Chief executive Connal Townsend said the Victoria University-led Tax Working Group's proposal to impose a tax on land and to remove depreciation rates on commercial property will have a significantly adverse effect on property owners and investors by imposing costs and limiting future investment.

"It will be harder to attract long-term tenants and the number of run down commercial properties will rise, resulting in more unattractive, unwanted buildings," he said in a statement.

A land tax was earmarked as a likely winner over a proposed capital gains tax as the working group investigates ways to broaden the country's tax base. The group has no government mandate, but is collaborating with officials from The Treasury and Inland Revenue Department.

In a document released in October, the group found the $200 billion rental property market not only pays no tax when it could be contributing between $500 million and $900 million a year to the government coffers, but is actually receiving refunds.

The New Zealand Property Investors' Federation favours a capital gains tax, with President Martin Evans saying it would at least give investors time to prepare for it. Evans is scathing of a proposal to ring-fence property for taxation purposes which would tax each property as its own entity.

Townsend said a land tax was "completely inefficient" as it would merely pass the additional costs on to tenants, and would also discourage investment in "green buildings."

"All of the positive work that has been done in New Zealand in terms of green building would be undone," he said.