The Government should look at whether banks are behaving responsibly in the amounts of money they are lending to home buyers, the Labour Party leader says.
The Government has announced capital gains on residential properties sold within two years of purchase will be taxed from 1 October.
Prime Minister John Key has indicated the Government had become more worried about rising house prices in Auckland, and had been discussing it with the Reserve Bank.
Labour's Andrew Little told Morning Report a responsible government could look at exactly what the banks are doing that is fuelling house prices.
"Are they actually exercising proper due diligence? Are they looking at the levels of income that people have that are used to support what are huge mortgages?
"I read something the other day the average Auckland mortgage now is $500,000 - well the average income in Auckland hasn't gone up enormously to support a $500,000 mortgage."
He said an escalating amount of equity should be required for each subsequent house a person purchases.
Mr Little says Labour would only allow overseas buyers to build new properties, not buy existing homes.
From October, the Government will also require foreign investors to have an IRD number and New Zealand bank account as part of its measures to clamp down on property speculators.
Green Party co-leader Russel Norman said Chinese investors may be scared off buying houses in New Zealand because their Government could find out and then look into where their money has come from.
"How much of the money coming out of particularly mainland China is informal, or people would be concerned if the Chinese government was taking a close look at it?
"If the New Zealand government flags it with the Chinese government and says hey this money's coming into New Zealand, they're buying property in New Zealand - how many of those buyers would be concerned by that?"
Dr Norman said New Zealand had been a wild west for property investors and the Government's announcement was positive.
A Singapore-based property company believes New Zealand will remain attractive to foreign investors despite the new tax rules.
Two months ago, All Property Solutions advertised New Zealand as an investors' dream, partly because of the absence of a capital gains tax.
Director Lyndon Fairbairn said his company's clients were were in it for the long term and would not be put off, as it would not be difficult to meet the new requirements.