"The widespread planning preference for increasing residential density, while at the same time imposing restrictions such as a minimum lot size and height restrictions, and limiting greenfield development, places upward pressure on house prices across the board.
"Auckland Council's proposed compact city approach, based on containment of the city, undermines the aspiration of affordable housing."
The commission said an immediate release of land for residential development would ease supply constraints and reduce the pressure on prices.
Christchurch City Council, along with other high-growth centres, were also urged to increase the supply of land, as well as simplifying and speeding up regulatory processes.
Green Party co-leader Russel Norman criticised the recommendation, saying it would create sprawling and congested cities, and would leave people spending more time sitting in traffic and spending money on fuel.
"Facilitating urban sprawl is not the way to build highly productive cities where people live close to their workplaces, can easily travel around the city on alternatives to congested roads, and can enjoy high quality amenities within walking distance of home," Dr Norman said.
The report also took aim at New Zealand's social housing policies, saying the current approach would not provide the necessary support, and a stronger focus on community might deliver better social outcomes.
"The current reform programme is based on making the best use of limited government capital. It presumes that people and families can be reallocated amongst the housing stock relatively flexibly," the report said.
"However, social housing is best thought of as a contribution to a complex set of social needs that typically occur in clusters. The current approach to reform is not always in harmony with the desires of communities for stability and continuity, which are often essential for addressing the needs of families requiring social assistance."
The commission said it was concerned that there appeared to be a lack of "clear and coherent policy framework" for what the Government wanted to achieve with the $3 billion a year going into housing assistance costs.
Finance Minister Bill English said the Government would be considering the recommendations over coming months.
Mr English said the report showed that the current processes meant people who owned expensive houses did well in the market while those who had lower-quality houses or could not afford to buy, were struggling.
"Housing affordability is an issue about fairness, particularly for younger families who are trying to get into home ownership, so the Government's going to take these recommendations pretty seriously."
Asked whether the Government would consider putting more funding into social housing, Mr English said it was important to tackle the overall issue of housing affordability.
"If people can't find there way in the market, then they're becoming more dependent on the Government to subsidise them. We would rather solve the basic problem first, that is get the housing market operating so it's fair," he said.
With regard to Auckland, Mr English said there had already been talks with the Auckland Council about its land plans, and it had acknowledged the need to take into account the needs of lower income-earners.
"The existing policies have tended to push prices up pretty sharply in Auckland, more so than anywhere else, so there's been a bit of progress so far and we would certainly want to continue that discussion," he said.
"Otherwise you'll get to a situation where any family who earns under $60,000 or $70,000 can't hope to own a home in Auckland, that would be very unfair."
