Housing Minister Megan Woods has announced blocks of at least 20 new and existing build-to-rent flats will be exempt from interest deductibility tax changes in perpetuity if they offer 10-year tenancies.
The Government has just changed interest deductibility rules so landlords cannot claim interest for tax purposes on existing rental properties. The interest deductibility changes don't apply for 20 years for individual landlords that build new homes.
“We’re providing an exemption from the interest limitation rules to certain types of new and existing build-to-rent developments in perpetuity,” Housing Megan Woods said.
“To qualify, developments need to offer tenants leases of at least 10 years. Tenants can ask for shorter agreements if they wish and the development will still qualify for the exemption. Tenants will be able to break their tenancy agreements at any time, with a 56-day notice period," she said.
“We believe security of tenure is critical for people who are renting. This requirement will enable people to settle and personalise their homes, reduce how often they must find a new place to live and all those associated moving costs, especially as people face cost of living challenges, and help them to build and maintain connection to their community."
Woods said the change would encourage an increase in supply of stable new rentals.
"We recognise the big role the build-to-rent sector can play in filling a gap in the general rental market by increasing the supply, density, and diversity of housing. Aotearoa New Zealand needs to build more houses where they are needed and at prices that low- to moderate-income households can afford," Woods said.
"Build-to-rent can help to continue the current momentum of new supply and improve the quality of rental housing with new warm, dry, secure homes,” she said.
Property Council welcomes move
Property Council CEO Leonie Freeman said the announcement was one of the best levers to unlock the potential of build to rent.
“We support the government’s desire to enable Build to Rent in order to provide warm, dry rental homes that offer Kiwis long-term security of tenure,” Freeman said.
The Government will introduce the following build-to-rent asset class definition:
- Tenants must be offered a fixed-term tenancy of at least 10 years with the ability to give 56 days’ notice of termination, but they may agree to or request other tenancy offers. Note that in order to qualify as build-to-rent, a tenant does not have to accept a 10-year tenancy offer. A build-to-rent development will satisfy this requirement as long as a 10-year tenancy term is offered.
- At least 20 dwellings in one or more buildings that comprise a single development, on either a single parcel of land or multiple contiguous parcels.
- The dwellings and any common land or facilities for those dwellings must have a single owner, but dwellings can be held in one or more titles.
- The building that a build-to-rent dwelling is in can include other dwellings or commercial premises that do not form part of the build-to-rent development (for example, an apartment block that has shops on the ground floor)
- For existing build-to-rent assets, interest will not be phased out as a taxable expense. Taxpayers who hold existing build-to-rent assets will not be subject to the interest limitation rules for the short period of 1 October 2021 to 31 March 2022, and will continue to be exempt in perpetuity. ·
The legislation for the proposal will be included in the next omnibus tax bill, which is expected to be introduced by the end of August.
71 Comments
Why 10 years? We live in an era when more than half the population will never be able to afford to live in their own homes: with the median house price 10 times median income, only those who can depend on the Bank of Mum and Dad will be able to become home-owners. The hapless remainder will need rent-for-life, not rent for 10 years, even if that's renewable.
The Government should amend their proposed regulation immediately to require the offer of secure, lifetime rent (with the tenant able to give 56 days' notice of quitting), and the guarantee that the initial rent will never rise more than the increase in the lesser of the rise in the consumer price index or the rise in the median wage.
This is good. It gives tenants the rights approaching those found in other countries. It gives National an out too if they want not to roll back the interest deduction - they can point to the 10 year tenancies and interest write-off to serious investors, not amateurs who are some of the worst offenders.
Bernard, if you've got a 56 day notice period (presumably without penalty) as a tenant why would you want to negotiate a shorter tenancy than 10 years i.e. it's a free option? The only reason I am thinking you would do this, is that the landlord does not have to offer the same rental price for a 10 year vs say a 1 year tenancy?
However this can easily be gamed - the landlord will just price the 10 year tenancy prohibitively, rent it out for shorter periods but still get the tax deduction. I hope the government has thought about this. Or am I misunderstanding something?
At least 20 dwellings? This policy would appear aimed squarely at insitutional investors. Given we are a large importer of capital, we are going to be long-term renters from foreign owners, or local pension funds.
