Housing policy package: Bright-line test extended, interest deductibility changed, caps on first home products lifted, more money set aside for supporting development

Reconfirm that we are run by stupid jokers and are fibbing a story that many journalist / media fall for.

Being unable to deduct interest seems huge to me. This will put many into a tax paying situation who simply won't have the cash. I see sales. Unless I misunderstand this policy.

Interest deductibility lacking details at the moment but will probably be 25% year 1, 50% year 2, 75% year 3, similar to the UK. They should implement a cap on rental increases. Any increase should be capped on inflation.

I was thinking of selling one of my rentals later this year after the 5 year period is over. Now I will hold for 10 years. How are they helping with housing availability?

About 8 out of ten of our townhouses are being built for investors. I’d expect a lot will pull out.
We’ll cancel the next development. Good and bad, building is fun and profitable but the reduction in new builds and resulting shortages should be good for price inflation for my existing portfolio

The Government's new rules to curtail property investors who, they claim, are ramping up market prices for houses will not work. The Bright Line Test is now a fully fledged Capital Gains Tax just with a different name. This new regime will do just the opposite from what is intended. Investors will either hang on for 10 years, thereby depriving the market of stock and pushing up prices, or more likely investors will buy and sell at will and just pay the tax. After all, if an investor can make a quick $100K profit and end up with say $80K it's not a bad days work. So I'm picking that investor/speculators will go hammer and tongs as there is little incentive to hang on for a tax break. As for the tax deductions that have been wiped, that will be of no effect. Those who buy and sell in rapid succession don't need tax breaks.
No doubt the market will hesitate as its digest the news but given a few weeks or a month or two,it will be business as usual.
In the meantime the tinkering around the edges to help the homeless or First Home Buyers will be of limited effect as prices continue their relentless rise. Be prepared for a Winter of Discontent.

the banks willbe glad this monring they only removed the LVR's for 7 months - becasue the interest deductibility has a potential "market impact" given it looks like been retrospective. Those investors with multiple properties on interest only loans - now have a problem if they cant deduct tax.

The average tax bill on a $600 rental (with no interest deductibility) will be $10 000 or $200 a week - if they cant lift rents and dont have that much disposable income then they will need to sell the property.

If there are enough investors in this position then the market will suddenly no longer have a supply problem and unless there are the buyers for those houses then you can guarantee prices will slide.

The upside is the government should be awash with tax revenue shortly.

Funny, Dunedin with higher house prices than Christchurch has a lower cap for assistance. Jacinda doesn’t like Dunedin first home buyers, why ?

DID MENTIONED THAT WILL NOT TOUCH INTERESTONLY LOAN AND DTI OR TO DELAY AND AVOID WILL PASS IT ON TO RBNZ FOR FURTHER STUDY.......... study..... How long.....

Jenee should ask them how long do tbey need........ Put a timeframe... Will not as is just to fool people.

RBNZ restrictions of bank lending still being worked through
The Reserve Bank will report back to the Government on the possible introduction of debt-to-income ratio restrictions and restrictions on interest-only mortgages in May.

Well I voted for her .... so.
Should I be surprised they’re going after the workers, the savers, the strivers ? Anyways, won’t make that mistake again

A government that is finally delivering. Fantastic news this morning especially the interest deductibility component. Greed has been dominating for many years. Let’s see how brave investors are from here in.

What would have actually made a difference is left out ;

"The Reserve Bank will report back to the Government on the possible introduction of debt-to-income ratio restrictions and restrictions on interest-only mortgages in May."

Jenee Should ask them the question and not let government get away with a circus as displayed today :

Fine trying to delay buy why has no one asked Jacinda when will reserve bank get back to government - time limit so can be held accountable.

If anyone did ask and I missed can you please update in comment or did Jacinda Arden and her team managed to get away with real solution as have no intent.

won't change much, increasing caps will just increase the price, increasing Grants will increase prices. Bright line needed to go to 25 years and include current properties to have any impact.

Interest deductibility is not a loop hole. Its what keeps our rental housing stock afloat.

