John Key's state of the nation speech in late January gave only a fleeting overview of the broader economy, focusing instead on changes to a portion of the housing market: state housing. Or - as it is now called - social housing, because it is no longer the sole domain of the state, whose role is set to shrink.

Over three years National plans to sell up to 8000 properties - from its portfolio of 68,000 houses worth more than $18 billion - to community housing providers, including 1000 to 2000 this year. The income-related rent subsidy - a top-up for those in social housing - will be made available to another 3000 households, while Housing NZ is also ramping up its building programme to 1000 properties a year (although this is matched by sales).

National presented its plan as "the next steps" for the sector, because it continues a direction set in 2013, when it began allowing income-related rent subsidy to be paid not only to Housing NZ, but also community housing providers. Key reminded the audience that in any given year, Housing NZ sold about 1000 houses, roughly matching the number it purchased.

Why is the Government conducting the sales?

According to its statements, it is looking to change the focus from the state as provider to being about the provision of social housing, with more of it available overall.

EIP Key says local providers "can be closer and more responsive to their community".

There are other reasons, less focused on the needs of the sector. Funds raised from the sales to community providers will be used for housing as well as "other capital projects needed across government". This could range from schools and hospitals, to top-ups for casino-operated convention centres.

Labour's housing spokesman, Phil Twyford, warns that the changes are the start of a move from provision of houses to subsidy, with only an ideological assertion that outside providers will be able to to a better job.

A spokesman for Finance Minister Bill English said community providers have improved the experience in the United Kingdom and Australia, and in any case, Housing NZ would continue to offer the "lion's share of social housing . . . for the foreseeable future".

The sales to community providers are not the only ones taking place.

Housing NZ is expected to build 1000 properties this year, part of a programme to better match the size and location of state houses with demand. But the way the programme is conducted is leading to claims the asset base is being plundered.

Housing NZ chief executive Glen Sowry said this week that "virtually all" of the 1000 properties will be through intensification, so that 30 units will be built where five houses once stood, for example. But the number of properties it owns (excluding the community transfers) is remaining static, giving scope for a ramp-up in sales. Although this will free up land in Auckland, it will shrink the land bank, limiting options for the future.

What will happen to tenants?

The Government insists that the aim of transferring homes to community housing providers is to improve tenants' experience. It has been careful to stress that any sales to community providers would come with conditions - probably in the form of covenants - that the properties would only be used for social housing.

Labour says there is a risk that if the community providers buying the houses go broke under the leverage they require, the properties would be sold by banks as secured creditors, although banking sources laughed off the idea of foreclosing on social houses.

Twyford also claimed there was a risk that the structure could disadvantage certain groups, if iwi-based providers chose to house their own people, or if religious-based organisations chose to exclude particular tenants based on lifestyle.

Although the Salvation Army has expressed reservations about the plan, its policy head, Major Campbell Roberts, dismissed Twyford's concern, saying that if the Government's policy was sensible, it would ensure universality. In any case, he said, the Ministry of Social Development determined eligibility for social housing.

How keen is the charity sector on the plan?

The support is mixed at best. Virtually every time the Government mentions transfers to community providers, the Salvation Army is raised as a likely key player.

"That hasn't been done with any consultation with us and neither have they been able to provide us with any of the information that we wanted," Roberts said.

He said the organisation would not be buying social housing "unless we can get a better experience to the tenant" as well as on prudent investment terms.

Any buyer would need to spend more on maintenance than Housing NZ does at the moment, and when coupled with inflated land values, the Government needs to "forget about the market price" of the houses in the sales.

"People are going to be surprised by the level of discount that's required. Then taxpayers will want to say something about that at that point. And the Government may not be that keen, either," Roberts said.

Key said there had been strong interest from iwi groups and he would be "amazed" if the likes of the Salvation Army were hesitant to get involved if they saw a way to make money off the investment.

Privately though, those involved in the process acknowledge there is a large degree of uncertainty.

Could the Government get cold feet and pull out?

Cabinet papers acknowledge there is considerable uncertainty around pricing, hinting at a likely loss on the sales.

The finance minister's office would not say if there was any "bottom line" for the sales to community providers. For English, who has delivered six deficits in a row, and is expected to deliver a seventh on May 21, selling the houses at a loss later this year could create further embarrassment.

A quirk in accounting standards means that as the value of Housing NZ's portfolio rises, it does not affect the surplus. But if the Government chooses to put covenants on state houses and then sells them at below their book value then the difference would come off the surplus.

If, for example, the 2000 sales took place at $100,000 a house below market value, the books would take a $200 million hit.

The first sales are likely to take place in 2015-16 when Treasury is forecasting a wafer-thin $600 million surplus, before plans for these state housing sales were planned. Throw in the impact of a drought, and low inflation hitting tax receipts, and English is facing the growing prospect of presenting deficit number eight.