New Zealand has banned most foreigners from buying homes as it tries to tackle runaway housing prices.

The government in New Zealand has passed a legislation that allows only New Zealand residents to buy homes as it attempts to improve housing affordability and increase the rate of home ownership among its citizens.

Previously the housing market was open to investors worldwide. The new law fulfils a campaign pledge by the liberal-led government which came to power last year.

The government passed this law as there is increasing evidence of housing unaffordability for the local population. Figures released Wednesday by the Real Estate Institute of New Zealand indicate the median house price in Auckland is NZ$835,000 (US$547,000) while the median price across the country is NZ$550,000. Real estate prices in New Zealand are among the most expensive in the world.

This rise in prices has partly been assigned to foreign buyers – specifically from China and the Silicon Valley in U.S. who are reportedly creating bidding wars to get the property they want. The new law prevents Chinese citizens who have no connection whatsoever  to the country, from purchasing real estate in New Zealand.

Statistics indicate about 3 per cent of New Zealand homes are being sold to foreigners, but the amount rises to 5 per cent in the scenic Queenstown region and 22 per cent in central Auckland.

Last month, the directors of the International Monetary Fund executive board said they encouraged New Zealand to reconsider the ban, which they thought would be unlikely to improve housing affordability.

The government says there is no doubt that foreigners are driving up prices, and the only question that remains is by how much.

There are some exceptions to the new rules. Foreigners who live in New Zealand and have residency status will still be able to buy homes, as will people from Australia and Singapore thanks to existing free-trade agreements.

Foreigners who already own homes in New Zealand won't be affected. Opposition lawmakers say the bill is unnecessary. (With wire inputs)

(The above story first appeared on LatestLY on Aug 16, 2018 05:52 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).