One of National's major housing policies has turned into a "slow motion train crash" after iwi confirmed plans to challenge it in court, Labour leader Andrew Little says.
Mr Little accused Housing Minister Nick Smith of not doing his homework on plans to sell off 500 hectares of surplus land in Auckland for housing developments.
"National's Budget centrepiece has turned to custard," he said. "It was clear from the start this plan was rushed and ill-conceived."
Mr Little said Dr Smith had made a "sneaky deal to cut out iwi" and as a result, Aucklanders could miss out on thousands of houses which were desperately needed.
Ngati Whatua and Waikato-Tainui are seeking clarification from the High Court about iwi's right of first refusal to surplus Crown land.
They have invited the Crown to join them in making a joint application to the court.
Prime Minister John Key would not confirm his morning whether Government would agree to go to court to resolve the issue.
"Whether we will or not, I don't know we'll have to think about that," he told TVNZ's Breakfast programme.
He defended Government's right to sell the land to developers for social purposes - in this case affordable housing.
Mr Key said that under the Public Works Act, surplus land was first offered to other government agencies, and then to the land's original owner.
"You don't actually trigger the right of first refusal until you exhaust all of those [options]," he said.
"And the advice we've had is that we're legally entitled to do that. There is a land supply shortage in Auckland, people want to build more houses. So we want to speed up that process so why wouldn't we do that?"
Mr Key said Government might still partner with iwi to develop affordable housing, which it has previously done in Weymouth.
But he said that if iwi were granted right of first refusal on the earmarked land, they were not obliged to build houses on it.
"They could just say 'we want our land back, we'll come back to you in 20 years time'. In which case, why on earth would the Government want to sell that land?"
Mr Smith said he is "disappointing" iwi are taking legal action on the issue of 'first right of refusal' and he would prefer the matter is settled out of court.
"It's a little bit disappointing, it certainly wasn't raised when I met with the 13 iwi [yesterday]," Mr Smith said on Newstalk ZB this morning.
"I think there are some different views among different iwi about it, we'll just work through this in a considered way.
"The Government's broad point of view is to have tracts of land sitting unused ... while we've got families struggling to be able to get an affordable home and a warm, dry home, is something that needs to be addressed and we want to resolve it as quickly as possible," he said.
"You have these bumps, you try and work them through.
"We would prefer to be able to resolve things without going to court."
Yesterday a spokesman for Ngati Whatua said the iwi supported the Government's goal to ensure more safe, warm, attractive and affordable homes are built in the Auckland region "as soon as possible", but it took issue with land being used for private housing developments.
Iwi said under the Treaty of Waitangi they were allowed first right of refusal for such a project, but the Government disagreed, saying a clause in its agreement with the collective allows the Housing Minister to dispose of land if in the minister's opinion "the disposal is to achieve or assist in achieving the Crown's social objectives in relation to housing or services related to housing".
- With additional reporting from NZME. News Service