Dr Smith has been accused by Labour and the Maori Party of cutting iwi out of the deal and giving preference to developers, including companies from Australia.
Prime Minister John Key defended the Government's position yesterday.
When Crown-owned land was disposed of, it was first offered to other Government agencies, and then to the original owner of the land, he said.
Once these groups had turned it down, it could be offered to iwi under the first-right-of-refusal rule.
But a clause in the Crown's Treaty deal with Auckland iwi also meant the Government could dispose of any land that was "held for state housing purposes", without offering it to iwi first. The Government is redesignating transport and education land into "state housing land" to allow it to be developed.
Dr Smith said the legislation was clear that "state housing purposes" included provision of houses for sale.
He said Labour had taken the same approach with developments in Weymouth, Papakura and Hobsonville.
Labour's housing spokesman, Phil Twyford, said the Labour Government's redesignation of land in these areas had preceded any Treaty deals. And unlike the National-led Government, Labour had planned to build state houses on the land.
Focus on housing sites
• Govt planning to offer 500ha of Crown-owned land to developers for residential housing.
• Ngati Whatua claims it has rights to the land before developers, and is considering legal action.
• The Government says it does not have to offer it to iwi if it is being developed for housing.
