The Housing Minister has made a stunning admission that KiwiBuild targets are set to fail - and he may not build even half the 1000 homes promised.

It gets worse. If buyers don't start showing more interest, the houses may not be sold to first-home buyers - they could be flogged on the open market.

Phil Twyford knew getting KiwiBuild off the ground was going to be hard, but surely not this hard.

"We found it tougher than we expected to get the early numbers up," he told Newshub.

That's an understatement, as the original promise was 1000 houses in the project's first year. That promise became a target, which he admitted he'll completely fail to hit.

"I don't think we can hit the 1000 target this year, and that's disappointing."

He admits he won't get anywhere near the scheme's first year target, although claims to be "confident" he can pump the numbers up to more than 300. He wouldn't commit to building 500 homes - half the initial target - by July.

"It's a failure," Judith Collins told Newshub. "Phil Twyford got an allocation of $2 billion in the last budget, and for that he's currently got 33 houses."

It's crushing for the Housing Minister - and there's more bad news. The few houses that are available aren't even selling.

When KiwiBuild homes are sold, there's supposed to be a ballot which stays open for a month. When it's drawn, the lucky winner gets to buy a home.

But if there's not enough demand for that, the developers can list them for a direct sale and sell them to any eligible KiwiBuild buyers.

"We only ever thought that the ballot would be used where there would be significantly excess demand," says Mr Twyford.

All the houses listed on the KiwiBuild site at the moment are open for direct sale. Even in Auckland, the home of the housing crisis, KiwiBuild properties are struggling to sell.

"There may in some cases be the occasional home that's not been sold to KiwiBuild home buyers," admits Mr Twyford. "They'll then be sold on the open market."

So KiwiBuild homes may not even end up in the hands of first-home buyers - defeating the whole point of the programme.

Newshub.