The taboo subject of immigration was not even mentioned. I guess we are happy to have to build about 25 000 houses a year for migrants before we even start doing something to assist our own people. So if we build 25 000 houses or less every year we will go backwards and the situation will only worsen, unless of course they wake up to the fact that continuing with policies that mean we need 25 000 extra houses for non NZers is a huge part of the problem, a bigger problem than not having enough doctors and nurses. And if we do need the odd skilled worker it is important to import the ones that are single and remove the right for them to get others into NZ through the back door. It is not in the interests of NZ for one skilled worker moving here to mean 4 or 5 migrants needing housing in NZ within a few years. We have to care about kiwis more than migrant "rights".
And where was the removal of interest only loans, something greedy investors have wielded like a club for far too long. The new announcements are a good start and I hope they are phased in rapidly but without addressing immigration nothing else really matters.
Jacinda is doing exactly what Trudeau did to Canada ie pretending to champion the oppressed while overseeing a system that does everything to ensure the rich get richer and the poor can never be part of an inclusive society. If you are not a business or property owner in Canada your dreams have been crushed and NZ is well on the way to crushing the dreams of all young non property owning kiwis as well.

The comments responding to this article confirm my worst suspicions: speculators and landlords are some of the greedist and nastiest people you would ever have the misfortune to meet. The sense of entitlement to earn massive capital gains + charge nosebleed rents is staggering. Just remember: you owe it all to an accident of history - without the GFC and consequent QE and lowest interest rates in history, you wouldn't have made these unreal gains. No other generation has been as fotunate as the boomers.

I did predict they will increase first home grant. All this does is it pushes prices up and this has been proven here and overseas. These guys are bunch of clowns and deserve treatment I cannot mention here or I'll be banned for life. You do know what I'm talking about though?

I suspect this might be most commented article in history of interest.co.nz

Changes to DTI and Interest only would be bold. What's not bold is Robertson writing a letter to Orr and waiting months for a reply... expected in May? Come on...

Underwhelmed. No retrospective action. The landed gentry will stay the landed gentry and move on to new builds. The tax thing will get watered down in the wrangling. Lots of noise but blanks fired.. Reserve bank statement only in May...property will be up another 10% by then.

Next sensible steps after the impacts of interest deductibility have been measured:
Remove cross collateralization of LVRs for residential properties.
Remove owner personal income from DTI calcs.

This small move already puts the many 'mum and dad retirement nest egg property academies' pretty much out of business.

Landlords say we will just push rents up 20% to cover these costs. But because rent is included in CPI this will result in higher measured inflation and therefore OCR, which will increase mortgage rates and now non-deductable interest costs even more, making property investment even less attractive with higher interest rates.

Are you sure you want to shoot yourself in the foot?

If they were addressing the ignition source, then you have to increase supply relative to demand.

To stop this ignition you either have to stop feeding the fire and let it slowly burn out, or you take action to extinguish the fire.

However, to date the Govt. does not know the difference between extinguish/decelerant, and accelerant. Are they pouring water or petrol on this fire?

So looking at their last ideas, we just need to look at what effect they will have on relative supply/demand.

Brightline test extended from five to 10 years.
If the timing of selling is not urgent then you will hold longer, so fewer properties for sale.
If you had to sell then no difference but you pay tax, Govt. gets revenue.
The immediate effect of changes so cannot rush to market and increase stock volumes.

The net effect is less supply so an accelerant to price increases.

Interest Deductibility loophole removed.
Interest cost as an amount of debt is low but will affect some investors. Given investors have to have such a high deposit, and interest rates are low, then most properties should be able to absorb this. And new properties are exempt. This is an issue, because most new property is built on the fringe, and the fringe sets the price for all pricing going back in. Any extra supply restrictions caused by extra demand on the fringe will cause price increases all the way back in. It also encourages new builds over deep renovations and does not give much incentive for renovating existing rentals. This should encourage these to go on the market for FHBs, or developers to demolish a perfectly good reno to increase density. Legislation yet to be set.

Some small pluses but big minuses, so still adding to a net less supply, an accelerant to price increases.

Price and Income Gaps on First Home Products Lifted.
This is an easy one. Savings, which this equates to, will always flow to the most restrictive part of the system, ie within one build cycle or less expect prices of land, and the house that will eventually be built on them, to rise by the extra increase in the grant, ie $10,000, or more likely the leveraged borrowing multiple that represents ie $50,000 to $60,000.
Price gaps lifted to enable house prices to rise to absorb this free money.

Increases demand relative to supply so an accelerant to price increases.

3.8 Billion Housing Acceleration Fund.
Has no relevance to increasing supply in the short term and is focused on the wrong areas of the country. I will make it easier for regional NZ as a supply vent to open up more affordable housing rather than encourage and reward the bad behavior of the larger metropolitan areas.

Since they are not increasing total supply, they must be trying to reduce the number of speculators in the market, giving less competition for FHB for what is available.

Can't see it.

