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Social agencies have called on the Government to provide more affordable housing, as reports indicate the number of families living in cars and garages has grown as Auckland's housing market puts pressure on rents.
This morning, Mr Key told Radio New Zealand that families living out of cars should visit Work and Income. It was not acceptable that people lived in such situations, and "that's not the New Zealand that we want".
Immediate solutions might not be perfect, he said, but it would be very surprising if such a family was left in such a "dire" condition.
"People often don't understand what's available to them. My experience with Work and Income is they do their very best to support people in those situations, especially when children are involved."
The Prime Minister told Radio New Zealand that this year's Budget contained new funding of $41 million over four years for emergency housing, and the Government was encouraging community groups to provide housing.
There were also efforts to move couples or single people from larger state houses to smaller ones, Mr Key said.
The Government is set to confirm plans next month to force councils to unlock more land for housing.
Housing Minister Nick Smith told TVNZ's Q+A yesterday that he would be "upping the ante" on increasing housing supply, in particular in Auckland.
"Next month I will be producing a national policy directive under the [Resource Management Act] that will put far tougher requirements on growing councils to ensure they are freeing up long-term the land that is required so that we don't get into the sort of juggernaut that has been at the core of the unaffordable housing problems in Auckland."
The Government was "pulling every lever it had" to increase supply, he said, and progress had been made on plans to build houses on surplus Crown land in Auckland.
Labour leader Andrew Little said the Prime Minister was "completely out of touch" if he thought families living in cars simply needed to go to Work and Income for help.
"Many of these families are working and still can't afford a home in Auckland, where rents have risen 25% in the past five years. Our MPs are inundated with people who are in extreme need but still can't get on the state house waiting list.
"It's high time National got real about the housing crisis. It should embark on a massive state-backed building programme for affordable housing, clamp down on offshore speculators forcing house prices out of the reach of Kiwi families and build more state houses rather than selling them off."