About three-quarters of the homes bought in the first six months of 2021 had one or two bedrooms.
National's housing spokesperson Nicola Willis said she was "very disappointed that Kāinga Ora continues to compete against first-home buyers for affordable homes".
"The Government's buy-in approach does nothing to increase the supply of new homes, and instead pumps up the prices of existing houses.
"How can a struggling first-home buyer compete with the Government chequebook? Kāinga Ora simply has deeper pockets than anyone else.
"Every time Kāinga Ora rides into a real estate office with a swag of taxpayer cash, another Kiwi misses out on buying a home."
But Housing Minister Megan Woods said the number of properties bought was far outweighed by the amount of social housing delivered by the Government - more than 12,000 extra homes since June 2017.
"When I became Minister, I sent a clear directive to both Kāinga Ora and Community Housing Providers that to fix public housing, our new public housing places would have to be heavily biased toward new-builds.
"We have turned around the practice of the previous National Government of not building and instead relying on buy-ins," she said.
Woods said buying houses was not the Government's first choice, but they would do so when there was a pressing need or it made strategic sense. An example was buying 142 from Nelson City Council last year.
Kāinga Ora typically pays no more than 5 per cent above market valuation for properties, she added.
"it is just not credible for Ms Willis to suggest this is creating some kind of competitive distortion in the market."
Issue a "double-edged sword"
SBS Bank has traditionally originated the majority of the Kāinga Ora First Home Loans and says it is dedicated to helping people get onto the property ladder.
General manager member experience Mark McLean said they fully support the Government providing social housing but the question is whether it can increase that stock in a way that doesn't compete with first home buyers.
He said across the last five years, the number of first home buyers active in the market has increased by 51 per cent according to the RBNZ.
The RBNZ House Price Index shows house prices have increased by 55 per cent over the same period.
"So, these purchases by the Government have been happening at a really critical time for first home buyers and have potentially made it harder for some to get their foot on the ladder.
The data does not show whether the type of houses being acquired are new or existing but McLean said a factor that is potentially being overlooked is houses which are classified as new are exempt from the RBNZ loan to value restrictions.
"When first home buyers purchase brand new homes, lenders have the ability to require a lower deposit from borrowers for those that are otherwise in a strong financial position.
"That's an important element here, as what we see is getting together the required deposit is the part first home buyers struggle most with."
First Home Buyers Club spokesperson Lesley Harris said it is a complex issue.
"I think it potentially could cause some challenges but I think it is also a benefit. When you look at housing, you have to look at it in one broad spectrum not just about buyers.
"The more houses that are brought up by the Government or investors mean fewer houses available for first home buyers in that bracket."
But Harris said before people become first home buyers, they need some form of housing.
"We are seeing an incredibly hot soaring property rental market and first home buyers typically before they buy their first home are going to need to rent or have some kind of housing so perhaps the Government buying houses may mean slightly more reduced rent for low-income families.
"It is a double-edged sword."
The problem is that the housing crisis as a whole is not being addressed, Harris said.
She said there are three main issues, affordability, lending from banks and the level of housing being built.
"There is a high demand. You hear stories of 30 people trying to bid on auctions for one first home so clearly we have a supply issue but we have problems in all three of those buckets."
CORRECTION: An earlier version of this story wrongly stated that the Government spent $1.9 billion buying existing homes for state housing in the past five years. The correct figure is $1,009,700,019. The Herald regrets the error.
