A $140 million housing project on council land in Manukau has hit a snag on the eve of Auckland Mayor Phil Goff releasing a major report to tackle the city's housing crisis.

The council's development arm is being blamed by New Zealand Housing Foundation chief executive Paul Gilberd for wanting too much for the land, where hundreds of homes, including more than 100 affordable homes, are planned.

"The whole process has collapsed and is off the table as of Wednesday last week," Gilberd told RNZ.

He said the foundation offered $13m for the land but Panuku Development Auckland wanted $24m, making affordable homes too expensive.

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This is a big project for us and we want to get it right

Sources have told the Herald the project has not collapsed, the foundation remains committed and negotiations are continuing to bridge the gap between making a financial return for ratepayers on the 5.1ha vacant site near the Manukau City Centre and delivering affordable housing.

"This is a big project for us and we want to get it right," said Chris Darby, the councillor responsible for housing and planning matters.

The snag is bad timing for Goff, who is due to release the report of a mayoral taskforce on housing tomorrow, which, among other things, looks at how to incentivise building of affordable homes.

Goff made an election promise to put council support behind more affordable housing schemes, such as the 290-affordable housing project at Waimahia Inlet, Weymouth, involving the Housing Foundation.

The project highlights the difficulty balancing the cash-strapped council's desire to maximise the value of selling surplus land and using its landholdings to deliver affordable housing.

Panuku Development Auckland has been very successful selling surplus land in the current financial year, realising $92.8m of land sales against a target of $50m. Council has set Panuku a target of $60m in the 2017-2018 financial year.

In a statement, Panuku said its plans for the pilot housing development at Barrowcliffe Place, next to State Highway 20 and Puhinui Stream, was based on delivering affordable housing, involving iwi, using good urban design principles and delivering reasonable density.

"The other important factor is that the sale of the site needs to make a reasonable financial return for Auckland ratepayers," the statement said.

Darby said the council could not expect to get maximum value for the land when you had caveats like affordable housing, involving iwi, achieving good urban design and reasonable levels of density.

The Barrowcliffe project is part a long-term urban regeneration project being led by Panuku to transform 600ha around the Manukau City Centre. The council controls about 40 properties totalling 95ha and Housing New Zealand a further 52ha.