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Diana Clement finds there are many relatively common cases where the new denial of interest deductibility will hit first home buyers hard, and confusion over the definition of a 'new-build'

Diana Clement finds there are many relatively common cases where the new denial of interest deductibility will hit first home buyers hard, and confusion over the definition of a 'new-build'

This article originally appeared in LawNews (ADLS) and is here with permission.


The government’s plan to remove investors’ ability to deduct mortgage interest from their income is emerging as a critical issue among home owners who want to rent out part of their property to pay the bills.

Traditional landlords are not the only ones affected. In some instances, first-home buyers – the very group the government claims to be trying to help – will be caught in the government’s tax net.

Owner-occupiers who earn rent from tenants, flatmates, boarders and holidaymakers may find it difficult to service their mortgages once the new rules come into effect in October. And investors and some owner-occupiers may find they are caught by the new 10-year bright-line test once the definitions of “own home” and “new build” are clarified.

Others, including first-home buyers, may not be able to proceed with intended property purchases or will be forced to sell.

Former ADLS President Joanna Pidgeon, of Pidgeon Judd, says a member of her staff is among those caught by the new rules. A first-home owner, the staffer bought a home off the plan but is yet to settle and had intended to rent out two rooms to housemates to help service the mortgage.

“They are affected by the impact on tax deductibility of interest and that will actually mean they can borrow probably $100,000 less than they originally thought,” Pidgeon says. The rules prior to March 27 would have enabled the buyer to deduct interest payments from the income.

Likewise, if home-and-income buyers can no longer claim the portion of interest servicing standalone tenancies on their properties, the numbers may no longer stack up for them, says property lawyer Nick Kearney of Schnauer & Co.

In the week of the government’s announcement, Kearney had a client withdraw from a home-and-income property purchase for exactly that reason.

As another example of potential collateral damage, Pidgeon cites a husband and wife who had purchased their dream first home but rented it to tenants until they could afford to live in it themselves. Without interest deductibility, the couple will likely have to sell their home.

Sometimes, says Pidgeon, people have intentions, then life events take over. “If someone gets transferred to another city for work and then needs to rent out their home, these owners may end up having to pay tax on the sale of their home, and this may affect their ability to purchase a replacement home should they look to stay in the city they have moved to.”

Tax consultant Terry Baucher says inevitably banks will pull the pin on mortgage preapprovals for some people because of reduced serviceability. Banks are said to be reviewing their affordability equations in light of the new rules.

Baucher says one of the many examples of uncertainty thrown up by the package was a client with a big section who planned to demolish and build two houses, living in one and renting out the other. Where does that sit?

When tax law changes, there are always people who fall on the wrong side of the line, he says. “There are always going to be [unfortunate] circumstances. That sounds a bit brutal, but that is a fact of life. [Legislators] get to the point of ‘where do we draw the line around something that is fair, but not overly complex and meets policy objectives?’”

Another potential unintended consequence is the effect of the new package on the conversion of existing commercial buildings into apartments.

Builds such as that at the Hereford Residences and the former Baycorp HQ, both in Auckland’s Freemans Bay, incorporate brand new apartments in the bare-bones structure of old office blocks.

Baucher says questions have arisen over whether such conversions will in the future be classed as new builds. If not, they could become less desirable to buyers because of the changes to interest deductibility and the bright-line test. New builds also have favourable loan-to-value ratios (LVRs) and first-home grants available under KiwiSaver. The question has stopped more than one developer in their tracks in the meantime.

One of the issues driving uncertainty, says Baucher, is that unlike many tax changes where legislation is available immediately, the tax community (and lawyers) must wait until after consultation. “So, we are flying blind,” he says.

Developers are watching the rules unfold. With new builds, there could be issues where developers have old, unsold housing stock six months after completion, Pidgeon says. Will the government’s changes make this stock nigh impossible to sell because the units are no longer classified as new builds?

Pidgeon says some of her developer clients are pausing to think.

“In terms of new projects, people want certainty. I think we will see banks increasing their requirements for presales before they will fund development.”

Developers have in the past had to abandon developments when presales were too slow. Meanwhile, construction costs keep rising, making the contingency too low for banks to allow funding to proceed.

The uncertainty may well cause that to happen in the current market unless these issues are addressed through the consultation period. 


This article originally appeared in LawNews (ADLS) and is here with permission.

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143 Comments

21
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What a complete fiasco these changes are. It looks to me NO one wins except for the Government coffers and our socialist Government having control over more people.

