Housing Minister Maryan Street said the two-year, shared-equity pilot would help up to 700 households into starter homes, targeting those who had, until now, "been shut out of home ownership as a result of unprecedented house price rises since 2002".
One of the aims of the pilot was to see if people wanted it, she said.
"The scheme has been tightly targeted specifically to assist a group of New Zealanders who have saved a deposit for a home, but who cannot get on the property ladder in the area where they live and work because starter home prices have moved too far ahead of the maximum mortgage they can afford," Ms Street said.
"These households would normally have expected to buy their first home by now, except for huge property increases in recent years."
Ms Street was confident houses in the caps were available despite median prices being much higher.
"Remember that these are first-home buyers, these are starter houses," Ms Street said.
The Government was open to moving caps as prices changed and would review the scheme quarterly, she said.
Other details such as any limits on lenders and incentives to buy out the Government would be revealed when the scheme was launched on July 1.
One incentive was if a homeowner paid off 5% of the Government contribution, they would get 1% free.
"They can build up to taking over the Government's share if that's what they want to do."
Ms Street said it was not yet clear whether there would be "a lolly scramble" for selection by Housing New Zealand for the pilot, or whether first-home buyers might prefer to wait and see how the market settled in the next year or two.
In Queenstown, the Affordable Housing Trust was created in October 2006, to manage and deliver affordable housing solutions to those who could not afford to buy their first home.
The trust was initiated by the Queenstown Lakes District Council, although it is now an independent entity.
In the resort, the trust operates a Shared Ownership Programme - the trust and homeowner are shareholders in the property as "Tenants in Common" through an agreement which governs the partnership.
The homeowner is responsible for providing 60%-85% of the market value of the property through their ability to borrow in the conventional lending market.
The trust serves as direct co-owner of the home, providing 15%-40% of the remaining value of the property.
Trust chairman David Cole declined to comment on the announcement yesterday.
However, Queenstown Lakes District Council housing senior policy analyst Scott Figenshow said that from the council's perspective, the announcement would hopefully help to find the best solution for housing affordability in the resort.
"We have got significant affordability issues that are long-term in nature and we need to know that programmes that start out as pilots become permanent parts to a solution.
"If what [the announcement] means is that we'll be able to look at two different programmes, understand how they each work... and end up with a long-term permanent programme that will [address] affordable housing [it's a positive thing]."
