But Housing Minister Dr Nick Smith, who was visiting Housing New Zealand (HNZ) FirstHome houses in Dunedin yesterday, said Labour had overlooked that New Zealand operates financially as one nation.
Mr Twyford said the Reserve Bank's loan-to-value ratio (LVR) restrictions was a ''one size fits all'' policy and the equity in Dunedin homes could ''take a hit'' because of the Government's mismanagement of the Auckland housing crisis.
''Homeowners in Dunedin risk ending up as the collateral damage of a policy designed to dampen demand in the Auckland housing market.''
The LVR policy resulted in a 20% deposit being required for new residential mortgage lending.
Dr Smith said when Labour was in Government, house prices doubled and the Reserve Bank had to put interest rates up.
The high interest rates resulted in Dunedin residents with mortgages paying more.
''People in Dunedin were hit hard.''
But a Government could not raise interest rates in Auckland and not Dunedin, he said.
The Reserve Bank introduced the LVR to curb a rise in interest rates and keep New Zealand ahead in the global financial recovery.
If the Reserve Bank raised interest rates faster than other countries then New Zealand would become ''a magnet for capital'' and the New Zealand dollar would strengthen.
''That would be hugely damaging for provincial export industries, and Otago and Southland are very dependent on agriculture.
"If the Reserve Bank does not use the LVR tool and uses the traditional tool of interest rates, it is the provinces and the exporting regions that would pay the highest price.''
Dr Smith visited two Housing New Zealand FirstHome houses with $160,000 and $185,000 market values in Wakari yesterday morning.
FirstHome is designed to help low income earners buy a former state house at market value by offering a 10% grant for the deposit.
Dr Smith said the two houses were in ''good nick'' and similar houses in Auckland would be treble the price, he said.
Aucklanders were unaware how much cheaper living expenses were in Dunedin and unemployment rates were similar in both cities.
He would rather live in Dunedin than pay treble for the same property in Auckland.
HNZ tenancy services regional manager Symon Leggett said if a buyer was eligible and was happy with the price of a FirstHome house, then it was first in, first served.
There was a surplus of Housing New Zealand houses in Dunedin, with 28 properties available and 18 people on the waiting list.
Mr Leggett was in Concord yesterday afternoon to see one of the last HNZ houses in Dunedin be insulated under the Energy Efficiency Retrofit Programme.
More than 46,000 state rentals, including 359 in Dunedin, had been insulated under the programme since 2001, he said.
''We've invested $76 million to make our homes drier and warmer.''
Tenant Jenna McFadyen said she had lived in an uninsulated HNZ home and her children Rion (7) and Reco (2) had tonsillitis, ear infections and asthma.
In the insulated house, her children were much healthier, Miss McFadyen said.
