Labour and the Greens have attacked a new tenancy agreement which gives Housing New Zealand the right to decide whether people on parole or bail can live in its state homes.
A clause in the agreement, introduced by Housing NZ this month, requires the department to be notified before people paroled, on bail or serving home detention move into a state house.
The department has the final say on whether approval is granted.
Labour's housing spokeswoman, Moana Mackey, said it was a draconian decision.
"It is simply not appropriate for a social housing agency to set itself up as judge and jury on the innocence or guilt of people appearing before the courts," she said.
"Many people on bail are not convicted of the offences they are charged with and delays in the court system mean a number of people remain on bail for a year or more before their case is heard."
Green Party housing spokeswoman Sue Bradford said the measure was a recipe for increased crime and poverty.
"This is not the best way to ensure state housing tenants are safe. It will have the opposite effect, creating crime by separating families and pushing vulnerable Kiwis into homelessness," she said.
Housing NZ chief executive Lesley McTurk said the new agreement addressed concerns about vulnerable families being able to sustain tenancies when people not usually residing at the property were bailed or paroled there.
The agreement retained the right of people who usually resided at their state house to be bailed, paroled or serve a sentence of home detention there.
"However, where a person who does not normally live at the property seeks to do so, the tenant will need permission from Housing New Zealand for them to stay at the address under those conditions."
Dr McTurk said neighbours' peace, comfort and privacy also needed to be taken into account.
"As a responsible landlord we need to know who lives in our houses in order to manage tenancies, set correct rental levels, prevent overcrowding, and look after the interests of the community and staff.
"This is about knowing who lives in state houses, not judging what they've done." Ms Bradford called on Housing Minister Phil Heatley to reverse the agreement.
A spokesman from Mr Heatley's office said it could protect, for example, against a gang member applying to inadvertently live next to a rival, or a convicted paedophile living in an inappropriate situation.
There would have to be a legitimate reason for Housing NZ to say "no" to someone requesting to live at a certain address, the spokesman said.
