Housing was a ''very important issue'' with the rising cost of housing a great concern in Auckland and Christchurch.
''We also know it is an issue around the country,'' he said in a speech yesterday to the Local Government New Zealand conference.
The Government believed it could improve the supply side of the housing market so that housing became more affordable.
That was the reason for establishing housing accords, in partnership with local government, to create special housing areas.
Housing accords aimed to streamline the planning and consenting process and brought central and local government closer together on housing development, Mr Key said.
As a result of the Auckland housing accord, 39,000 new homes were being planned for the next three years, a significant increase in the number of homes being built in Auckland.
Addressing the recent debate on the Reserve Bank's proposal for loan-to-value ratios (LVRs), Mr Key reiterated that first-home buyers were a priority for the Government but it was worth putting some context around the actions of the central bank.
Absent of any other alternative, rapidly increasing house prices might see the Reserve Bank raising interest rates, which would affect everyone - all mortgage holders and businesses, wherever they were in the country, as well as the Government.
''That is certainly not in the best interests of first-home buyers. And higher interest rates would put upwards pressure on the kiwi dollar, which would hurt exporters.''
Even with LVRs introduced, interest rates might ultimately rise but the intention with the LVRs was to provide the Reserve Bank with other tools to dampen demand, Mr Key said.
Housing bubbles overseas, as in the United States, where subprime mortgages were popular, had a negative impact on the American economy. It left US banks, and many homeowners, exposed and it had a dramatic, negative flow-on impact.
It was an issue that had to be taken seriously in New Zealand, he said.
If it was left unchecked, some buyers could find themselves substantially over-exposed in an overvalued market. When that happened, values started to fall, he said.
''So this issue is of serious concern. I remain of the view that all tools have to be considered. Demand-side issues are largely the purview of the Reserve Bank, which is independent and they will, in the end, have to make a decision.''
The debate was about getting the balance right between ensuring people had the opportunity to buy a home and ensuring there were no problems with the banking system and all the negative economic impacts that would entail, Mr Key said.
Labour Party leader David Shearer said Mr Key was complicit in the plight faced by first-home buyers.
''The dream of home ownership is already beyond the reach of hundreds of thousands of Kiwis and when the Reserve Bank introduces limits on high LVR lending, things will only get worse.''
The Government gave the Reserve Bank the power to use LVRs knowing it could add $50,000 to $60,000 to the deposit for an average Auckland house, he said.
First-home buyers would not be able to find that money.
''John Key is out of touch and he's put the interests of property speculators ahead of people looking to buy their first home,'' Mr Shearer said.