62
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The only fiasco is how successive governments have allowed house prices to increase from 2× the average income in 1980 to 8.5x today.
Its about 20 years too late but its nice to see the govt address the issue

23
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Exactly....!!

I think the real truth is that half our lawyers have become property investors....god bless

13
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Lawyers needing to be property investors.. the greed is staggering

12
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well they had to be able to reduce their tax bill somehow....sarc

that's how many would have got into it to begin with...offsetting their rental losses

10
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Why should one group of investors not pay tax.
Property investing is not a business and thus should not have any expenses tax deductible.
Wage earners cannot claim expenses.

Why should one group of investors not pay tax. Exactly! Home owners pay no tax whatsoever on the money they "earned" by not paying rent, ie their imputed rental income. Rentvestors enjoy no such privilege! This government makes dumb moves, and this is certainly a good example..

Apparently they're special.

This tax change actually seems to be working somewhat: reducing froth in the market and enabling investors to start contributing more of their fair share of tax now it cannot simply be evaded by pretending one did not buy for capital gains.

The fact they are shrieking and running a mass propaganda campaign across media suggests the tax is having useful effect.

You do understand that wage earners also don't have to make an investment in their employment other than their time?
The examples aren't anywhere near similar, rental properties that are cash positive are taxed as with any other business

Investors have to try and earn a return (i.e. getting the house cash positive to make a future income). Ma and Pa investors can't even charge their time against the property as a cost if they manage it themselves.

24
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I have trouble shedding any tears for property investors.

I agree 100%

I didn’t write my post very well

So do I. Don’t quite get the story. The 10 years isn’t retrospective, and owner occupiers cannot claim mortgage interest payment relief anyway. The essential, unavoidable fact is this: the vast majority of landlords are content to get a negative yield in pursuit of tax free gains. Effectively selling a dollar for 90c knowing that the factory is going up in tax free value. Those of us who do not take part in property speculation therefore have to pay more tax to top up the national kitty for health, education etc. The $500m or so the changes will rake in each year will do a lot of social good. It is a rort, and one that has made a lot people very wealthy, including some who have never set foot in this country.

That's completely wrong, investors receiving a negative yield understand that rent will rise over time, rent is a flow. The calculation for what you should pay today requires you to discount the future stream of income to today, this means it's not the rent received now, but rather the rent received over a long period of time, discounted back to today, that matters. In effect, buyers will bid a property's price up to a point the break-even time is acceptable to them. Usually, this is about 7 years. If houses made money from day 1, the price would get bid up because that an absurdly good deal. And obviously, rentals are a business, many can pass the business profitability test and many can pass the intention test.

Owner occupiers live in their own house, therefore gaining a direct and quantifiable benefit from their home investment. Purists in terms of tax, would make you pay tax on that "perceived" benefit as if you invested that money elsewhere. This is what you expect an investor to do, because they do not live in their house. yet they are having to pay to live elsewhere as well.

As to social good.
I sold a property intended as retirement savings, we were paying down debt to get cash positive (and therefore taxable).
I could not retain it with all the changes implemented by the government.
The tenant could not buy for themselves, how much social good is a young family without a home?
The government didn't get CGT or income tax from this property and will have to prop up the family when they can actually find a new home.
This wasn't a win for society.

How do you imagine that the government has "addressed the issue" of high VTI's for FHB's with their latest rules?

18
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Yvil I think the labour caucus has had to have some very hard discussions about the decisions needed to be made and the risks involved in tackling this complex problem.And after recognising the risks, which may well include a major recession and bank failures, have decided to begin a long journey back to affordable home ownership.

And what you are seeing with the removal of interest deductions is only the first of many changes that will be made. Expect to see interest only loans removed next by the RBNZ and the govt announce a major reduction in immigration intentions.

15
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Dear gnx, fingers crossed in hope that you are right.

"Expect to see interest only loans removed next by the RBNZ and the govt announce a major reduction in immigration intentions."

I think you're confusing what you'd like to happen with what is likely to happen

You are probably right since with the changes in interest deductibility the government has basically taken out the main attractive of these from an investor's point of view. However in most countries interest only loans are not allowed due to the risk they pose to economic stability, so now would be a pretty good opportunity to get rid of them which they might just do whether we like it or not.

Also removing interest only loan is in with Jacinda Arden policy of being fair to FHB by removing undue advantage to investors - Reason given by Jacinda Arden for Tax Changes.

