A second bill to require overseas buyers to have a New Zealand tax number and bank account also passed its second reading and could go through its final stages next week.
The Government has said the measure will allow it to measure the number of foreign buyers more accurately.
NZ First MP Fletcher Tabuteau said his party would usually support such a bill through to select committee, but said the bill was so useless there was little point.
"This bill will achieve absolutely nothing."
He called for a ban on foreign ownership instead.
Labour MP Phil Twyford said it was a "grudging half-measure" and a pretence at showing National was doing something.
"The Auckland housing market is totally out of control and 41 per cent of lending went to property speculators. It's rampant."
He said many members of the National Party caucus and their donors were "big landowners".
"That's why the National Party doesn't want to do anything about property speculation. That is why this bill is a charade."
He said Prime Minister John Key had also calculated he could reap more votes from homeowners and speculators watching their house values go up than from renters.
"They don't want to do anything about the flick-merchants who are buying up large and selling to get capital gain because they are the party of speculators and landbankers."
He said Labour would ban foreign buyers unless they built a new house and set up a register of foreign buyers.
Green MP Julie Anne Genter said the Green Party would support bright line bill but did so reluctantly because it was only a small step in the right direction.
She said it was too little, too late and the Government was simply trying to placate concerns among Aucklanders about the house prices.
However, she said the two-year time line was too short and it should apply to any properties sold within at least five years.
"It won't raise much revenue and will affect a fairly small proprotion of house sales."
The Green Party favours a capital gains tax on any property that is not the family home.
The bill passed its first reading by 109 votes to 12 and will now go to the Finance and Expenditure Select Committee for public submissions.
It is due to be reported back on October 22 - just six weeks away. Usually bills are before select committees for six months, but Mr McClay said it was due to come into force on October 1 which required a shorter select committee process.
It would then apply retrospectively.
Labour MP Grant Robertson said the Government was embarrassed by the legislation.
