Health Minister Jonathan Coleman has acknowledged that 20 children dying each year from diseases linked to cold, damp, crowded homes is "unacceptable".
His comments follow a Herald investigation which found that preventable, housing-related illnesses such as pneumonia and bronchiolitis killed more kids than car crashes or drownings.
On top of the deaths, there were 30,000 hospitalisations a year associated with unhealthy homes.
The majority of those were from respiratory diseases including the "third world" condition bronchiectasis, where babies' lungs were scarred for life.
Coleman said the National government had set a target to reduce avoidable hospitalisations, which included earlier interventions and best treatment of respiratory illness.
He said: "No doubt that this is an unacceptable statistic and there is a lot more work to be done."
Coleman said the government had already made child health a priority with free GP visits and prescriptions for under 13s, insulating 300,000 homes, setting the first rheumatic fever reduction target, and dramatically increasing immunisation rates.
The diseases included in the Herald's investigation did not include vaccine-preventable conditions.
It detailed how the rheumatic fever target wasn't met - including how a Healthy Housing Initiative was unable to re-home 75 per cent of families at-risk of rheumatic fever due to a lack of housing supply.
Labour leader Jacinda Ardern called the situation "deeply saddening".
"This is what this election should be about. This is what we should be debating - do we have a tolerance for kids dying because our houses are in such a bad state? Do we tolerate this?" Ardern said.
"The idea a kid dies because they're cold is just appalling in a place like New Zealand."
If elected the party would address unhealthy homes in its first 100 days, by introducing the party's Healthy Housing Bill, mandating high insulation standards and requiring rentals to be warm, dry and healthy.
It would also fund universal $2000 insulation grants, offer a $700 winter energy payment and build more state houses.
The Green Party's social housing spokeswoman Marama Davidson said the deaths were an "absolute farce and an absolute scandal".
Davidson said the Greens would bring in a comprehensive Warrant of Fitness for houses to make sure every property - not just rentals - were warm, dry and safe.
"We want people to be able to heat their house sufficiently. We know lots of people can't afford adequate heating at the moment."
She said the Greens would also boost a government insulation programme back to former levels.
A range of organisations condemned the high hospitalisation rates yesterday, including the Asthma and Respiratory Foundation, and health bodies.
Plunket's Chief Executive Amanda Malu said it regularly saw babies living in "bone cold", damp, overcrowded houses, some with no curtains or with holes in the floor.
"This is a systemic issue and policies are needed to increase access to quality houses for families."