So she should but will she ?????

Lol, I think they took PR advice focussed on political short termism, yet have no idea what the implications will be.
E.g Oil and Gas caused increased emissions through importing coal from other countries. Ignoring advice for optics is a fail.
Unintended consequences has been the name of the game for a government even a left leaning commentator described as "comically incompetent"

I'm sure the cheap money printing has nothing to do with it...

Seems to me they addressed the wrong problem - high house prices - when instead they should have been addressing high rent costs. Universal rent controls would have been the far simpler fix. House prices would have come down in accordance with ROI. No tax rule changes needed whatsoever.

15
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Rent controls are a poor solution that create all sorts of market distortions and result in suboptimal and underutilisation of land. The only solution is to bring back in unloopholed land value tax. You need to reduce rents and land values and the two go hand in hand.

You get market distortions when you introduce a selective, as opposed to universal, control mechanism. I would imagine land value/property value overall would reduce with a universal rent control given the ROI equation changes.

Rent controls do not work. They disincentivize the supply of new rental properties. The whole idea is poorly thought out leftist nonsense (what is it with the left being incapable of second order thinking?).

The solution is for the government to get out of the way. Release land for development. Simplify and reduce the cost of the consents process.

If they are getting out of the way, stop all accom and wff payments too. Let the market find its way ? Or are we only lefty bashing with some stuff. Privatise the profits socialise the losses thinking ?

I'm not against some social safety net. I'd like to see WFF phased out certainly, but that's a separate conversation.

Artificial constraints on land supply, enforced by the government, must be relieved. The country must be allowed to build enough homes.

d/p

d/p

Kate - After bombing rent controls are the best way to destroy a city.

Yeah, heard that one before. Many places currently being rented in our cities need nothing short of bombing;

https://www.stuff.co.nz/dominion-post/business/residential-property/1249...

Ah, brings back memories. One flatty of mine in WN (1980s) told me he checked out a place that had a dirt floor in the kitchen.
I look on the bright side; natural selection among renters in Wellington will surely produce superior DNA over the next few millennia.

Completely agree, no one will win out of this except big business who will roll in and build massive build to rent projects, accountants, lawyers and the IRD. Small mum and Dad investors who are ordinary people, policeman, school teachers ect are being completely screwed. Their retirement income being slashed by effectively taxing gross income, outrageous. Investors and first home buyers will scrap it out over new builds - pushing prices higher for the bottom end of the market. There are plenty of solutions that work in the real world over time, the government rhetoric is just framing the problem as one group of New Zealanders against the rest, classic socialism. This government reminds me of the wizard of Oz. The scarecrow, tin man, lion, wicked witch and Dorothy. Time to lift back the curtain and see whos running the show

My understanding is that if you are a FHB with boarders/flat mates the income isn't taxable so long as it falls below a certain threshold which is set at above market rent for a room ($270) . In effect someone with boarders won't be effected by the new govt changes in interest deductibility.

I think in Auckland can have two boarders paying $150 x 2.

They want it both ways
That's $300 per week tax free which is more than any loss of the tax-deductibility of the mortgage interest

It would be nice to know what the rules really are. FHB "may" be affected, or may not... well, which is it?

Some will be affected. Others won't. There you have it.

The IRD permits 2 different methods of assessment. The standard costs method already factored in interest expensing and was $191 per room per week. With the removal of the interest deductibility it is expected that the standard costs method will drop to about $140 per week. This means that any boarder (who receives food, power, water & internet) who pays less than $140 per week can be accounted for under the standard costs method by the homeowner. Where a border pays more than the amount allowable under the standard costs method, the landlord must use the actual costs method (showing all expenses). Most mortgage advisors will advise first home buyers to get a boarder. https://www.ird.govt.nz/property/renting-out-residential-property/reside...

Probably very few. But the crocodile tears will flow voluminously on behalf of one or two, for appearances.

That is IR policy. Assumes costs probably = income up to 2 boarders.

10
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Nobody is paying tax on the rent from a flatmate. You try and put up with a flatmate or two and then pay tax as well. Most people I know have empty bedrooms, there is NO WAY in hell they would put up with a flatmate. Thankfully those days are gone for me now, got 2 empty bedrooms and one is a guest room and the other is organised storage.

Good for you, living how you want to.

