Hamilton City Council is being forced to reduce the supply of affordable homes to be built in Special Housing Areas (SHA), leaving private developers with more power and creating a tighter market for first-home buyers.

At an extraordinary meeting on Tuesday, councillors were told that four proposed SHAs, including more than 2000 homes in Rotokauri and Te Awa Lakes, were experiencing delays due to difficulty over private developer agreements, and the Ministry of Business, Innovation and Employment (MBIE) knocking back the city council's affordability criteria.

Councillor Mark Bunting, who, before KiwiBuild was started, had asked for affordable criteria to be added to SHAs, was concerned that leaving affordability in the hands of developers would mean they would go for the best possible yield that they could on a housing project.

"That is their job. It is like being mad at scorpions because they sting — that's what they do," Mr Bunting said.

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In the special housing agenda at Tuesday's meeting, MBIE told the council it would be unable to include affordability conditions requiring homes to be sold to specific buyers — including neither the Government's own KiwiBuild scheme nor a trust that receives gifted land assets from developers — in the SHAs.

Originally, the city council wanted 40 per cent of homes within a SHA to be affordable — which was defined as homes priced under the Hamilton median house price, to align with the Government's KiwiBuild scheme.

MBIE said that the criteria did not meet the standard required to continue, and that it should either be removed altogether, or be more specific.

At the meeting the council unanimously signed off an affordability policy saying "at least" 10 per cent of SHA homes must be must be sold at no more than 90 per cent of the average Hamilton house price, which would equate to a price of approximately $500,000 at today's prices.

"With the housing market, the very premise of the SHA is flawed, that is to enhance affordability by providing more houses, now under normal circumstances in your fifth form economic class that would be fine with the law of supply and demand," Mr Bunting said.

"This is the New Zealand housing market however, and that theory is flawed due to stronger market forces."

Councillor Angela O'Leary said the portfolio of state housing has been mismanaged, leaving council in this position.

"This council has done everything possible to try and appease the legislation that has been forced upon us to try and get more homes built and more affordable homes," Ms O'Leary said.

Councillor Dave Macpherson agreed both previous governments and councils had put the city in more of a problem, and that the price point was the best way to enforce affordability criteria.

"It is much easier for developers, the public and for the council to understand," Mr Macpherson said.

"A $500,000 level may seem like a fairly expensive starting level for some people, but it will free up other houses."

Councillor James Casson said the market was going to drive the prices, and developers would be going for the best price.

"I haven't got any confidence in what we are doing here because I think you are going to see a $500,000 box go for a lot more than that.

Mayor Andrew King said he was in support of central Government's approach to housing.

"This Government has a heart. They are trying to do what is right for housing in what is a very complex market," Mr King said.