A landmark bill banning overseas buyers from purchasing existing Kiwi homes has passed into law.

But the real estate sector has hit back tonight, saying it will make little difference to house prices for New Zealand families struggling to afford their first home.

Associate Finance Minister David Parker said the bill's passage was a significant milestone, and would stop New Zealanders being outbid by wealthier foreign buyers.

Parker said it demonstrated the Government's commitment to making the dream of home ownership a reality for more Kiwis.

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"This Government believes that New Zealanders should not be outbid by wealthier foreign buyers. Whether it's a beautiful lakeside or oceanfront estate, or a modest suburban house, this law ensures that the market for our homes is set in New Zealand not on the international market," Parker said.

"The National Party opposed this change at every turn, while arguing the wealthiest buyers from overseas who don't live here and don't pay tax here should be exempt. That is not a view shared by the overwhelming majority of New Zealanders."

The bill passed its third reading tonight in the House. It aims to help stamp out astronomical house price increases seen across the country in recent years which have locked thousands of young families out of the housing market.

Labour argued the bill was necessary to prevent deep pocketed foreign investors hoovering up homes at the expense of New Zealand families.

Opposition parties have argued the law is unnecessary, however, saying the number of non-resident foreign buyers was low, and the policy could crimp foreign investment.

Real Estate Institute boss Bindi Norwell said she was disappointed the bill had been passed.

The was particularly so given the latest Statistics New Zealand figures showing the percentage of foreign buyers fell from 3.3 per cent for the March 18 quarter, down to 2.8 per cent for the June 18 quarter, Norwell said.

Additionally, the two regions of concern – Auckland and Queenstown Lakes – also saw falls from 7.3 per cent to 6.5 per cent and 9.7 per cent to 5.2 per cent respectively.

"We have been very vocal over the past year that we don't believe that banning foreign buyers from purchasing property in New Zealand is going to have any impact on house prices nor will it help young people into their first homes.

"Foreign buyers only make up a very small portion of market. Banning some 3 per cent of the market from purchasing homes in New Zealand is not going to have a significant impact on house prices. Increasing the level of supply, speeding up the consenting process, creating consistency at councils around New Zealand and reducing LVR restrictions for first time buyers are all more appropriate measures that will help with affordability ahead of banning offshore investors."

However Parker said the "critical reform" would work alongside the Government's extensive programme to remedy New Zealand's housing shortage and address the declining rate of home ownership.

The programme included KiwiBuild, more social housing and the Urban Growth Agenda.

"This law will support investment in new homes, particularly apartments and homes available to purchase under innovative new models, which will help more New Zealanders achieve the Kiwi dream of home ownership."

Parker said the bill also supported business investment.

"It includes a streamlined approval process for the purchase of residential land for commercial purposes, whether they be supermarkets, hotels, or family-run dairies.

"The bill also encourages foreign direct investment in forestry, where it is crucially needed, and puts in place a light-handed and more consistent screening test for forestry rights alongside that for freehold and leasehold forests."

Some provisions critical to the operation of the new regime will start immediately following Royal assent, with the new screening requirements commencing within two months of Royal assent.