The recent Government housing policies appear to have been implemented without much information about the likely outcomes. In order to fill the information gap, the New Zealand Property Investors Federation (NZPIF) conducted a survey to see how these changes will affect the rental property industry.

These changes included an extension to the bright-line test, removal of mortgage interest deductibility as an expense for residential investment properties and changes to rent increases. NZPIF conducted a survey over five days and there were 1,719 respondents, both members and non-members.

Summary Of Changes

Bright-line test:

• increased from five to 10 years
• excludes new builds (definition to be consulted on)
• applied to property acquired on or after March 27, 2021
• main homes and inherited property remain exempt, although some changes have been made to this
• already passed via a bill.

Removal of interest deductibility:

• in consultation
• removal of deductions for interest expenses on loans used to generate income from residential property
• new builds will be exempt, and the design of the exemption will be consulted on
• applies from October 1, 2021
• applies immediately and in full to property purchased on or after March 27, 2021
• applies to all residential rental property by 2025.

Limit rent increase to once per year, per property:

• in consultation
• limit rent increases to once every 12 months per rental property (rather than once every 12 months per tenancy)
• this is intended to help mitigate potential negative impacts on tenants from the tax changes
• will involve a change to the RTA.

Below are the results from the NZPIF survey.

Survey Results

Bright-line test

• Respondents who did not think they would, or hoped they wouldn’t, be affected by the extension of the brightline test totalled 62.9%.

Removal of mortgage interest tax deductibility

• Just over 90% of respondents will be affected by disallowing mortgage interest to be used as a tax deduction.
• The average total extra tax per rental property owner is $15,083 per year, assuming mortgage interest rates don’t increase.
• This rule change will cost respondents an extra $3,140 a year in tax per property, assuming mortgage interest rates don’t increase.
• Ninety-eight per cent of respondents who bought a rental property in the last two years are affected with a tax increase of $4,542 per year per property, with 78.8% of those investing for 20+ years being affected at a cost of $2,468 per year per property.
• The main way to cope with the tax increase (76.8% of respondents), is to increase or probably increase rental prices. A further 8.9% might increase rental prices.
• The median rental price increase is between $21 and $30 per week.
• Respondents not currently charging tenants full market level rental prices amounted to 70.3%. Forty per cent have rental prices between $5 and $25 under market value, while 30% have rental prices more than $25pw under market value.

Summary

Although Treasury and Inland Revenue did not have sufficient time to conduct impact assessments on the outcomes, fiscal gain and unintended consequences of these polices, the Government advanced to hastily make these changes. We can only hope that some sense of reality comes and they realise that tenants still need a house to live in while saving for their first homes.

Sharon Cullwick, Executive Officer, NZ Property Investors’ Federation