"There's more and more demand [for state housing] coming out of the woodwork and that's concerning."
Twyford was also optimistic the Government could build more than 27 houses on average a day to meet their 100,000 KiwiBuild target over the next three years.
He said he would not make any apologies for being ambitious.
"We're going to put the Government in the market and choose to build affordable homes - large volumes of them, and sell them to first home buyers."
When pressed on what he made of doubts expressed by the Reserve Bank about how feasible Labour's plan was, Twyford said the doubts were based on incorrect Treasury advice.
Treasury had made "assumptions" about Labour's plans without seeing their full policy, he said.
Once the houses were built, a ballot would be drawn to see who would be allowed to buy the first round of homes.
This would not be means-tested as the Government did not want to set up a "heavy bureaucratic system" around housing, Twyford said.
He denied developers would be put off working with the Government because their profit margins would be slimmer if they had to sell affordable homes, which Labour will not be subsidising.
"The Government takes some of the risk out and speeds up the process" - which was appealing to developers, Twyford said.
As to where the houses would be built, especially in Auckland, Twyford said he shared agricultural growers' concerns about housing developments being built on fertile growing soil.
He was open to meeting with growers in the next few weeks to discuss these concerns, he said.