But on the other hand, since everyone is screaming about the lack of housing and all, dont you think that introducing an empty room tax would encourage more people to open up empty space? Say you area allowed one spare room and anything other than that is taxed?
I can see people arguing about a working from home office, so that would be another room off the list.
Would be an interesting idea but still needs fleshing out in regards to the rules and how to regulate it?

You must have loved Dr Zhivago-when the commissars moved the people into the empty bedrooms of the Bourgeois.

Or you could just not disclose the income, that's what you can expect to happen in the future. Rorts like the owner not paying any food or services expenses, while the flatmates pay all the living expenses in lieu of "rent". Just wait to see the unintended consequences.

26
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'Owner-occupiers who earn rent from tenants, flatmates, boarders and holidaymakers may find it difficult to service their mortgages once the new rules come into effect in October.'
Are these unintended consequences? Doesn't it just put these part-owner-occupiers on the same footing as home-owners who occupy their entire house, all the time, and have no claim to tax perqs?

If you're just comparing them by the fact they own houses, sure.

But given that many, and in some locations (Auckland, Wellington) probably most FHBs have room mates in order to be able to afford the purchase price of property, at least for the first few years of their ownership before they decide they're ready to start a family, then comparing FHBs in their situation to people who have owned their house for 10 years and it's quite a different comparison.

Most? I highly doubt that.

Speaking from personal experience (29yo), I only know of one couple that have bought a house to live in and not rented out 1 or more rooms initially. And they bought an apartment so a bit of a different situation.

I don't know any who rent out a room to help pay their mortgage, if we're also talking personal experience.

The point is, if I'm a family buying a house, I'm buying x dollars worth of occupancy value. If I fully occupy it myself, I can't claim any tax back from the implied rent benefit.

But if I farm out the occupancy value to a third party, the outcome shouldn't be any different (no tax rebate).

Why not? It's not a rebate. The tax is paid on "profit". Interest is a cost which reduces that profit.

I have an office in my home, which I provide to my business. I claim back a portion of my mortgage interest as a result. The mortgage interest is a cost to the business.

You have to consider who gets the benefit of a property and who pays the cost.
If you live in a house and pay a mortgage, then you get both benefit (usage) and cost (mortgage). They balance each other out.
If you do not have the benefit (usage rights) of the property yet carry the cost (mortgage), then surely the payment you receive for those usage rights must balance (read offset) the costs to provide that property as a service.
That is why there is a difference

I know of plenty of people (myself and close friends included) who had flatmates in our first home to help pay the mortgage. That goes back 25 years, and young people are still doing the same thing, my kids are reaching this stage now too.
Lots of naysayers in the replies, but its a practical reality, especially with the current high house prices.

12
up

Tac changes target all be it genuine investors (long term) or speculators but if would have controlled interest only loan would have been more affected in targetting speculators as FHB and most investors are on P&I Loan.

Many FHB buyers or existing house owner who are letting out one or two rooms to boarders to support themselves, should not be much effected.

Have repeated many times before also that fail to understand why RBNZ and Government not going after interest only loan as it is one tool that if stoped will control speculative activity - it does not matter if house prices are going up or down, interest only loan for speculators has to be stopped. Full Stop.

Hardly the right moment to introduce policies to cool housing. Governments need people to spend, spend, spend, to sustain our economy.

10
up

The easy decisions become the hard decisions later unfortunately....

Yeah, an easy middle ground would have been to say "interest-only loans are not tax deductible". That in itself will naturally drive specuvestors away from using them.

Or, only up to 60% of the property purchase price can be tax deductible, seeing as investors should only be borrowing up to 60% to buy. If an investor wants to borrow the extra 40% as a deposit then cool, but no deductibility.

That is an excellent observation and easy to implement within existing tax law. 100% LVR loans never made any sense as it denies the equity is been used which bank documents easily show is fascicle.

13
up

After all of the Prime Minister assertions about property prices being reasonable last year I think government wanted to be seen to be "doing something" at the time but just don't have a coherent housing policy. As we have often seen this government they are very good at the the PR/Comms but very weak on delivery.

To be honest the Prime Minister needs a good crisis to shine. The humdrum day-to-day stuff tends to highlight the governments weaknesses.

It’s the business community that hasn’t been able to deliver the housing when the government had its chequebook out I think you will find

The private sector can no more use money to side-step the onerous zoning laws that make development expensive than government where able to with KiwiBuild.

Want houses? Make it easier to find land to build on.

Government sets the rules, and people work within those rules.
Labour tried to take building control of social housing to be only Kaianga Ora, and failed. Now going back out to social housing providers and buying on the open market without adding to housing stock. Duh! Prices went up.....

