Treasury has proposed charging Auckland landlords an annual tax of 1 per cent of the value of their investments to combat rising house prices, to be paid directly to Auckland Council.

The proposed Auckland Investment Levy would have charged owners a fee on the capital value of rental properties in New Zealand's largest city, where prices are rising much faster than other parts of the country.

The report from April 24 was released on Thursday by Treasury as part of a major release of Budget documents.

The documents appear to lend support to speculation that new taxes on property were hastily prepared in response to growing concern over Auckland house prices and foreign ownership, with officials saying they had only a "very short timeframe" available to respond and provide advice.

Budget 2015 was announced by Finance Minister Bill English less than a month later, on May 21.

Treasury said the most effective policy changes were likely to be regional, as concerns about property prices were centred on Auckland.

The justification for a temporary, Auckland-specific change was an attempt to target property investors in Auckland, rather than the national market.

An increase in the tax imposed on housing "should be limited to the region experiencing rapid house price appreciation. That is Auckland," the report said.

The Auckland Investor Levy would be a levy on the capital value of rental properties in Auckland, which "would have the advantage of having a consistent impact irrespective of how rental properties were financed."

It was proposed at a level of 1 per cent as a temporary measure to reduce demand from investors.

The rental market was expected to shrink both in terms of supply and demand, with some renters becoming home-owners, officials claimed. Rental property supply would also fall, with the net effect expected to lead to a rise in rents.

The levy was expected to lower houses prices, as demand for dwellings from investors would reduce.

The report noted that there could be opposition from local government, which could be overcome by "promising revenue can be kept by local authority."

In the case a levy was imposed on Aucklanders, "it may be appropriate for the revenue to be available to the Auckland Council," with a recommendation that it was to be spent on growth infrastructure for housing.

The policy could be restricted to Auckland and "perhaps could be justified on the basis of a large proportion of Auckland rental property gains being untaxed because those returns come through capital appreciation rather than rent."

"In this way the Auckland Investor Levy could be set to approximate a tax on future capital gains."

Treasury also provided information on clarifying the current regime, and the requirement of IRD numbers for property purchases, along with the two year bright-line test on property bought and sold within two years.

The tax policy goals were such that "the Government would be sending a dramatic signal to the market about investment in Auckland property," the report said.

Prior to Budget 2015, the Government announced residential property bought and sold within two years would be subject to a property tax.

Family homes, inherited property, or those needing to be sold because of a relationship split will be exempt.

Cabinet had signed off the rules in mid-May, after "kicking ideas around" about a month earlier, Prime Minister John Key said.

The two-year "bright-line" period was about creating clarity around people's obligations, and removing the current subjective test which required the Inland Revenue to establish whether the investor's intention was primarily to make a capital gain on the purchase and sale of their property.

The report noted the Auckland property market exhibited some features of unrealistic expectations, with the highest price/rent ratio in New Zealand's history, along with the highest ever price/income ratio.

All of the tax policies were targeted at investors, with an expected contraction in the price/rent ratio and an increase in owner-occupiers and decrease in renters.

"Because the goal is to reduce current prices, prospective homeowners will gain, while existing homeowners will lose, relative to the status quo."

It also considered whether improving tax compliance measures could be restricted to Auckland, but the problem of non-compliance in relation to property transactions was not unique to the city.