They should have leveled the playing field, not by taxing even more (no interest deductibility ) - they should have make interest deductible for everyone including owner occupiers - This wouldn't push rent up and it would help PAYE people have more to spend and thus more money in the economy.

Watch rents and property prices go through the roof now. This government is utterly clueless.

Still nothing 'Courageous" or, the PM willing to spend her political capitale.Even if she was brave enough to break her promise over her dead body and introduced a new tax! CGT! Or a Stamp Duty on 2nd and 3rd,4th houses, or land banking rules where developers sit on the property to reap the long term capital gain! Oh but no. Give the seller a subsidy, handout by increasing the new buyers grant which will go straight into the sellers pocket and increase prices a little more.

Ceasing the ability for deductions has been a long time coming, but I'm guessing there are a lot of creative accountants out there who have already been thinking about this scenario playing out.

Remember, the investor market is holding the 'keys', they own all of the houses already and just might lock them up for the long term capital gain.

I previously assumed bright line only applied to properties that earned rental income. Interesting re "Main House" - does that mean all the people printing money by selling up their beach home in Omaha will be caught too? And the politicians that own apartments in Wellington to use during their stay there? Probably makes sense as if rental income was a prerequisite many people would just lock up their properties

Does this make it so that borrowing money to make improvements to existing rentals is being discouraged?

This Labour Govt, under Jacinda Ardern, doesn't understand that all costs get passed onto the consumer. Removing interest rate claims will increase rents across NZ. And if interest rates begin to rise, they'll go up even more. Ultimately this policy will increase homelessness. I really hope someone can explain this to the Govt. In a manner in which they can understand.

So, just thinking through the interest deductibility example.
$1.25m property with $1m mortgage at 2.5% interest only, rented out at $700/week

Status quo:
Income = $36,400
Mortgage Expenses = -$25,000
Other expenses e.g. maintenance, letting fees etc = -$5,000
Profit = $6,400
Tax at 33% = $2,112
After tax profit = $4,288

After Change:
Income = $36,400
Other expenses e.g. maintenance = -$5,000
Profit (excluding mortgage expenses) = $31,400
Tax at 33% = $10,362
After tax profit (including mortgage expenses) = -$3,962

So in this case, the landlord needs to find and extra $8,250 a year for tax.

Watch for the rental squeeze now... it will get passed on

Brightline is not likely to be an issue, the big issue is the deductibility of interest which is the no.1 cost for investors

Hopefully when the next election comes around we will see if this was a successful plan or backfired - and possibly unwound by National as all other businesses deduct interest costs as a normal expense

It's going to create a lot of ammunition for National to throw around

I read interest.co.nz more for comments as some are genuinely good.

I agree that this government has failed and no one grilled government on delay on DTI and Interest Only loan as they should be held accountable along with RBNZ.

Today's announcement is failure except tax change, which is over all good but if government really wanted some meaningfull result should have gone fast and hard on DTI ( It also protect FHB from making wrong decession under FOMO) and on interest only loan as 41% investors who are on interest only loan are 100% speculators and one of the main reason of this ever rising house price at unheard peace.

Still not all is lost as is still on the cart and if better sense prevail, government can speed up action on Interest only and DTI soon or may be, they have delayed as among them had difference of opinion but Jacinda Arden, if in favour should speed it up as it is her where the bucks stop and will do a great justice for generation to come by being a Leader and acting hard and fast.

Only feedback, NZ has lot of politicians and experts but need a leader.

Currently many Nz listed companies benefit significantly from the interest deductibility- Auckland airport, all the listed REIT’s, all the rest home providers, ports of Tauranga etc. Will be interesting to note the impact on their share price and consequently KiwiSaver funds as a consequence of this announcement. Can’t help but think there will be a number of unintended consequences......

Following this logic, shouldn't all property expenses be non-deductible? For example, landlords get a tax advantage on maintenance not available to owners. If you are going to level the playing field then do it properly :)

As a property investor I commend the government on its restraint and wisdom in not bowing to those who where looking for sweeping reforms. I think Prime Minister Ardern will continue in her role as patron saint of property investors for years to come.

Disallowing interest expenses effectively increases landlords interest rate by their marginal tax rate. I.e. if an owner-occupier is paying 3% at present, the landlord effective interest rate is about 4%. In a low interest rate environment, and with expected future capital gains in excess of 4%, this is not a big deal. Will it deter landlords from buying existing houses? It also reduces their leveraging ability very slightly but is very unlikely to affect it in a meaningful way. For this policy to have an impact you will need to have:
1) higher interest rate, the higher the worse.
2) sticky rents
3) No CG prospect.
4) investment alternatives that offer better returns.

