UPDATED 6.21pm: Social housing providers, like iwi or the Salvation Army, will be offered state houses at cut rates.

Up to 2000 houses will be offered this year but will still be required to house the needy.

Mr Key says the book value of state houses varies widely.

"Some of the Housing New Zealand stock really isn't working for Housing New Zealand or anyone else. There's either too much of it in one place, it's run down, some of it is extremely old, the book value of it is very arbitrary."

Up to 5000 current state house tenants will have their circumstances reviewed and if they're living in a home that's too big for them, they'll be moved on.

There are 68,000 houses now and the Government says it'll ensure there are at least 60,000 remaining by 2017.

He's also promised more rent subsidies for low-earners - but Labour's Andrew Little says that doesn't fix the current problem of a housing shortage.

Little says selling off houses and giving more rent subsidies, will simply push rents up for other tenants.

The Prime Minister wants community organisations to play a greater role in providing social housing.

"Housing New Zealand does have a lot of stock that's either in the wrong place or the wrong configuration, and I think the test won't be how many houses Housing New Zealand own vis-a-vis Salvation Army or somebody else.

"The test will be, 'are we providing more accommodation to families in need'."

John Key said around a third of tenants are in the wrong place and if the review confirms that, they'll be moved on if possible.

Mr Key's assuring that the reviews will take into account people's individual circumstances and the availability of alternative accommodation.

He says the Government understands the importance of certainty for tenants with serious and long term needs.

Warnings of housing crisis

Protests have already begun after Prime Minister John Key announced up to two thousand state houses will be sold off in the next year.

The move comes as the Government looks to shift social housing responsibility from Housing New Zealand to community groups.

But not everyone is enamoured with the announcement, as Michael Sergel reports.

"They are saying that National's announcement today amounts to a privatisation of state housing."

Labour's predicting rents will go up as a result of the Government's social housing plans.

Leader Andrew Little says selling off state houses and offering subsidies to landlords will drive up rents and be a windfall for property developers.

He says the proposals are lose-lose as state house tenants will lose the security of dedicated social housing and will have to compete with the million other Kiwis battling it out in an overheated private rental market.

And there's also some sharp criticism from the Green Party.

Party Co-Leader Metiria Turei says measures announced by the Prime Minister earlier today contain no guarantees that any new housing will be built for hard working families who're desperately in need.

She says 63,000 New Zealand children are living in overcrowded houses right now.

Ms Turei says nothing in the Government's proposal ensures that they will get an affordable, stable and secure home.

One region crossing their fingers that the government will ease social housing struggles is the Far North.

Te Tai Tokerau MP Kelvin Davis says housing is one of the biggest issues he's asked to help with, as the local MP.

"There's something like 7000 homes in Northland, in Te Tai Tokerau that urgently need upgrading, insulation, double glazing, they're just unsuitable for people to live in.

"So it's a real problem up here and people and families and children are suffering because of it."

Mr Houghton says Northland needs more priority, due to the size of its housing wait list.

"But the reality is, successive governments never, ever think of the North."

Data from the Ministry of Social Development shows the Far North has the tenth largest wait list in the country for high-priority housing clients.

Disability access

As the Government grapples with a lack of affordable homes, there's a warning of another housing crisis.

CCS Disability Action chief executive David Matthews says there's a serious lack of accessible housing for impaired Kiwis.

He says the Government can take action relatively easily.

"Encouraging our planners and our developers to consider the needs of all citizens in the designs of homes."

David Matthews says the current proposed rental warrant of fitness doesn't even mention accessibility.