"We are thrilled that the huge risks they were willing to put the residents of this development in has been stopped in its tracks," a spokesperson for the group said.
"We are hoping that Kainga Ora can focus its energy on finding and developing quality housing that is desperately needed in safe residential locations, instead of taking the cheap option of high density slum housing on undesirable land which puts some of NZ's most vulnerable residents at risk."
A Kāinga Ora – Homes and Communities spokesperson said that it will look at other site options in the meantime to fill the housing gap.
"Kāinga Ora is in the early stages of looking at different options for how the vacant land at 5a Taradale Rd can be best used to meet urgent housing demand in the area.
"While we consider our options, we have withdrawn the current resource consent application with the Napier City Council," the spokesperson said.
"We will keep the community updated as plans progress around the use of the land at 5a Taradale Rd."
Kāinga Ora has delivered 56 new state homes in Napier and 16 homes in Hastings in the last two years.
These are part of the extra 120-190 state homes Kāinga Ora will provide in Hawke's Bay between 2018 and 2022.