His comments follow the release of new CVs for Auckland, which have soared since 2011, particularly in city-fringe suburbs.
There are fears the mostly higher CVs could lead to rates increases well in excess of the 3.7 per cent planned for homeowners by Mayor Len Brown next year.
The latest figures show CVs across the city have risen an average of 34 per cent since 2011, and in Hobsonville a whopping 65 per cent.
Mr Key told TVNZ's Breakfast show today the valuations reflected what had been happening in Auckland over the past three years.
"You have seen some big increases and I think actually over the last 20 years you've seen very big increases in Auckland which are not sustainable.
"They don't need to go up that quickly - there is a way of resolving that issue and I think it is dealing with those structural issues, which is basically supply."
More land needed to be released and more houses needed to be built quickly, Mr Key said.
First home buyers also needed to look at different options for getting onto the property ladder, he said.
"Some people will have to consider going into an apartment for instance, that has been the international change.
"If you're a young person buying your first place in Sydney or Melbourne or Brisbane, in most instances you'll be going into an apartment."
The KiwiSaver programme could also help people with a deposit, Mr Key said.
"Buying a house has never, ever been easy.
"People sort of look at it today and say 'It's incredibly difficult', and yes home ownership rates generally have been on a long-term decline.
"The real magic here is what's driving those [price] increases - it's land."
The Government should not intervene to subsidise projects such as Auckland's rail to help control rates rises, but the council did have to manage its resources "appropriately", Mr Key said.
"And that's one of the reasons why we're not looking to rush to bring forward the rail, in terms of the CBD rail link, because if we do, the other portion of that has to be borne by the rate payers."
