PM says he'll tackle foreign buyers if he needs to and NZers overseas could be included.

A land tax on offshore owners of New Zealand houses could be in place by next year, Prime Minister John Key says.

The Government is expected to release data in the next two to three weeks which shows the scale of offshore investment in New Zealand's housing market for the first time.

If the data shows that foreign buyers are pushing up house prices, the Government says that the best method to dampen overseas demand is a land tax.

Asked by reporters this afternoon whether a tax could be introduced ahead of the general election next year, Mr Key said: "I wouldn't want to rule it out."


Mr Key also spoke about why the Government was considering the idea, having previously dismissed foreign buyers as a major factor on house price inflation.

He said it was important to have tax options if the new data showed that overseas investment was a major factor in price inflation.

The Government had asked officials for advice on housing policies a year ago. Based on that advice, Mr Key ruled out stamp duty and a total ban on foreign investment, because those policies would breach international agreements.

A land tax, on the hand, would not go against New Zealand's free trade agreements.

"It's not unique," Mr Key said.

"Victoria has it. And there are plenty of countries in the world that do apply a land tax and apply a higher differential rate or only apply it to non-residents."

The Australian state of Victoria applies a 0.5 per cent land tax on offshore owners, with an exemption for New Zealand citizens. It is applied annually and land values are recalculated every two years.

Mr Key said the Government would need to research the policy to work out who it might apply to and at what rate.


New Zealand might not be able to apply the tax to Australians who owned houses in New Zealand, he said.

"When Australia's applied their bans for instance I don't think they've banned New Zealanders."

Mr Key was also asked why the Government preferred a land tax to a capital gains tax.

He said capital gains on property were already taxed under a new "bright line test", which applied to properties which were bought after October 2015 and were resold within two years.

The proposal for a land tax was criticised by both National's support partners and Opposition parties.

Act Party leader David Seymour said National would be breaking its election promise of "no new taxes".

He was concerned that a land tax could be extended by a future Government to all New Zealanders, not just non-residents and expats.

Labour's housing spokesman Phil Twyford said the land tax proposal was too late and did not go far enough.

He reiterated that the simplest, most effective way to address foreign investment in housing was to ban it altogether, with an exemption for new builds.

The Property Institute of New Zealand backed Labour's policy, saying that it would be more effective than a land tax because it would increase supply.

A tax working group estimated in 2010 that a 0.5 per cent tax on all land - not just land owned by non-residents - would immediately cut the value of land by 17 per cent.

It would also have a disproportionate effect on farmers, retirees and iwi.

Mr Key today ruled out expanding a land tax to domestic landowners. The tax could apply, however, to expat New Zealanders living overseas.