"Are we really going to say that just because a property has a double garage, but otherwise is perfect for the family, are we really going to reject it and leave them without adequate housing?" he asked.
Activist John Minto, who co-ordinates a new national tenant network, said the draft confirmed that the Government wanted to put social housing tenants in "small, cheap places".
"The policy is really to buy the smallest, grottiest places they can find and use that as an incentive to get people out," he said.
"Why shouldn't families on low incomes, who have the highest needs ... They are the very people who would benefit from beautiful views, why should they be reserved just for the wealthy? It's all wrong."
However, the draft policy also declares the ministry wants "properties that are warm, safe and dry and properties that have modifications for disabilities".
It says quality standards will require that landlords maintain homes "in a reasonable state of repair having regard to the age and character of the premises".
Social Housing Minister Paula Bennett said the ministry was "perfectly justified avoiding high purchase prices because of things like large decks and the view, which don't actually meet the housing needs of tenants".
"We can help more people in need by making smart purchasing decisions, rather than diverting taxpayer dollars towards properties with higher prices due to extraneous features," she said.
The ministry has already carried out an initial registration of interest process for community housing providers to deliver 300 new homes for tenants qualifying for income-related rents in Auckland.
Qualifying tenants pay rents at 25 per cent of their income, and the subsidy tops up the revenue for community housing providers and Housing NZ to the market rent for the property.
Subsidised properties are due to rise from 62,000 this year to 65,000 by 2017-18, and the cost will rise from $718 million to $880 million.
