concentrate new housing near town centres and transport hubs.

Despite that, the Motu study found most housing development between 2000 and 2005 was on the fringes of city limits.

* Phase two

Environmental law reform

Beef up compensation for people whose land is taken compulsorily for national projects such as roading.

Downscale the Ministry for the Environment and transfer some of its functions as national regulator to a new Environmental Protection Agency.

Streamline processes for new fish and shellfish farms.

Reconsider urban design rules and urban development limits.