Bigger problem is red tape, labour shortages, political optics and product availability.
- RMA reform (which Labour opposed during opposition and only starting now), land use, council consenting, Government overriding Auckland Unitary plan
- Infrastructure issues and vanity projects such as trams wasting resources
- Ihumatao cancelled more houses than Labour built in 3 years of Kiwibuild. Through trying to control the housing stock to be a certain type that buyers didn't want (Kiwibuild), they government's chequebook was worthless.
- Labour won't allow the Aussie MiQ slots to go to skilled labour or income earning students, so that's not an option to improve housing.
They even created 2 new government agencies in Term 1 but that didn't work either........ turns out government interference through command and control doesn't quite work the way Robertson thinks.

Seen to be doing something but in reality the extension to bright line means investors will hold on longer and harder than ever. So, smoke and mirrors

holding on only works in a market that is increasing....in one that is reducing it doesn't help at all

Depends how long you have to hold on to avoid the brightline test, and how fast the market is falling. the first of the 5 year brightline properties have two years left to go, and taking the median Auckland price from then and now, there is ~$90k of tax liablilty (at teh 33% rate) if you sell now. Are house prices going to fall more than $90k in the next two years? I doubt many see them falling that much in a supply limited market.

Investors should just stop evading tax.

13
up

I disagree, she is not good in a crisis. Her leadership is lacking, her communication is garbled, and her actions are meaningless.

She is however very empathetic and comes across as very caring. The "Crisis" so far have required this to an extent (CHCH shooting, and Covid) however as we see with Covid, once the emotion wears off we are left with ineffectual garbage.

For those wanting a fix to the housing "Crisis". Hopefully hugs are good enough for you, becuase I wouldn't hold my breath for anything better.

29
up

Look, another article trying to convince FHB they should be on the side of investors. Really?

How is this article "trying to convince FHB they should be on the side of investors" ?

Didn't you even get to read the headline?

but an enemy of my enemy is my friend

15
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Govt makes an announcement with little detail and then goes quiet. What are they doing... sitting behind the scenes polling? Chewing their nails hoping that their popularity remains? Where's the momentum in fixing the housing issue? Where's the BOLD leadership & vision? Either you want to have an impact or you don't. I can just see it now, Labour starts dropping in the polls & then water down/remove the interest deductibility rules come October. The housing market would have a slight cool off before raging again come summer 21/22. Jacinda will trumpet (with a frown) "its what kiwis expect"

Vacillating between 5 eyes and trans-tas bubble. Housing is dealt with as far as Lab are concerned and they can only handle one thing at a time

What they're doing is waiting until the Budget.

12
up

It seems labour are always waiting for something, constant delays and nothing comes into fruition. Roberston & Orr are a key example - months apart to respond to each other with no outcome. Let's also not forget the constant announcements about announcements by Labour. Pr strategy - hit the news headlines, make it look like you're going do something... then do nothing. Repeat x100.

Que National Party

But John Key had 9 years and did absolutely nothing!

writing the PR strategy and talking points

17
up

Sounds like a recipe for, no not disaster, house price falls. Seems to me the banks won't be so quick to lend vast amounts. Supply and demand 101, restricted debt supply, lower prices.

Not for long, if you took 201 you'd know that would cause prices and inflation to drop, rates would then need to be cut, or UCM boosted, and then prices would start rising again. Increase the number of homes been built, that's the correct lesson from 101.

23
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If these FHBs are suddenly in a position where they can't afford mortgage repayments due to the loss of interest deductibility, then they are clearly over-extending themselves and shouldn't have bought the place. The effect this will have is to bring prices down, which is exactly the point.

14
up

This government lacks any cohesion, delivering nothing since elected, they lack in so many areas. To not allow interest on housing for a rental business as a legitimate cost, is similar to say diesel isn't tax deductible for a trucking company. Wake up Grant, its not a loophole, its's a diversion from your parties incompetence.
They are however very good at borrowing, $770,000,000 .00 per week. Is that sustainable?

24
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Yawn...heard of thin cap rules Dave....or the rules around around lifestyle properties?

Structuring your lending so you don't intend to make a profit isn't allowed in other businesses so why should it be allowed for property investors...cough cough...speculators

Sounds like you are in either anger or denial phase, or both

I understand that Kainga Ora ( Housing New Zealand) with their 86,000 homes do not come under the same rules as the tax payer. Do as we say, not as we do!

