Housing Minister Phil Twyford has defended the new ban on foreign buyers, saying the evidence from Australia proves it will stop prices inflating even further.
The new Government plans to introduce legislation to reclassify residential property as 'sensitive' land under the Overseas Investment Act. Prime Minister Jacinda Ardern says this would effectively ban foreign speculation without breaching international trade agreements.
But critics have said foreign buyers make up only a tiny percentage of the market, citing data collected by Land Information New Zealand since 2015, which suggests only between 3 and 5 percent of homes are sold to people offshore.
"All the evidence that we've seen overseas is that foreign - as in people who are not permanent residents and not citizens - are not major contributors to shortages in housing," National Party revenue spokeswoman Judith Collins told The AM Show on Friday.
"Quite often people go around to auctions, see people who do not look like them, who are not part of the majority of the population ethnically, they see them buying and outbidding them, and they think they're foreign."
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Mr Twyford says the data collected by Land Information NZ is unreliable, saying the Government "deliberately tried to confuse the debate by gathering information that confused the situation".
"Bernard Hickey, one of the most-respected commentators, said yesterday that based on the available data it could be anything between 3 percent and 20 perfcent. We simply don't know."
Writing for Newsroom, Mr Hickey said Australian house price growth since 1980 has lagged well behind New Zealand's, despite having higher wages. He said the evidence pointed to Australia's foreign buyer ban and capital gains tax, both of which have been enforced more strongly in recent years.
"It's clear that the difference in New Zealand's policies with Australia have been a factor in New Zealand prices outperforming Australia's," the economist wrote.
Mr Twyford was widely criticised in 2015 for relying on buyers' "Chinese-sounding" surnames to suggest 40 percent of Auckland homes were being bought by foreign speculators. Prominent economist Shamubeel Eaqub called the strategy "racist" and the data "half-baked", but also said it proved there was a need to collect real data.
"We did take some steps," said Ms Collins, of the Land Information NZ data. "The thing is there's never been that evidence taken before."
Mr Twyford says by banning foreign investors from buying existing homes, in recent years offshore speculators have instead funnelled $30 billion into new developments.
"Kiwis don't want homes in this country to basically be an investment asset for people who live on the other side of the world."
Labour wants the foreign buyer ban introduced before the Trans-Pacific Partnership (TPP) is signed.
"If this is not done before TPP concludes - if it does - then we effectively lose the right to control this forever," Trade Minister David Parker said earlier this week.