National's housing promise to first-home buyers will stabilise property prices by creating more housing, John Key says.

At yesterday's National election campaign launch, Key announced new KiwiSaver HomeStart grants for first-home buyers on modest incomes would be doubled - up to $20,000 for a couple buying a newly built home.

The existing grant of up to $10,000 would remain for buyers of existing homes, but the policy lifted the cap on the value of properties that could be bought.

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Opposition politicians have criticised the promise, with Labour leader David Cunliffe saying there was no merit in National's plan and Labour would scrap the proposal if it won power on September 20.

Speaking at Hobsonville Point housing development today, Key said "they just don't understand basic economics."

Too much demand and not enough supply would drive up prices, whereas National's policy would mean more houses were being built, Key said.

"I don't think realistically it will bring house prices down, I think it will stabilise house prices," he said.

"You're not going to see tens of thousands of empty houses sitting around New Zealand."

Hobsonville is the largest home development site in Australasia. It is former Defence Force land that is being developed by Housing New Zealand subsidiary Hobsonville Land Company.

Housing Minister Nick Smith said there would be 3000 new homes in the development over the next 10 years, of which "at least 20 to 25 per cent will be within the new $550,000 house price cap for Auckland under KiwiSaver HomeStart and the Welcome Home Loans."

"An important objective of KiwiSaver HomeStart is to encourage more housing companies to build new houses in the price range affordable to first home buyers," Smith said.

Hobsonville had shown it was possible to provide good quality, more compact housing that was affordable.

Smith said the hard part of buying a house for young people was getting the money together for a deposit.

The practical effect of HomeStart at Hobsonville was first-home buyers would be able to purchase a three-bedroom house, which the previous house cap had restricted.

"A typical couple each earning $50,000 a year will have, with no other savings, a $55,000 deposit and be able to secure a Welcome Home Loan for a $550,000 home," Smith said.

"I am confident we are going to see hundreds of young Aucklanders accessing the new KiwiSaver HomeStart so they can purchase their first home in Hobsonville."

Hobsonville was a Special Housing Area created under the Auckland Housing Accord agreed to last year by the council and the government.

The flexibility and speed of the Special Housing Areas legislation combined with KiwiSaver HomeStart opened the door to more developments like Hobsonville across Auckland, Smith said. 

- Stuff