John Prescott said the price of houses in Britain is too high except for people already on the property ladder.
New homes may be built on former NHS or Ministry of Defence land
The deputy prime minister was speaking as he unveiled the next stage of his plan for £60,000 starter homes.
Conservative spokeswoman Caroline Spelman claimed the £60,000 price tag was just for construction and said the final price would be much higher.
She added that 140 of the homes would be built next to Category A prisons and all would be on contaminated land.
But Mr Prescott said his plans had already defied critics and the new homes would help 1,000 families and first time buyers.
Asked if he thought the average house price in Britain was too high, he replied: "I think everybody thinks they are too high, unless you have bought one, and that's one of the problems of this present stage."
Asked how much he would like to see prices come down by, Mr Prescott said: "I would love to sell a £60,000 house. Wouldn't you like to buy one at £60,000?"
When pressed over the fact that house prices had doubled in the last six years, Mr Prescott replied: "I have to accept that is very much a function of the market.
In fact, the idea that I am coming along here, talking about £60,000 houses, is to recognise that the market is not able to produce it, if you take the land and the price, put it together, a house at £60,000.
"Unless you have some other arrangement, and we have shown a way forward.
"But I generally recognise, unless we lift the amount of houses in supply, we are not likely to reduce greatly that increase in prices in housing, which even now is two or three times people's yearly earnings."
Mr Prescott hit back at Tory claims he was using "contaminated land" to build cheap starter homes on.
"I thought the pressure was on me to build more and more on brownfield sites. And we have now reached a record level of 70%," he said.
"It is right that we do that, we are building back in the cities."
Nine finalists from a competition to create £60,000 homes will now be invited to design the houses for construction on public sector sites, he said.
The 1,000 homes will be a mixture of flats, houses - some rental, some for sale and a third being made available for first time buyers.
Lib Dem spokesman Sarah Teather said: "I'm sure the fact that John Prescott has ordered the building of 991 new homes will be a great comfort to Britain's 100,000 homeless families, let alone the 500,000 living in overcrowded housing.
"How on earth will he allocate these homes? Will there have to be a new Homes Lottery?"
Ms Spelman meanwhile said the public was being "spun a line" by the government.
"The grim reality is that the homes are in less than desirable locations - such as next door to mines, prisons and landfill - and are all on contaminated land. The end sale prices will be six figure sums each, and only a mere 300 homes will be affordable."
Three ex-NHS sites will be used to provide houses for about £60,000 each in a bid to help first-time buyers.
The three sites in the government scheme are: Renny Lodge in Newport Pagnell; Park Prewett in Basingstoke and Leybourne Grange in Maidstone.
They will provide 400 homes but the government has bought another 100 ex-NHS sites for the plan, where buyers only pay the construction costs.
A part-ownership scheme for first time buyers will be unveiled later.