The Government should adopt a new "KiwiBuy" scheme to help 50,000 Kiwis - who would otherwise be stuck in the rental market - buy their own homes over the next decade, the Salvation Army says.

The scheme would work by having the Government spend $1 billion each year to buy homes in partnership with lower income Kiwis, according to the support group's latest Beyond Renting report released today.

It would involve the Government stumping up as much as 40 per cent of the upfront cost of each home with the buyer paying the rest.

READ MORE: Rental shortage leading renters to become 'desperate'

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This would drop the cost of a mortgage on a $600,000 home closer to a more manageable $400,000, for instance, the Army's social policy analyst Alan Johnson said.

KiwiBuy could then work in tandem with the Government's current KiwiBuild plans to build and sell 100,000 homes to first home buyers over the next decade by targeting those Kiwis who couldn't afford KiwiBuild houses.

Johnson said the scheme was bold but the Government needed to embrace bold plans because many Kiwi families faced the reality of being trapped in the rental market for the rest of their lives

"The Government really does need to accept it has to be more hands on than it has been," he said.

"It has to accept that if you want families of modest incomes to achieve home ownership it can only be by way of subsidies."

Housing and Urban Development Minister Phil Twyford said the Government already had "work underway on a shared equity scheme and will have announcements as work develops".

The Salvation Army's call comes as Kiwi home ownership rates have dropped from 74 per cent in 1991 to 63 per cent.

Yet KiwiBuild alone was unlikely to significantly address this, Johnson said.

This was because - with Auckland houses costing up to $500,000 for one bedroom units, $600,000 for two bedroom homes and $650,000 for three bedroom homes - KiwiBuild remained unaffordable for many, he said.

Salvation Army analyst Alan Johnson says a further 100,000 new rental homes need to be built in New Zealand to meet demand. Photo / Doug Sherring
Salvation Army analyst Alan Johnson says a further 100,000 new rental homes need to be built in New Zealand to meet demand. Photo / Doug Sherring

Those trapped in the rental market were then being further squeezed by rising rents caused by a shortage of rental houses, he said.

The Salvation Army predicted another 100,000 rental homes would need to be built around the country over the next decade to meet demand.

But with house price growth no longer giving strong capital gains and rental yields, Johnson doubted whether private investors would be willing to help build the new homes needed to meet demand.

For this reason, he wanted the Government to step in with KiwiBuy to help half of those 100,000 renters instead buy their own homes.

He said the money the Government used to fund KiwiBuy could come from a number of sources.

This included borrowing the money to cover the $1b per year needed.

The Government could borrow money at low interest rates and when this money was then invested into houses it may even increase in value as house prices rose, he said.

The Government would also soon be paying almost $1.2b per year in accommodation supplements to families on lower incomes to help them afford rental homes on the open market, he said.

"So the taxpayer is already heavily invested in the private rental market," Johnson said.

And rather than putting this money into the hands of landlords, it could be used to help renters buy their own homes.