The Liberals say ACT Housing has stepped over a line in deciding to engage builders and do the development itself, rather than sell the property into the open market – the more usual way of disposing of government properties.

Spokesman Alistair Coe said the move was "appalling government over-reach which crowded out small business".

"The government should not be in the business speculative residential property development," he said. "By entering this market and competing with the small businesses which operate in this space, the government has undermined the housing sector."

A government spokesman said the land was owned by ACT Housing. The public housing was being demolished to make way for three townhouses, each with three bedrooms. The homes would be sold on the private market to make money to spend building more public housing.

Asked how often the government would enter the private market to such a degree, the spokesman said, "It doesn't happen often that Housing ACT develops properties for sale to the private market.

"In this situation Housing ACT analysed the benefits of repairing the existing houses and returning them to public housing stock against redeveloping the property to sell on the private market to generate revenue for public housing. In this instance, Housing ACT concluded that redeveloping for sale on the private market was the best option."

The Deakin development was set in train well before the current public housing renewal program, in which the government is demolishing a swathe of public housing units in big blocks in Griffith, Manuka, Red Hill, Woden, the city and on Northbourne Avenue and building smaller blocks of public housing around the city instead.

Property Council ACT executive director Catherine Carter said she didn't know about the Deakin development but "in the ordinary course of events we would expect the ACT government to sell suitable sites on the open market so that people with the appropriate skills and expertise develop it".

"The Property Council has had a longstanding view that property development is not core government business, not only for the ACT government but at any level," she said. "They don't have as a general rule the skills and the expertise that those in industry have."

Deputy chief executive of the ACT Master Builders Association Michael Hopkins said he would expect the Jervois development to be an exception and not the rule for public housing. The group "finds it unusual that Housing ACT would engage in direct property development", he said.

But Housing Industry Association regional director Neil Evans said it had no problem with the government "recouping a little extra money on occasions to fund more community or government housing".

"If it's not viable to renovate them, if they're getting them knocked over and property put on the land, that's work for the membership and when they reinvest the money back into another proposal in another location that's a second lot of housing development work for our members," he said.

The government said the Deakin project was the fourth where ACT Housing had developed properties for sale to the private market. The others were a 12-unit development in Braddon in 2010-11, a 22-unit development in Turner in 2013-14 and a nine-unit development in Garran in the most recent financial year. No others were planned at the moment.