The government has scrapped its long-standing target to build 100,000 homes over 10 years and will release properties it is struggling to sell on the open market.
Housing Minister Megan Woods has unveiled the hotly-anticipated reset of the government's failed flagship policy.
The reset includes setting aside $400 million to help low-and middle-income New Zealanders buy homes through schemes such as shared equity and rent-to-buy, and reducing the deposit needed for a Government-backed mortgage to 5 percent.
The announcement comes seven months after former Housing Minister Phil Twyford said the programme would be reset.
"New Zealanders want their government to be honest when things aren't working, and to try and put it right. That's what today is about," Ms Woods said.
"There is no silver bullet when it comes to housing. It won't be fixed overnight or with one simple remedey. But if we don't make a start now, it will never be solved."
Ms Woods acknowledged the 100,000 target was "overly ambitious" - to date, only 258 homes have been built.
She said having a target provided "perverse outcomes".
"[It] led to contracts being signed in places where there was little first home buyer demand.
"Instead of the target, we will focus on building as many homes as we can, as fast as we can in the right places.
"Each month we will release a dashboard of housing statistics so New Zealanders can easily measure our progress", Ms Woods said.
Examples of KiwiBuild houses built in the wrong places include developments in Te Kauwhata, Canterbury, and Wanaka.
Homes in areas that haven't sold will now be released to the open market.
"Allowing us to reuse the government capital to get more developments underway where there is clear demand," Ms Woods said.
"We will also be making changes to that government underwrite, reducing the amount available for future developments so developers are incentivised to sell to KiwiBuild first home buyers instead of triggering the underwrite."
The inclusion of a progressive home ownership scheme in KiwiBuild is part of the government's confidence and supply agreement with the Green Party.
Greens co-leader Marama Davidson said $400m for schemes like shared equity and rent-to-buy would deliver "meaningful change".
"Saving a deposit for a home is no longer achievable for many New Zealanders. The way we have approached housing in this country has increasingly locked people out.
"As a government we will now be rolling out progressive home ownership schemes, and supporting community housing providers and iwi to deliver progressive home ownership."
The reset also includes reducing the deposit required for a government-backed mortgage to 5 percent, and changing the policy settings so that people eligible for the $10,000 First Home Grant will be able to group their funds together.
'A massive broken promise'
National Housing spokesperson Judith Collins said the government had admitted defeat and this was a complete retreat from the flashy promises Labour sold to the public.
"This is a massive broken promise. This a promise that was repeated for six years of opposition, two years in government, it's a promise that a lot of people that wanted to be part of the Kiwi dream believed.
"The fact that the government hasn't made any targets now tells us that it has no confidence it can deliver.
"What we've seen today is a government trying its very best to salvage something from the wreck that is KiwiBuild", she said.
Ms Collins said the selling off of around 460 KiwiBuild homes on the open market was a "total disaster" and she predicted the government would take a haircut.
"I think what we're seeing is that the government is saying, 'look, we can't sell the houses that we had built in places where people didn't want to buy them, so we're just going to open up now to speculators or anyone else who wants to buy them'.
"I'd say there's going to be a fire sale in places like Wanaka ... because frankly there's just very little demand. It's just going to be an opportunity for people to buy a holiday home," she said.
Ms Collins said progressive ownership schemes may have some merit, but the devil would be in the detail.
"I do see a glimmer of hope there, I've always been quite keen on rent-to-buy schemes as long as they are fair.
"So I'd like to see what comes out of it but we've got no detail other than they're going to have a Cabinet paper in December," Ms Collins said.