Don't Kāinga Ora provide rent controlled housing at 25% of a tenants gross household income? A great idea for private rental housing as well - no tax changes provided you implement the same rent control formula as the state.

Yes, but the whole cost is still funded by the state.
I'm sure landlords could do the same rent controlled housing cost if the balance was picked up by the state too.

I heard was that almost 1/3 of all rentals in Auckland are subsidised through accommodation supplements of some type. 370,000 claimants and $37m per week (source Stuff) seem to support that comment.

"As another example of potential collateral damage, Pidgeon cites a husband and wife who had purchased their dream first home but rented it to tenants until they could afford to live in it themselves. Without interest deductibility, the couple will likely have to sell their home."

This situation is very unlikely to happen .... since FHB will use their kiwisaver and also possibly the welcome home grant from KO and be required as a condition to actually occupy the property. First home means for owner occupiers. The minimum period to live in it is six months but still

Yes, the absolute absurdity of this example (has anyone ever known someone in this situation) reflects poorly on the author, and liky gives insight to their motivations

‘Rented it to tenants until they can afford to live in it themselves...’ Sounds utterly fictitious to me too. Wouldn’t make any sense, because they wouldn’t be able to afford the house in the first place. Show us the figures in that one.

I suspect they know it's very rarely occurring but they're also aware that there's not that much sympathy out there for investors who haven't been paying taxes and have been benefiting from subsidies for years... So the crocodile tears are released in earnest across media.

I think the lack of detail is deliberate from the Govt, for two reasons.

1) Obviously they don't know what they are doing enough to make changes with any certainty of what the outcome will be. That is just poor leadership and them being blinded by their ideology and not willing to look at the evidence of what works.

2) The uncertainty it creates from banks, lawyers, FHB, and investors should naturally slow down sales, and price increases, and Govt. can 'tweak' their response closer later in the year. However, the tweaking is just more of refusing to address the real first principle changes needed.

3) Refer to option 1

19
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"As another example of potential collateral damage, Pidgeon cites a husband and wife who had purchased their dream first home but rented it to tenants until they could afford to live in it themselves. Without interest deductibility, the couple will likely have to sell their home."

So de facto property investors...seems to me the right target is being hit.

So then, prices will have to drop? A willing Seller meets a willing buyer. Same ole same ole.

13
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Pidgeon cites a husband and wife who had purchased their dream first home but rented it to tenants until they could afford to live in it themselves. Without interest deductibility, the couple will likely have to sell their home.

So they have taken out a mortgage that they cannot afford?

*can no longer afford due to government interference in the market.

Fixed it for you.

13
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They could never afford it without the government giving them a break, a "leg up" over someone else who was probably more prudent with their borrowing amounts but missed out on auction day. The government is no longer giving property speculators a break. Call it "interference" if you like, I'm not sure what rock you've been hiding under though Governments interfere every day it's called legislation. If the government were to remove the Brightline test would you consider that "interference"? Maybe you're affected by this change hence you're salty about it.

"Maybe you're affected by this change hence you're salty about it."

Two Words: Nail & head

Well you have to admit neoliberals love daddy state when it comes to their own subsidies.

Banks and other lenders are surely more nervous than ever under more uncertainty. Hence the upward creep of interest rates and increase increase in FHB schemes. Should be interesting to see what banks will need to keep profitability up given the reduced demand for lending, and how they interface with RB to that end

11
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Are we seriously supposed to feel sorry for owner occupiers who use rent from tenants to buy half of the house they then own? My heart bleeds.

Possibly, yes if the house they are part renting out is their 'weekender' where they've bought in the only place they can afford and also have the cost of paying to rent a room to live in close to where their job is in the city. This is happening in place such as Horowhenua according to a report from Infometrics they have the highest level of internal migration from other areas of NZ. This is put down to 'lifestyle choices' due to covid however I am seeing a different picture here - this is FHB who live and work in Wgtn and forced to buy elsewhere rather than put 1million down on a sh*tter in Wellington

21
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I am baffled. What is the rationale of a couple buying their 'dream' first home if they actually couldn't afford it?

They and so many others sre not running a proper business, but somehow, expect their interest to be deductible. Why?

Why do so few see that at some point, this obscene property market will reset. The RB will eventually have to stop propping it up through its monetary policy and raise interest rates. As Warren Buffet said, then we will see who has been swimming naked. It won't be a pretty sight.

