Capping the number of state owned homes would hurt the economy and make a housing shortage worse, Green MP Sue Bradford said today.

Housing Minister Phil Heatley yesterday said the Government would cap the number of state houses and concentrate on improving the quality of the stock.

He said this was not a change in policy and any homes that were sold to owners would still be replaced.

Ms Bradford said she was aware of that policy, but had never heard of a cap being placed before.

"At the moment Housing New Zealand still has long waiting lists for existing houses, and increasing number of people are in urgent housing need," Ms Bradford said.

Prime Minister John Key told journalists the Government was becoming the equivalent of a slum landlord.

"Our primary focus will be to improve the quality of those houses, so its unlikely we will look to aggressively build stock," Mr Key said.

National criticised Labour for long waiting lists and Mr Key said this demand could possibly be met by leasing homes, but was still awaiting advice from officials.

Mr Key said there would be more economic stimulus from renovation work then building new homes.

"It would be a good time to use the capacity in the building sector to potentially upgrade those houses...if we build new houses we'll be building smaller numbers, if we do renovations they would be across the country."

Ms Bradford said the Government should be building more homes and renovating existing stock to stimulate the economy.

"We need more houses and we need more healthy houses. One should not be at the expense of the other," Ms Bradford said.