The only one we have at present is sticky rents.

How well is the brightline test policed by the IRD? Does it have sufficient resources (people/investigators) and/or systems to analyse all residential property transactions, or does it rely on random audits of a sample of transactions?

Fake economy. Fake money. Increase interest rates and stop devaluing the NZ fiat currency units.

Listening to Jacinda and Grant talk about those nasty 'speculators' reminds me of former US President Nixon's speech in 1971. He used the same language when he 'temporarily' closed the gold-exchange window. Those nasty 'speculators', not the failing government policies that created the asset price inflation and consumer price inflation in the first place as they bow at the altar of Keynesian economics and MMT.

Changes to Uk buy to let (investor ) interest expense tax deductions explained. see attached link NZ govt will more than likely follow a similar path . Interestedly uk house prices have increased since the changes were introduced.

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental…

I thought the price cap was $600k for existing and $650,000 for new build in Auckland so am unsure where $625k came from and are the new caps for existing and new regardless?
This could impact how banks scale back rent from 70-80% to 50-60% as rent less rates and insurance leaves a bigger portion of rent to now be taxable income and create a tax liability for gross rent rather than net rent.

Removing deductability of interest for Residential investors is very bold not to say huge. Be interesting to see what the effects are but I suspect it will take investors out of the market apart from those who can pay cash. It will force investors towards new builds which should increase housing supply. That is what the government seems to want but the long term and short term implications could be terrible for renters.

In the short term rents will rise. Landlords who have held property for a number of years have seen their interest costs fall by 2/3 or more and have not been driven to increase rents as much as they could in a market very short of rental accommodation. That will change now as landlords effective cost of borrowing climbs and the supply of rentals falls further.

In the long term the supply of rentals will continue to decrease, which is clearly what the government wants. House prices are likely to level off or fall a bit short term but the fundamental problem is lack of supply and taxing the pricvate sector out od providing accommodation does not seem like a good way to fix that.

This Labour Govetnment takes the credit of being 'Master Of Announcement"

Announce that RBNZ will come back to thm with/on DTI and Interest Only Loan.... Than will have another announcement.

Well What wereyou both doing till now if not consulting each other and what are you waiting for as all data and situation is in front of you to decide.

In this age and time, one does not need months and years for communication UNLESS HAVE ULTERIOR VESTED BIASED MOTIVE THAT JACINDA AND MR ROBERTSON IS PURSUING OR DEFLECTING.

It would be crazy for the government not to cash in on the current year given how much money has been loaned to investors this tax year.

If it is to be retrospective to 27th March 2021, even when does get introduced, surely investors potentially could get hit by a 25% tax bill for the current year and then apply the 50% to the March 2022 tax year.

Maybe it's wishful thinking.

Any politician that does not admit that to fix the problem prices need to come down is being dishonest. A correction is the start of fixing the problem, and will be tough but it has to be done. That is transformation.

If you dont want these painful outcomes in future you must be proactive. Create policy for the reality, not the fudge that has been pedalled by the media. Foreign buyers have always been higher than 3%, investors have always had a tax ramp giving them advantages. Inflation is not less than 2%... but is the basis of the interest rate calculation... Stop fudging reality and you may get some decent outcomes.

If you have a brain tumour the size of golf ball but you treat it as if it is the size of a pea...you are going to get some pretty lousy results.

Im thinking they will use the fine detail of the UK model.
In the UK individual investors could not deduct interest expenses, but Companies can.
I'm almost 60% sure this will also come to be, in NZ.... ie.. Id bet on it
Because of this, it wont be too difficult to game the rules.. ie . set up a company structure.

As usual... the soft under belly are the small mom and pop property investors who might have only 1 rental property, as well as the family home. ( more than likely, they are the ones that are conservative in the rents they charge... maybe )
Anecdotally ...I think this is what happened in the UK ( I have not done the research..so dont know for sure )
I'm guessing a few of them will sell..

Corporate style investors will be able to outbid individual investors, simply on the Tax treatment disparity of interest deductions... ??

https://www.thisismoney.co.uk/money/bills/article-8007213/Has-George-Os…

DP

It certainly took GR a long to think of these as the horse bolted months ago. I hope they do have some affect, but it appears that he has attempted to help the supply and eligibility side without tackling the REAL problem - affordability.

More politics of envy. When are the public going to see through this charade of a government. Everyone is going to end up poorer.