I wonder when we'll get the days to sell data update?

Whatever the unintended consequences it sure does look to me that Wellington/Hutt sales have slowed considerably since the announcement. Those not selling at tender or by the deadline date of sale are switching to price marking - with expectations still extremely high however.

And a number are switching over the being advertised as rentals instead.

The sands are certainly shifting.

Of course they are slowing down did you really expect 20% year on year. It simply must slow down.

There is a hard floor that will not move. OOs which are the majority of the market don’t need to sell and especially at the moment as we are paying less than renters.

So many absolute dreamers on here hoping waiting wishing to buy 400 grand houses on their 60k salaries.

The only prices that might move slightly down are the bottom highly undesirable end of the market in areas in the middle of nowhere that no one would ever want to live. Everything else will not.

Exactly this bull run had to end anyway, the government just simply stalled any decisions on housing until the end of the summer gold rush. Hey look we have solved the housing problem ! Tui billboard. The real question is what are they going to do about immigration ? The numbers now need to be held really really low for 5 years if FHB what to see any significant changes in house prices. Until our NZ population is decreasing instead of increasing I see no significant relief for FHB.

You mean nurses, ambulance drivers, teachers, cops and half the population are dreaming...yeah I guess they are at the moment

That’s a massive generalization. I would say the majority of owners that brought in the past 5 years are paying considerably more a week than an equivalent rental.

Some banks will barely lend much more than that on double that income so yes, that would be rather optimistic.

I confirm this is the case, one more weekend I have seen mostly empty or or not busy open homes and the auctions I was following moved to asking price (3 out of 4) with very unrealistic prices. Take into account asking prices are usually about 5-10% higher than what the seller might be willing to sell for so in this market that percentage might be even higher than that.

March data looking great (but not for Labour optics) https://www.reinz.co.nz/residential-property-data-gallery
28 days to sell
New record selling prices everywhere
House transfers 5% up year on year (Stats NZ data to December) https://www.stats.govt.nz/topics/property

That could not have kept up forever, but not surprised that it slowed down now, just like the rest of the economy.
Still the blame has to be pointed at government and rbnz for supercharging asset prices to restart the economy. The asset inflation outcomes were entirely predictable, and now the "sugar rush" post lockdown spending has ended, we've slipped into recession. Not surprisingly Ardern is looking for the fall guy - just like the Papatoetoe COVID cases.

Now the RBNZ can't lift interest rates or they'll worsen the dip, and Robertson's creeping command and control actions will make NZ a less attractive place for worldwide investors to put their money. With global supply chain issues we can't build our way out, with labour restrictions and closed borders we can't skill our way out or drive tourism, I guess the entire economy can just "transition".

Here is a question:
120 seats in Parliament and 75 belong to nzlabour & NZGreens
. Why are they not fixing homelessness, poverty, hospitals and creating a living wage? They can pass any law they want to fix it but they aren’t. Why not? Serious question.
- add housing affordability etc...

HT to: https://mobile.twitter.com/TheEndIsNear66/status/1386424166249762816

Henry probably for the same reason under performing companies cant just change the CEO and they start making super profits. Transformational change doesn't happen over night

The one thing they haven't done is sweep the problems under the carpet and I think they we are finally starting to see some hard decisions made.

With regards to you twitter post I will say this,

I should be a National voter but I cant bring myself to do it.I have spent time working alongside some of the National parties top brass and really it was the most disappointing thing to realise that they see quite a different vision for New Zealand to what I think most New Zealanders would hope....and in private they recognise that our policies are making us poorer but hey" there are always some doing it tough". To me this is the biggest issue New Zealand face.What does the National party actually stand for? Mass immigration, high houses prices, foreign ownership of all our major industries, high private debt....no? then what and what will they now do in a post covid world

New zealand's greatest asset is not our land or our GDP...its our society and I see that breaking down.We are becoming very divided.IMO

The second thing I would ask is do the politicians run the country or the lobbyists?Serious question for you now Henry.

Maybe you should have another go & try answering the question (Cognitive Dissonance aside this time).

I ask myself this every day. I think it's a mixture of:

* Incompetence
* A dangerous combination of ignorance and ego
* Being populist
* Lazyness
* Captured Interests
* Power corruption
* Fear of failure

Mix it all together and you end up with such horrifically poor governance, it would be entertaining if it was in a TV show. In real life, it's just sad. Twyford encompasses the worst of these attributes.

