You are not permitted to download, save or email this image. Visit image gallery to purchase the image.
The councils currently eligible to access the fund for such things as water and roading development are Auckland, Hamilton, Tauranga, and Christchurch.
They are the cities that are expected to have more than 10 per cent population growth in the next 10 years.
The Government has not yet decided how the fund will be structured but it will require an extra $1 billion in borrowing., The fund will own or finance the infrastructure until the councils receive rates revenue from the new houses.
Mr Key made his announcement in a speech to the National Party conference in Christchurch.
He said the Housing Infrastructure Fund would accelerate the short and medium term supply of new housing where it was needed most.
"It will do that by investing upfront in infrastructure to ensure more housing can be built in a timely fashion.
"To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available," Mr Key said.
"Ideally, they will have agreements with developers."
It would be tightly targeted at core infrastructure that supported additional new housing.
Funding might have other conditions attached, such as faster processing of resource consents.
Auckland Mayor Len Brown welcomed both the infrastructure fund and future establishment of urban development agencies and looked forward to reviewing the initiatives in detail.
"This is a welcome proposal for all high growth areas, but in particular Auckland where we face significant housing challenges,'' Mr Brown, who was unavailable for interview, said in a statement.
"We have been talking with the government for some time about further steps to increase the pace of new home building in Auckland and funding for infrastructure has been a key and crucial component of these discussions.
"While we are yet to see the details, these initiatives could contribute to the acceleration of housing supply in Auckland without increasing the burden on ratepayers or adding to council's debt levels.''
Not enough, says Labour, NZ First
Labour leader Andrew Little said the "$1 billion credit line" would do little to address the homeless crisis.
"When you have an infrastructure deficit in Auckland alone of nearly $20 billion and billions more around the country, a $1 billion loan? It simply doesn't cut it.
"Just another credit line, when this Government has spent the last eight years criticising councils for the amount of debt they've got, that's not the answer."
Mr Little said new models of financing infrastructure needed to be found.
"Our approach is to assist councils with that, and allow them to issue bonds, have targeted rates to repay them. That's about putting the cost to where it should properly fall. But just more debt for councils - it's not the answer to the problem we've got at the moment."
Labour would in the coming week make three housing announcements that would include more detail on its solution for funding infrastructure, he said.
It would also cover UDAs. Asked if Labour favoured such authorities, Mr Little declined to give details ahead of the announcement.
However, the Green Party, which as an memorandum of understanding with Labour, views UDAs as a good idea, depending on how they are structured.
"We would need to see the detail ... if they are focussed on good, green, urban design with affordable houses, then we are all for them," Green Party co-leader James Shaw said.
The Canterbury Earthquake Recovery Authority (Cera) had shown the Government's previous approach to urban development was "very authoritarian and top-down", Mr Shaw said.
"If they take a more democratic approach and actually engage with communities and councils in the design of cities, then I think they [urban development authorities] are a good idea.
Mr Shaw said the infrastructure fund was a step in the right direction but not enough and a commitment to invest in houses was needed.
"It puts councils in a difficult position because it is a loan. I think the idea of making it a loan rather than a true investment fund is so that Bill English can keep his books tidy."
New Zealand First leader Winston Peters said the $1 billion fund "won't even remotely cope" with the houses needed for new immigrants, let alone the country's natural population increase.
"After eight years of doing nothing, this monetary sum won't make up the huge deficit in infrastructure that National has allowed to build up."
The Government refused to take responsibly for and drive a house building programme, Mr Peters said.
"Here after, this government will seek to blame local government for the housing crisis on the pretence that they, and not central government, is responsible for the massive demand that now exists."
- by Audrey Young