New Zealand will get its youngest Prime Minister in more than 150 years after the small, nationalist New Zealand First Party agreed to form a new government with Labour Party leader Jacinda Ardern.

The outcome caps a remarkable rise for 37-year-old Ms Ardern who only took over as party leader in August.

Her popularity has drawn comparisons with the similarly youthful leaders such as France's Emmanuel Macron and Canada's Justin Trudeau.

"Labour has always believed that government should be a partner in ensuring an economy that works and delivers for all New Zealanders," Ms Ardern told reporters.

Labour said it would stick to its campaign promise to change the central bank's mandate, seek to renegotiate the Trans-Pacific Partnership trade deal and prioritise an effort to ban foreign ownership of certain types of housing.

It has said it wants to add employment to the central bank's mandate, which would mark a big change for the Reserve Bank of New Zealand, which was the pioneer of the inflation-targeting regime adopted across the world.

Record net migration of more than 70,000 annually has fuelled demand for housing in New Zealand, far outstripping supply and pushing house prices prohibitively higher, pricing ordinary New Zealanders out of the housing market.

"Far too many New Zealanders have come to view today's capitalism not as their friend, but as their foe," New Zealand First leader Winston Peters, who has been offered the role of deputy prime minister, told reporters.

"We've had to make a choice for a modified status quo, or for change."

He had agreed with Labour to build tens of thousands of affordable homes, he added. Labour made tackling what it calls a housing crisis a priority during its election campaign.

Mr Peters said new policy announcements would be up to Ms Ardern, but gave a foretaste of what may come by saying he expected fewer immigrants to be allowed into New Zealand.