Finance Minister Bill English says some state houses are worth very little, but Government will not agree to give them away for free.
Mr English was responding to comments by an Iwi Chairs Forum representative on the weekend, who said that iwi should have state houses transferred to them at no cost.
Te Runanga o Te Rarawa chairman Haami Piripi said many of the houses were poor quality and were worth little because of the ongoing obligation to look after the tenants in them.
Mr English said iwi were not the only housing providers seeking discounted or free state houses as part of the Government's scheme to sell-off up to 8000 properties to non-government providers.
"But we have to go through a proper process where there's commercial pressure. Where there's quite a range of interests there's bound to be competitive interest for the houses we are selling.
"It may be that some have no value. If you're in a small town with a house that's been a P-lab it might be a wee bit hard to get rid of.
"But generally we will go through a transparent process to ensure that the taxpayer gets fair value."
He said there was increasing recognition that there was an oversupply of poor quality state houses in provincial areas.
The first tranche of state house sales to community providers in Tauranga and Invercargill would give Government an indication of how the sale process might work across the country.
Government has previously said it is willing to sell state houses at a discount to community housing providers.
This would allow the providers to sell some of the state houses on the open market to raise capital, which could then be re-invested in social housing.
Mr English said no estimates had been made yet about how this discounting could affect the Government's books.
Social housing minister Paula Bennett said Government had made it clear that it would not be giving houses away for free.
"That's not what we're planning on at all but we'll go into the negotiations in good faith," she told reporters this morning.
She acknowledged that many state houses were unlikely to sell at market value.
"We've always said quite clearly that they're not going to get the book value. The book value's not the real value ... of a social house with a tenant in it."
Ms Bennett also rejected Mr Piripi's assertion that the social housing scheme had been undermined when the Salvation Army said it would not take part in it.
"That's certainly not what we're hearing on the ground," the minister said.