Social Housing Minister Paula Bennett has told community housing providers that they need to become sustainable businesses and not to depend on Government grants.
In a speech to a Community Housing Aotearoa conference in Wellington, the minister said she was concerned that housing organisations had an expectation that large scale capital grants were the only way to grow the sector.
"It is quite simply not a sustainable way to grow," Mrs Bennett told an audience of around 150 people.
Instead of depending on grants, she said, organisations needed to be commercial to be sustainable.
"That will mean looking at ways to build your balance sheet and your financial capability, or forming a consortium to get it."
It could also mean working with iwi, other housing providers, larger financiers, or companies with experience in large scale asset management.
"The Government has signalled that we expect providers of all sizes to be seriously looking at all options to build a sustainable business," Mrs Bennett said.
"That's what will be needed if we are to achieve the goal of more community ownership of social housing."
The Government has begun the process of selling off tens of thousands of state houses to non-government providers, the biggest change in the sector in 80 years.
Mrs Bennett noted that in Tauranga, where some of the first tranche of state houses would be sold, three iwi authorities had formed a consortium with Masterton Trust House to bid for some of the state houses.
The minister said the idea of becoming a larger, more sustainable business could be daunting to some, but the Government had made a number of changes to support providers.
These included extending income related rent subsidies to non-government housing providers and long term contracts of up to 25 years to give organisations some certainty about their income stream.
Mrs Bennett said the Government's long-term rental contracts were a "double A rated, Government guaranteed investment product" which most investors would "climb over broken glass" for.
The sell-off of thousands of state houses is part of broader reform which also made all tenancies reviewable.
Mrs Bennett said since July, 2500 people had become involved in the review process, and 257 of them had moved into private rental accommodation.
She said there were "clear reciprocal obligations" for tenants or prospective tenants, and 414 people had turned down state houses in the last year "for reasons we don't think are good and sufficient". These reasons included birds chirping in the trees of a neighbouring house and not liking the colour a door was painted.
Asked later whether she could provide evidence of these examples, Mrs Bennett told reporters they were in tenants' case files.
"It's certainly what I'm told, and my officials don't make it up."
She was taking some proposals to Cabinet on this issue including a possible "stand-down period" for tenants who turned down houses.
Another proposal would be to give tenants more than one "letting area", which meant requiring them to consider a state house in a different region.
Mrs Bennett gave an example, saying that people who were on a wait list in Wellington could be required to move to the Hutt Valley, where there were vacant houses.
Community Housing Aotearoa director Scott Figenshaw said the Government's partnership with community housing providers was progressing, "but we still have a long way to go".
He said accessing capital was a big challenge for providers.
"We're seeing a big change in how Government wants to provide that. There needs to be a range of options - capital grants, rent subsidies, access to Crown land. We need to make all those pieces work."