It was fundamental to the success of communities that comfortable, affordable housing was available - particularly at the lower end of the property ladder, commission chairman, Murray Sherwin, said.
"Young people and those on lower incomes currently have much less chance of ever purchasing their own home."
Finance Minister Bill English said the Government would provide a "thorough response" once it had considered the report in detail.
But in a statement, Mr English acknowledged the importance of the issue for families and the economy.
New Zealand experienced a sharp rise in house prices during the past decade, resulting in declines in housing affordability and home ownership rates and large increases in household debt, he said.
"Rising prices made it harder for families to climb the first rung on the housing ladder and the accumulation of debt left the New Zealand economy more vulnerable to external shocks."
Those imbalances added further pressure on demand for social housing and accommodation subsidies, Mr English said.
Mr Sherwin said the commission found that taxation was not a key driver of the recent housing boom, effectively wiping out calls by Labour and the Greens for a capital gains tax on property. Containment policies such as "Smart Growth" and Auckland's Metropolitan Urban Limit (MUL) were also found by the commission to have an adverse effect on housing affordability by limiting the availability of land for housing.
"Pressure on land prices needs to be reduced and the commission has recommended there be an immediate release of new land for residential development in high-demand areas such as Auckland and Christchurch."
Councils should also ensure they were not putting up barriers to development and should take a less constrained approached to urban planning, he said.
There also needed to be a review of regulatory processes with the aim of speeding up and simplifying consent processes.
"There is no need for our homes to be expensive. We can construct quality, affordable homes. But it will take councils and developers to work together so that sections can come to market quickly at a price that allows the building of homes at an affordable price."
The commission also recommended reconsideration of current social housing reforms.
The community housing sector had a unique and valuable role to fill, Mr Sherwin said.
It could provide below-market rents and more security of tenure than was available from private landlords. It was also well suited to providing the range of "wrap around" services required by many social housing tenants with needs that ran well beyond just affordable housing.
"But the social housing sector will need considerable assistance if it is to scale up to the extent required, and do so within a reasonably short time frame."
The Social Housing Fund set up to help the community housing sector grow was not equal to the task demanded of it, Mr Sherwin said.
However, not everyone was accepting of the report with Green Party co-leader Russel Norman saying the recommendation would lead to urban sprawl and a less productive economy.
The Property Investors Federation president Andrew King was concerned with recommendations on low income housing.
"Private landlords already house the majority of low income households in New Zealand very effectively. This seems to be confirmed by the commission as well, saying that rental prices have not kept pace with other cost increases."
That implied that rental prices had been kept lower than they might have been, he said. Given that, it seemed odd the commission recommended giving more state assets and ongoing financial support to the community housing sector so it could build up in competition to the private sector.
