The Auditor-General's investigators are to look into the National Party's complaints about taxpayer funding being used to underwrite KiwiBuild homes.
National MP Judith Collins raised objections to the policy in a meeting with Auditor-General John Ryan in late May, arguing public money may have been misused.
She said numerous KiwiBuild homes had already been under construction when they were brought into the programme, a practice she said was contrary to what Cabinet had approved.
In a follow-up letter, the Office of the Auditor-General told Ms Collins her concerns would be taken into account as part of the annual audit of the Housing Ministry.
The document, dated 11 July, said auditors had already begun work and intended to review the process by which KiwiBuild projects were approved.
"We have referred the concerns you have raised and the information you provided (including the particular examples you have mentioned) to the auditors carrying out that work for them to consider," the letter said.
"In addition, the Auditor-General has signalled in his future work programme a review of the implementation of KiwiBuild along with a review of the benefits realised through the programme."
Ms Collins said she was pleased the Auditor-General was taking the matter seriously.
"This is a lot of money... What we're talking about here are millions of taxpayers' dollars currently going into a scheme that rewards property developers for building houses whether people want them or not."
The KiwiBuild contracts include a "Crown underwrite" which effectively guarantees private developers a minimum return on their properties.
If houses remain unsold after 60 days, the developer can either require the government buy them, or sell them on the open market with the taxpayer topping up any shortfall.
As of May, the underwrite had been triggered for 12 properties.
Ms Collins said Cabinet documents showed the guarantee was meant to apply to "new homes off the plans" as a way of encouraging construction that otherwise might not have gone ahead.
And yet she pointed to properties in Auckland and Canterbury where construction had already begun before the underwrite was signed, meaning there had been "no benefit to taxpayers".
"That seems to me to be the misuse of public funds," Ms Collins said.
Prime Minister Jacinda Ardern said what was decided by Cabinet has been followed, and she will await the auditor-general's findings.
She said KiwiBuild is only one part of Labour's housing policy and they have been very open that it has not delivered at the rate and on the scale they wanted.
But Ms Ardern said Labour also campaigned on building more state houses which they have done and homelessness and they have extended the number of Housing First places for those experiencing chronic homelessness. She said this government is building more houses than any government since the 1970s.
Kiwibuild complies with Cabinet's mandate - spokesperson
KiwiBuild's head of of delivery Helen O'Sullivan was unavailable for comment, but a spokesperson dismissed Ms Collins' objections.
In a statement, the KiwiBuild spokesperson said every deal had been assessed by legal advisors and Treasury, and they all met the requirements of Cabinet's business case.
"Cabinet set KiwiBuild's primary objective as 'increasing the supply of dwellings at affordable price points for first time, entry-level buyers'.
"In accordance with Cabinet's mandate, KiwiBuild is using tools including the underwrite to achieve this, with 230 homes completed, nearly 400 under construction, and 10,000 in the pipeline.
"In some instances, KiwiBuild has included homes under construction in the underwrite where the deal meets KiwiBuild's objective."
In a Cabinet reshuffle last month, Phil Twyford was stripped of the housing portfolio with the load to instead be shared by a team of ministers headed by Christchurch MP Megan Woods. Mr Twyford retains responsibility for urban development.
Dr Woods has yet to respond to RNZ's request for comment.
Labour's flagship KiwiBuild policy has been under review since January when the government admitted it would not come close to meeting its short-term targets.
Since taking over responsibility for KiwiBuild, Dr Woods has declined to make any substantive comments about what will change under her watch.