Also, it says you only have to offer a 10-year lease for it to be tax deductable. So here you go, 1y lease is $600 p/w, 10y lease is $1,000 p/w. Thanks for coming.
Someone tell me I am wrong?
As I mentioned above, the Kiwi Property Group are neither foreign nor pension funds, but of course other companies will likely jump in at some point. There are a number of locally listed property companies that may jump in if the investment case stacks up.
As someone who has been forced to move from rented properties because the part-time landlord wanted to sell, and had poor quality service from amateurs, I can see the appeal. I've lived in similar apartment blocks overseas and there are definitely advantages.
Yes, I get that an insitutional landlord has some benefits over a private landlord. I would be careful what you wish for though, you will get zero sympathy from a listed firm around any aspect of the lease or conditions. My point is if they get favourable tax breaks over private individuals who may wish to develop 3 to 10 units on a re-zoned block. It appears they can so all good.
Bloomberg highlighted this recently with the US rental crisis. Majority (circa 90%) of evictions for rental arrears are corporates and with no flex either (eviction filling commenced immediately) compared with traditional investors. Agree be careful what you wish for.
There's a long, long, long list of things other places do a lot better than we seem to be able to manage. As such, I remain unconvinced that this isn't just a huge grift in some way. After all, if the benefits are so obvious, why has it taken this long to make this decision? Why was it not part of the draft discussion? Whomst has been in whom's ear?
plenty of companies doing it already, KPG, simplicity. duval, newground living, arc, ngattahu property, haumaru housing, and we will see this model being taken up by a lot more
it makes sense to incentivise companies to move into this space and build and run bulk housing rather than individual ( mom and dad ) investors than buy 1 to 3 existing houses to rent out
Seems consistent with their policy to try and add to the housing stock by adding BTR to the current exemption available to all landlords of new builds whilst trying not to stoke the market as it was with old existing stock being sold at ever increasing prices that didn't add one house to the market.
No doubt one side will say flip flop,the other side will say they are listening to folk and fine tuning policy to improve it.
Similar to what both sides were saying about the Nats tax policy that recently got fine tuned...
From the story above;
"The Government has just changed interest deductibility rules so landlords cannot claim interest for tax purposes on existing rental properties. The interest deductibility changes don't apply for 20 years for individual landlords that build new homes.''
The existing rules give tax deductibilty to anyone who builds a new dwelling,just not exisiting.
This does not benefit the vast majority of tenants.
More properties will be sold in rental areas and more people will be driven to emergency housing and cost layers passed onto the taxpayer. I am starting to believe this was the plan. Centralize and control... water, health, housing.
Nktokyo - I disagree- increased security of tenure will benefit pretty much anyone who is a tenant, particularly as they will be free to break their 10 year tenancy agreement at any point. While there is certainly scope to argue how well this policy will achieve the government’s aims, it is pretty clear they are trying to improve the availability and security of rental accommodation for tenants. It is also pretty hard to argue this policy does anything to centralise government control over tenants’ lives, although it does advantage large private sector /institutional investors, which I’m not entirely happy about.
Churning tenants is pretty bad business, so most professional landlords should want long term tenants.
But yes ultimately a tenant should have some level of security they won't have to up and move at the drop of a hat. Over time the short term stock will end up older and less desirable, and will likely get legislated out of existence.
The Devil will be in the details, I guess. What is the tenant becomes unable to pay the rent at any point on the 10 years lease or if the landlord evicts/terminates the lease for some valid reasons ? Will a new lease also have to be for another 10 years ? Will there be standardied lease terms for such BTR across the country ? How many migrants would want to stay put for 10 years in one place, without looking to change jobs/buy their own homes, etc ? What would be the acceptable reasons to terminate the lease by either party, but still retain the tax deductability benefits ? And so on....
Ockham do build quality developements from what I have seen...
https://www.nzherald.co.nz/business/how-landlords-reacted-to-the-govern…
excerpt;
Mark Todd of Ockham Residential said the announcement was a sensible and far-sighted decision by the Government.
"New Zealand's housing crisis has arisen from decades of under-investment and dismal Government policies that arose out of a muddled vision. The only way out of this crisis is a principled partnership between the Crown and the private sector. The encouraging thing about today's announcement is that the government has listened to the concerns from our sector, but also made its expectations clear," Todd said.
