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The Government has backed down on a key detail of its KiwiBuild policy.

But Minister of Housing Phil Twyford has defended the Government's decision, saying it "strikes the right balance."

When Labour launched its KiwiBuild policy in 2016, one of the conditions of selling a KiwiBuild home was any capital gain made on the property, sold within five years, would be handed over to the Government.

For example, if a KiwiBuild home was bought for $550,000 and sold for $600,000 within five years than the $50,000 capital gain would have to be returned to the Government.

But speaking to media this afternoon, Twyford said the Government had changed the rules.

Now, instead of handing over the whole capital gain after selling a KiwiBuild home, a seller would only have to give the Government back 30 per cent.

And Twyford has reduced the minimum selling time sellers would be penalized for unloading a KiwiBuild home from five years, to three.

"If that contract is breached, and a buyer secretly sells that home, without the permission of the KiwiBuild Unit, in a case where the house has not been caveated, then they will be liable for contractual damages of up to 30 per cet of the capital gain," Twyford said.

"To require the owner forfeit the entire capital gain would be unfair in our view and would likely mean they would struggle to then go on and buy another home," he said.

"The Government chose the 30 per cent figure because KiwiBuild homes are not subsidised – they are sold for the market price of homes."

He said this "strikes the right balance."

He added that the original KiwiBuild policy was developed at a time when the housing market was overheating.

"[The policy was developed] at a time when we had seen overheated housing markets delivering 10 per cent, 15 per cent sometimes 25 per cent annual capital gains."

But Twyford said under this Government's policies, the housing market in Auckland has stabilised.

"House prices have gone up 1per cent in the last year. So the scenario of people making big, windfall gains is extremely unlikely to eventuate."

Twyford was at pains to point out a KiwiBuild buyer was "contractually prohibited" from selling that home for three years after purchase without the expressed permission of the KiwiBuild Unit.

If someone attempted to sell a KiwiBuild home within that three year period, officials could enforce rules to stop the seller from doing so.

But that still leaves a 70 per cent capital gain a seller could pocket.

Asked if this was not still a high enough incentive to break the rules, said he did not think so as the gains in house prices have stabilised over the past year.