The ban only applies to non-residents. Australians and Singaporeans are exempt because of free-trade deals.
New Zealand is facing a housing affordability crisis which has left home ownership out of reach for many.
Low interest rates, limited housing stock and immigration have driven up prices in recent years.
No, only non-residents are affected by the Overseas Investment Amendment Bill, which was passed in a 63-57 vote on Wednesday.
They are now banned from purchasing most types of homes - but they will be able to make limited investments in new apartments in large developments.
Foreigners with residency status in New Zealand - as well as non-resident Australian and Singaporean nationals - are not affected by the ban.
New Zealand's Trade and Economic Development Minister David Parker described the passage of the bill as a "significant milestone".
"This government believes that New Zealanders should not be outbid by wealthier foreign buyers," he said.
"Whether it's a beautiful lakeside or ocean-front estate, or a modest suburban house, this law ensures that the market for our homes is set in New Zealand, not on the international market."
But opponents said the ban was unnecessary and would not fix any problem.
Foreign ownership and a housing shortage in New Zealand's bigger cities were prominent issues in the run-up to last year's election, which saw the end of nine years of rule by the conservative National Party.
New Zealand now has a centre-left coalition government led by Labour's Jacinda Ardern, the country's youngest female leader.
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