The Government has abandoned the sale of 249 state houses to an iwi housing provider.

Housing New Zealand had planned to sell the properties in Horowhenua as a part of a joint deal with the local council, which would sell another 115 pensioner units to a non-government organisation.

However, Housing New Zealand Minister Bill English said consultation with iwi had raised "a number of complexities".

In particular, the two iwi involved in the deal had not yet settled their Treaty of Waitangi claims with the Crown.


"The Government's Social Housing Reform Programme has always been about improving the lives of our tenants, and in this case, a transfer was going to throw up too much uncertainty for many of those involved," English said.

Labour's housing spokesman Phil Twyford said the failure of the deal was an opportunity for the Government to "pull the plug" on its sale of state houses.

In May, the sale of 348 state houses in Invercargill also fell through after the buyer pulled out.

Twyford said Government should now "run up the white flag".

"It is time to admit the state house sell off has been a costly and bureaucratic failure," he said.

"It should move on, and focus on building more state houses to ease the acute shortage of affordable rentals."

As part of major reforms of the sector, the Government is aiming to sell around 2000 state houses to non-government providers.

Around 1100 state houses are being sold in Tauranga, and Accessible Properties has been chosen as the preferred buyer.