Finance Minister Bill English has confirmed the Government will need to spend $1.5 billion upgrading state houses as they are sold to social housing providers.
But he said the money would not be spent in one year.
Mr English conceded many state houses were not up to standard and had not been properly maintained.
He said the cost of deferred maintenance had risen to $1.5 billion and that the matter had been raised during discussions with social agencies considering buying state houses.
"They've highlighted that. So part of the benefit of the process we're going through is that these agencies are going to apply a very tight scrutiny to the state of the houses that maybe they might be looking at buying."
Mr English blamed the former Labour-led Government, saying it had focused more on building new state houses than on maintaining existing homes.
But Labour Party leader Andrew Little said it was a problem solely of the current Government's making.
"This Government's got it wrong. They've been exposed now. So they've got to go back, they've got to repair their housing stock.
"Now is their chance to get it right, get the houses fixed up, get people into them, reduce those waiting lists and get people our of their cars and garages."
Mr Little said under the National-led Government Housing New Zealand had been encouraged to scrimp on maintenance.
He said if Housing New Zealand had done its job it would have retained a proper maintenance schedule and kept the housing in good shape.