Perhaps govt has opted for the phase out of interest-deductibility as it will have an insidious effect as opposed to a stamp duty or other blunt instrument,ie it may take a little longer for changes to pervade the behavior of investors and prevent massive sell-off

Perhaps govt has opted for the phase out of interest-deductibility as it will have an insidious effect as opposed to a stamp duty or other blunt instrument,ie it may take a little longer for changes to pervade the behavior of investors and prevent massive sell-off

Rents will be going up around 40% over the next four years. "Thanks Labour!" sarc

Rents will be going up around 40% over the next four years. "Thanks Labour!" sarc

Things are slowly changing for housing in NZ but like an oil tanker, changing course takes time…
Here are the main factors for these changes in order of importance;

1) Interest rates have stopped dropping and are expected to rise in 2022 driven by international rates
2) 40% LVR restrictions for investors in May
3) Removal of interest tax deductibility for investors
4) More houses being built than in a long time
5) Fewer immigration into NZ
6) Affordability being reached due to high house prices
7) Extension of bright line test to 10 years

Against this trend, we still have a reserve bank that is doing all it can to flood the market with cash and keep interest rates low (LASP, FLP, OCR)

Well done, but more is needed

Shots fired and rounds on target. Second salvo imminent from the RBNZ.

This morning I took a guess on the number of comments... 500... I am not far off now 455 ;)

Recession here we come ... I dont mean the one we are in, people will be hurt and the waves from these changes will be big... deniers will deny it but it wont just be PI affected

You watch and see how many houses now become empty and stay that way.
Losing the interest deduction will mean some who have plenty of cash will empty out their houses. lock them up and wait till they get around to selling them.
Happens oversea's so why would it not happen here?

and when someone buys a 3 million house on the northern beaches do you think they are broke?
They buy at that price because there is a competition between buyers.
Not so much at 500,000. They are the ones who are mortgaged to the hilt.

To little to late, this horse bolted years ago, investment property usually cycles around a 10 year cycle investors will only hold onto property longer now which will exempt them from the Brightline tax, houses that could possibly be brought to the market after 5 years now will be held onto for longer then 10 years reducing the house numbers potentially to go to market. Unfortunately another policy that will benefit no one other then the government for the tax grab.

Grant Robertson uses emotive language like “loophole” to sell his argument about the legitimacy of claiming interest expense for a rental property business. He is not calling it a “loophole” for any other type of business. He is suggesting a rental property business has been taking advantage of this loophole. Absolute rubbish. It is a well accepted principle in business all over the world that interest expense is a legitimate expense for any business. Grant Robertson has created 2 types of business now and while accountants will benefit it will create more distortion in the market & this will result in unintended consequences & a very inefficient system

I think we all recognised that something needed to be done but the Govt had conducted these changes without proper thought and finesse. Suddenly the average property investor is now a speculator and what amounts to a proper deduction against income now becomes a 'loophole needing to be closed'. So what about normal bona fide property investment companies? how will changes affect them?

The Gov't have suggested that they took the idea on the withdrawal of interest deductibility over 4 years from UK. This is not quite the TRUTH. The UK withrew higher rate tax relief not ALL tax relief which is what the Gov't are doing. One aspect to me is conflicting. We are discouraging those Kiwi investors buying second hand properties but encouraging them instead to buy new. Demand for new builds will inevitably increase with investors competing even more with first time buyers.

If interest only loans are stopped this could have a massive cash flow problem for some higher leveraged investors. I dare say over time they could end up paying tax on overall losses.

I have no problem with a CGT with exemptions and reliefs, infact it would be a lot fairer than treating anyone who doesn't hold on to their asset for 10 years as an evil speculator who needs taxing at 100%. At the end of the day the Gov't has again escaped a bullet. They blamed foreign buyers , now investors but never themselves with a pathetic affordable Kiwi home achievment. Did they not think that some of the 100,000 returning Kiwis fro abroad needed a home?

So why not allow first time buyers borrow 90% like most other western countries. Impose a stamp duty for second home purchasers .... on a sliding scale . ore homes the higher the duty... Most property investors are not evil as the Gov't make out and do provide a home for those who cannot afford to rent.

Great changes.

Could someone please confirm for me that this doesn't apply to commercial property? I am yet to see any statement/release that specifically rules out/ring fences commercial property.

Comment #500

I would like articles on this website to stop referring to the tax deduction rule as a loophole. Deduction of interest expense is a legitimate deduction from rental income of a cost in doing business.

I have to say Grant Robertson continues to impress, he is a very smart cookie, great job.