The private rental market had been skewed in favour of short-termism and speculators – not committed, long-term investors and certainly not renters/tenants, he said.
"So I'm pleased the interest deductibility is dependent on build to rent operators offering their residents a minimum 10-year tenancy. That is fair, that is right: that is a step towards giving these residents the security they need to make the home they pay for truly theirs, not a tenuous arrangement dependent on the grace and favour of landlords," Todd said.
Build to rent was not a silver bullet, but it's part of the puzzle to solve the housing crisis, he said.
"We need to work with the Government to ensure the dream of home ownership remains achievable for as many New Zealanders as possible. Not urban sprawl; not distance suburbs along clogged, time gobbling motorways, but quality homes in well-connected areas where people want to live," he said.
The Crown had a role to play by providing well-built, high-quality state houses and Todd said he was watching Kāinga Ora with interest and supporting them where he could.
I just don't agree, Interest deductibility is a major contributing factor to why house prices got to where they were.
If houses were affordable we wouldn't need to government to compete with investors driving prices up even further, people could afford to have their own homes built.
How many people are going to be significantly affected by this housing crash of epic proportions and the flow-on effects?
Once the Govt has funnelled all the renters into MDUs and corporatised the rental market, they can implement rent control, and then just like in Germany, they can then move to compulsorily acquire the buildings and nationalise the rental market. Anyone investing in this space needs their head read, the sovereign risk from socialist governments is just too great.
We'll end up with the well off being the only ones living in standalone houses with backyards in the suburbs, while the poor are trapped in urban high rise slums. Take a look at the Auckland CBD these days, and then imagine that in every urban area where you can build buildings with 20+ apartments.
Apparently, this is such a good idea, that it has to be restricted to a certain type of house and client. Imagine the horror if true competition was allowed, except for a certain few.
Is there any reason why this shouldn't be applied to any Landlord that wanted to provide a ten-year lease with an early tenancy opt-out?
Sorry I didn't explain my point that well. You are correct, but my point is why not offer that extension to all landlords, irrespective of the number they build?
They would get far more houses built, and more of the type tenants want. All this is going to do is encourage/force renters into higher density living, and what, all the homeowners get to live in the more spacious free-standing housing?
When that happens, various scenarios.
Wealthy groups start building to rent. Corporations and foreign funds emerge, no restrictions on foreign money.
One-rental investors might decline.
Architecture. Dense, cost efficient, new healthy homes standards, mobility access and new fire escape standards.
Social. Noisy neighbours can stay for 10 years.
Cost of houses, not BTR, can then be left to market forces.
... another Labour 180° turn .... oh dearie me , you're running a circus of clowns , Jacinda ....
How can anyone run a business in this nation when you have a government who flip flop on a daily basis , who make knee-jerk policy on the hoof , who never consult with industry ...
The reality these are not true BTR as Woods likes to compare them to other European countries like Austria.
The point is in these countries when you get to retirement, irrespective of whether you own your house or not, you have other saved investments to fund you through your retirement, which includes the renters having the funds to STILL keep paying for the rental property.
The real difference there is that many people chose to rent, not because they can't afford to own, but for other benefits that renting gives over ownership (under their system).
And part of the formula is that the relative difference between the cost of housing and their income (ie the median multiple) is a lot lower so they have more disposable income to invest in other investments to give them the retirement funds they need at retirement.
Surveys in the likes of Austria show that 60% plus renters still expect to own their own homes at retirement, but there is no urgency to do so like in NZ, so they wait until closer to retirement or it's their 'forever' home.
Has Woods done the numbers to show that these BTR's will offer savings enough to allow the tenants to invest in other asset classes, and/or allow savings so at a future date they will be able to purchase a house or fund their retirement rental?
The answer, of course, is no she hasn't.
Ultimately this might result in only one type of residential being built. For those brave enough to do it. For a particular kind of tenant. So less residentials will be built, just adding to the shortage. The economy will make this worse. No need for anyone to panic. Wonder what more wacky schemes, backflips and other changes to the market Labour will try in the coming twelve months!
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.