Alliance Party finance spokesman Professor Jim Flynn says the government needs to think outside the square to prevent ordinary Kiwis losing their houses during the economic crisis because of defaulting on their mortgage.

In August this year, mortgagee sales nationally stood at 241, compared to 100 last year and 40 in 2007; although the August figure has come down from the peak in July this year, where the number of mortgagee sales stood at 321.

"The increase in mortgagee sales in 2009 has been phenomenal. At one stage, one in five house sales was a mortgagee sale," Terralink managing director Mike Donald says.

Flynn says the solution is simple:

"Rather than have people face mortgagee sales, the government should buy the house off the banks for their rateable value. The bank would be relieved of a ‘toxic' asset and the government would get something in return for helping the bank."

He says the home could then be rented back to the occupiers at around 20% of their income.

It would mean people could afford to stay in the family home and are spared the upheaval of trying to find alternative accommodation, which could result in overcrowding, children having to move schools and a loss of social support systems.

"All of these things put considerably stress on families and could end up requiring more taxpayers money than buying the original home," Flynn says.

The greatest advantage would be that the government increases its stock of state housing.

Flynn says there would need to be provisos to make sure people who could afford their mortgages didn't default to tame advantage of the scheme.

"In general, it would need to be limited to properties of no more than the median house price for a particular city or town."