ACT says imposing a land tax on foreign buyers would break a National election promise, but John Key believes the Government's respond to changing circumstances.
The Prime Minister has said it may be considered if there's evidence foreign speculators are having an impact on Auckland's overheated market.
If the tax is imposed, it could also apply to New Zealanders living abroad after an exemption period.
ACT leader David Seymour, who has a support agreement with the Government, says National promised during the 2014 election campaign there would be no new taxes.
"The introduction of a land tax would be a broken promise," he says.
"Property rights are meant to be protected by centre-right governments, but it looks like National is too busy trying to put Labour out of a job."
It's an idea unpopular with the Property Institute too, which is pleading with the Government to consider other options.
Chief executive Ashley Church says it's the wrong way to try fix the housing problem.
"Taxing foreign investors might make a few people feel better, but it will do little to slow down house price inflation in the Auckland market.
"The only way to slow the growth in Auckland house prices is to build more homes as quickly as possible, so rather than penalising those who want to invest in our real estate market, we should be channelling that investment into getting more homes built, more quickly," he says.
Mr Church believes the Australian model which means non-resident investors can get into the residential property market but only if they build new homes or buy new property.
Under the new rules in place since December last year, investors can be fined heavily.
Mr Key still believes getting more supply will fix Auckland's housing problems, but says taxes are always a card to play.
"There's no doubt that if you really want to choke off demand, there are lots of ways the Government can do that and by far the strongest way is through a land tax."
Inland Revenue will release data it has been collecting in the next few weeks about foreign investor activity in the housing market.
Since October 1, foreigners buying property have had to register their equivalent of an IRD number with New Zealand tax authorities.
Mr Key says he didn't know what that data would show, but the Government would respond to it accordingly.
"If the concern was there were too many houses being bought by people who are non-resident in New Zealand, [a land tax] is one way of potentially dealing with that issue."
"When people say there are no options available, there are always options available."
If that was the Government's ultimate decision, it wouldn't be "imminent".
Mr Key wasn't concerned about accusations National could go back on an election promise.
"I don't think I'm terribly concerned that we're going to be breaking that promise at that point.
"We always have to deal with the situation as things change. If something becomes more pronounced then the Government has to go and deal with it."
Labour, the Greens and NZ First are urging the Government to act now against foreign speculators.
They believe they're already having a serious impact on house prices.
Labour's housing spokesman, Phil Twyford, says the Government should follow Australia's lead and stop foreign investors buying existing houses.
Like the Property Institute, he also backs Australia's new rules.
"It's channelled $30 billion into new home construction in the past year," he said.
Mr Twyford thinks that would be more effective than "some complicated land tax idea" that Prime Minister John Key has floated.
He says Mr Key wants to be seen to be doing something.
"It's classic John Key -- just enough to get the issue off the front page."
The scale of foreign investor activity isn't known.
Labour suspects the Government knows what the figures will show, and that's why Mr Key has changed his stance.
The Government has previously rejected calls for a tax on foreign buyers.
Newshub. / NZN