It said the 0.66ha site also offered "longer-term redevelopment potential" for more public housing in the region.
However, the $8.1m price tag has raised the eyebrows of local real estate agents who say it was well above the CV.
A local real estate agent told Newstalk ZB political editor Barry Soper the motel covered six property titles, collectively valued at $4.3m, which Kāinga Ora has since confirmed.
Kāinga Ora Bay of Plenty regional director Darren Toy said the price paid was in line with the market valuation provided by an independent valuer.
"The independent market valuation takes into account the value of the site as a whole, and a range of additional elements are included for the overall site, such as business revenue, chattels, redevelopment opportunities as well as GST.
"These factors are not captured by individual CVs."
However Kāinga Ora refused to provide copies of the valuations to support the claim, referring the Herald's request to the Official Information Act team, through which a respond could take up to 20 working days, or more with an extension.
The purchase comes as the city grapples with rising housing needs and homelessness.
There are 688 applicants on the social housing waiting list, up from 240 two years ago and 464 last year.
Toy described the purchase as "good news" for those in need of housing.
"Around 80 people and families, will soon have a warm, dry and safe place to stay, including a fenced play area and green space, following upgrade work to convert this property."
Toy said the location was also convenient for long-term public housing because it was close to transport and services.
Residents were expected to start moving in from late September.
Under the Public Housing Plan Kāinga Ora was working to deliver about 190 extra public housing places in Rotorua by 2024.
Labour list MP for Waiariki Tāmati Coffey welcomed the news of the purchase. He believed it would be a "game-changer" for more than 80 individuals facing housing struggles in Rotorua.
"It is going to make an immediate difference for people in our community.
"Unfortunately this is the situation that presents itself, and there is no magic solution. We need to come up with our own innovative solutions."
Coffey said wraparound support from Wera Aotearoa Charitable Trust in the motel would play a key role in supporting those with mental health and addiction issues.
Meanwhile Rotorua MP Todd McClay said the purchase was "deeply disappointing".
"The Government should not be owning motels, they should be owning houses. They are turning Rotorua from a tourist town to a homeless town."
He believed a motel could not be a transitional home, and the $8.1m should be used to build houses.
Rotorua district councillor and Whānau Ora chairwoman Merepeka Raukawa-Tait said she was pleased housing solutions were being explored in Rotorua, but said motels weren't a "long-term solution to public housing problems".
"There is a real danger they will become the default position for housing woes. I don't believe our main street should be the front window of public housing, also social service delivery."
Building was expected to begin by the start of next year.
