Changing New Zealand’s draconian interest deductibility rules for rental properties must be a priority for any party that wins the October election for tenants’ sake, says Sue Harrison of the New Zealand Property Investors’ Federation.

“It is essential to ensure that more private rental owners are not forced to sell their properties leaving more tenants without homes,” she says.

“There are far fewer landlords than tenants and losing any rental homes breaks down the system. Once rental homes are sold they are hard to replace, crippling supply.”

Harrison says any increase in a business’s costs are eventually funded by the end user, in this case the tenant, and therefore the phasing out of interest deductibility ends up as a “tenant tax”.

“Is this what the government wants, at a time when they are supposedly fighting to reduce the impact of rising costs on those on lower incomes?”

Closing The Gap

She says instead of forcing through ill-conceived tax laws which increase rental property owners’ costs and risks, the government should be putting incentives in place to encourage private rental ownership to close the gap between supply and demand.

The impact on the rental market from the interest deductibility rule is being felt nationwide, with owners selling up and potential landlords staying away, she says.

Trade Me data shows the number of properties available to rent nationally during May was down 19 per cent annually, while demand was up 35 per cent.

“The government’s building programme is never going to keep up with the demand, so more private rentals are essential in increasing supply for tenants,” Harrison says.

“It’s not possible for the state to scale up and, worse still, the government has proved to be a high-cost and inefficient landlord at the expense of taxpayers.”

She says while many people believe most rental properties are held by large-scale landlords, a 2015 NZPIF survey shows that a whopping 75.8 per cent of residential landlords own just one rental property. “In fact, just 0.1 per cent of all private landlords own 10 or more properties.”

Expensive Task

“The majority of private rental owners are ordinary New Zealanders, who take on considerable risk to purchase and maintain additional properties. The service rental homeowners provide to society is to supply medium-term accommodation to those people who cannot or do not want to buy their own.”

Maintaining rental homes and providing key services is expensive. Roofs, heating systems, and repairs to underground water lines are some of the most expensive repairs, often in the tens of thousands of dollars, Harrison says.

“And that’s after paying rates, mortgage and insurance which have all increased significantly.”

A big handbrake for rental owners expanding the gap between supply and demand of available housing is their inability to claim mortgage interest as a legitimate business expense.

Understandably, owners of private rentals want some return for the risk they take and making it difficult for landlords to cover costs and earn a return for their time, money and effort, means rental homeowners are driven out of business.

The result is fewer rentals available for those desperately looking for a home, she says.