And because they can be built so cheaply on smaller pieces of land, they offer good returns.

Milestone Homes, which is part of Jennian Homes, has built and sold 200 affordable, brick and tile homes since it was established two years ago.

The first 140 were bought by investors and developers.

General manager Stephen Murray says the company focuses on good, quality design with functional layouts that work.

But investors are buying them because they're a smart option. They cost between $150,000 and $270,000 for a high spec, three to five-bedroom home.

A house and land package of $400,000 can be rented out for around $400 a week. That's about a 5.60% yield, says Murray. And that doesn't take into account depreciation, tax breaks or future capital gains.

"I think it really stacks up against other investment options. It's a good product that will actually appreciate in value," says Murray.

Though Milestone's affordable new homes are proving popular, there are still big issues facing affordable building in this country, he says.

"Developers are asking unreasonably high margins and they need to play a role to help get things moving."

He adds, while money has never been cheaper, harsh bank lending criteria makes buying coastal land, in particular, prohibitive.

A Christchurch client recently tried to buy coastal land in Northland and were required to front with 40% of the cost. "Banks have to lighten up to help stimulate investment."

Red tape is also strangling the building consent process which makes it costly and slow.

"Every council has a different set of regulations. It shouldn't be so complicated. There's a lot of affordable land out there but we need to change these things to give buyers more confidence to build."