Sub-letting a Housing New Zealand rental property was not permitted and this would include any instances such as Airbnb, he said.
"These instances are extremely rare, there have been a handful of such cases – two in the past year involving Airbnb, one of these very recent - and generally it comes about where the tenant is unaware of the difference between boarders and sub-letting.
"Our tenancy people work with our tenants to help them understand what is the right course of action. Both the cases were resolved with a simple meeting."
O'Connor said tenancy reviews were a practical and effective solution to ensure houses matched tenants' current needs.
"With the axing of these reviews, tenants are living in homes larger than required – taking the mickey out of Housing New Zealand by generating extra income."
Twyford came under fire from O'Connor during question time in Parliament.
"If state home tenants are leasing out their homes on Airbnb, then I will be looking into that," Twyford said.
He later confirmed that he had been advised of only one case which occurred more than a year ago and was treated as a tenancy breach.
"Well I think this is the ultimate storm in a tea cup," Twyford told reporters.
"Apparently, there is one known case of a housing New Zealand tenant renting out their property on Airbnb."
It happened under the last National government, and according to Housing New Zealand it was dealt with at the time as breach of the tenancy agreement, Twyford said.
Housing New Zealand was responsible for nearly 70,000 homes - "this is one known case".
Twyford said he would be not investigating the issue further.
"I don't consider it worth the time of day."
Yesterday, at the Social Services Select Committee housing officials said there that they were aware of the entrepreneurial use of Airbnb but said that would be a breach of the tenancy agreement.
Ministry of Social Development deputy chief executive of housing Scott Gallacher said areas such as Hokitika were affected by specific weakness in the rental market.
For instance, the impact of the significance growth of Airbnb, he said.
"What it does do, is we then experience that by a surge or growing demand for public housing for people who no longer have the supply of private rentals."
They were trying to model the demand as best they could as different regions had different requirements, he said.
"We are always looking at what is the nature of the demand we are seeing," he said.
"We need to make sure on an ongoing basis we are alive to that."
As at the end of June, they had been able to provide 1200 additional public and transitional houses to aid people over winter, he said.
Chief Operations Officer of Housing New Zealand Paul Commons confirmed to the committee that while entrepreneurial, using Airbnb in state homes would be a breach of the tenancy agreement.
Commons told the committee the demand for housing was very significant.
About 180,000 Kiwis relied on the service for good outcomes, he said.
"We have our own challenges: our average house is 45 years old and is a three-bedroom home in a suburban location."
New, smaller units on bus routes so people could access good social support was needed, he said.
O'Connor told reporters today there was a difference between having a boarder and using Airbnb.
"I think the difference is Airbnb is seen as something quite commercial, one only has to turn to Auckland at the moment to see why."
