Labour's one step closer to banning overseas buyers from purchasing existing homes.

The Overseas Investment Amendment Bill passed its first reading in Parliament on Tuesday evening, and has been referred to the Finance and Expenditure select committee.

Associate Finance Minister David Parker said the law "recognises and reaffirms that it is not a right for an overseas buyer to purchase a house here".

"Our objective is to ensure that the New Zealand housing market is shaped by New Zealanders."

The law change would see residential land come under the category of sensitive land in the Overseas Investment Act.

That would mean only New Zealand and Australian citizens, and permanent residents of both countries, would be able to buy an existing home in New Zealand without going through screening from the Overseas Investment Office.

Permanent residents and Australians would have to have resided in New Zealand for at least 183 days of the past year in order to buy a property without screening.

"We want to encourage foreign investment where it adds to our economy. But investment in existing homes by those who have no right to reside here, and no intention to live here, does not achieve that objective unless they add to housing supply," Parker said.

While the proposed changes were not expected to have a huge impact on prices at this stage in the property cycle, it would have a greater impact at other times, for example if and when overseas buyer interest surged again, as it did a couple of years ago, he said.

The legislation is expected to be passed in the new year, well before a possible signing of the Trans-Pacific Partnership (TPP).

This meant the select committee process had to be shortened, Parker said.

The ban needed to be passed fast because if New Zealand signed up to the Trans-Pacific Partnership (TPP) without passing the legislation the TPP provisions allowing foreign investment would then effect other trade agreements under "most favoured nation clauses," effectively taking away the right to do this for good, Parker said.

National opposed the bill and the shortening of the consultation process.

The opposition said it was a technical piece of legislation and members of the public needed time to read, and understand, the proposed changes and make any relevant submissio