Labour would turn the corporation in charge of state housing back into a government department if elected next year, allowing it to spend money now allocated to paying a dividend on building new houses.
Mr Little unveiled the second part of the party's housing plan at the party's 100th birthday conference in Wellington today.
He said the National government took a $118 million dividend in 2015/16 - enough to build 1500 new state houses.
Mr Little said Labour would also stop National's state house sell-off and commit to substantially increasing the number of state houses.
"How out of touch do you have to be to flog off 2500 state houses, and plan on selling 8000 more, all in the middle of a housing crisis?"
Mr Little said National had used Housing New Zealand to profit from the most vulnerable, and turned it into a glorified property management company.
He said National's approach to state houses was one of the most galling aspects of its response to the housing crisis.
"National has reduced the number of state houses by more than 2500 since 2011. Labour will stop National's state house sell-off and commit to substantially increase the number of state houses."
He said changing Housing New Zealand into a public service department would mean the dividend normally paid to the Crown could instead be invested in new homes, a move that on its own could see as many as 1000 homes a year being built.
Not having to pay the dividend would also give Housing New Zealand money to invest in fixing cold, damp homes, he said.
Mr Little said part of the new build planned by Labour would be funded by the money Housing New Zealand was currently required to return to the government.
"And the rest will be through capital injections from the government."
However, the government said Labour's newly-announced housing plan would unwind a lot of good work Housing New Zealand is doing.
Mr Little said a Labour government would build 1000 state houses a year by not requiring a dividend after it shifted Housing New Zealand into a ministry.
However, Economic Development Minister Steven Joyce said there were no plans for another dividend for at least two years.
"If anything it might make things slow down, we've only just got Housing New Zealand up to the point where it can invest very significant sums of money into building new houses, particularly in Auckland."
Mr Joyce said the idea of shifting Housing New Zealand into a ministry would not achieve anything.
The Labour Party's main housing announcement will be made in Auckland tomorrow.