Well, the market is certainly crazy if you are looking for houses for sale in Wanganui. Or even renting for that matter. I would recommend https://whanganuimansions.co.nz which is a free online real estate magazine featuring houses for sale in Wanganui, Waverley, Marton & Bulls, New Zealand. All the local real estate agent & private listings. All price ranges. All in the one place for your convenience. All properties listed for free.

The government has prioritised first home buyers over renters. This is a huge mistake because more people will now have to go into emergency accommodation or live under a bridge as they will not be able to afford the increased rents or will lose their rental when it is sold. The government has now succeeded in discouraging further private sector investment in rental properties which will exacerbate the lack of supply of affordable rental properties. How can the government be so stupid? The government is supposed to be addressing poverty. The big increases in rent that will be coming over the next 3 years will show that the government has failed big time to look after the poorest families.

Three years is starting to look a long way away for some highly leveraged investors now...

Who’s going to break ranks and start selling their portfolios....

Grab popcorn lol

I did sell part of mine, but made that decision due to their earlier changes,before the latest Labour horror show and landlord blaming.

I didn't reinvest it anywhere so it hasn't gone to "productive" investments, I'm paying down debt while interest rates are low. I'll sit on my hands until this governments fiddling, stagflation and recession triggers the implosion. I can wait 3 years, and enjoy Cindy squirming, blaming and lie telling till then. How quiet she has been since she got the first big poll drop.

Mind you, the young family who has no home because I can't afford to provide it for them aren't feeling like it was a good thing.

.

Dp

Dp

The government has now succeeded in discouraging further private sector investment in rental properties which will exacerbate the lack of supply of affordable rental properties.

I don't think so. The private sector is not building affordable buy-to-let properties. The new build rentals that I have seen listed which are bought as buy-to-lets are not affordable rents by any means. The buy-to-let investors paid far too much for them in the first place and hence, the rents are well out of reach for the average household incomes in the area that I have investigated.

What seems to me to have happened is that there are no longer any affordable rentals (i.e., rent at 30% or less of the average household income) and what people on these lower/average household incomes are doing is relying on the accommodation supplement; relying on the free hours for childcare; relying on the WFF benefits; relying on the winter energy payment; and co-sharing with other individuals and/or households who are doing/claiming the same.

I don't think the "everyone-on-some-form-of-income-supplement" can go on forever. Both cost-of-living must come down and wages must go up.

Wait till you see the coming inflation due to supply constraints and global shipping prices. Cost of living isn't coming down, recession and closed borders will start to threaten more peoples jobs.

Those lower end rentals are leaving the market though. An owner occupier doesn't have to meet the tenancy standards, and I'm sure a number of Ma and Pa investors have cashed up due to unfriendly policies over the last 2 years from the Government. This year just sealed the deal.

Problem is, owner occupied housing has a lower occupancy rate, exacerbating the housing shortage. Voila! Even more emergency housing

Exactly what Tony Alexander indicated.

If you think it's bad now, housing in 2024 will be so much worse. (And rentals).

Tony who?

Our rents were over $300/ wk below market. For good long term tenants. Govt policy combined with rates and insurance plus huge maintenance and unexpected repair costs means no more below market rent.

Either that or sell and where do those tenants go? Sickness beneficiaries with mental health issues and with pets? Not exactly people with jobs, deposits and ability to buy their own homes.

Govt definitely not thinking beyond their own virtue signaling.

It's certainly remarkable how many investors have suddenly started shouting "won't somebody think of the renters!" and "won't somebody think of the FHBs!"

Not really, I think that landlords are pointing out the unintended consequences of ill-thought through policy by the government, which went against official advice.
Not all landlords are the heartless craven meanies they are being made out to be, and many don't lift rents for good long term tenants. But it is natural to react to an unexpected cost imposition that you can't plan for.

How many first home buyers who were renting out rooms in their house, would have even known to deduct interest as an expense? But if it means they can't borrow as much, then it is working how it, should because they would also be form of investor. But wouldn't the interest deductability still apply if it was a new build? Maybe we should wait until the details come out? Investors still have it really sweet, and compared to shares, and doing heaps of research into companies, it is easy.
The whole point of this is that it is supposed to stop these crazy price rises, which are really only benefiting some people. If less people can afford to borrow these crazy high amounts due to the record low interest rates, then these crazy high prices won't be paid.

How many first home buyers who were renting out rooms in their house, would have even known to deduct interest as an expense?
First home buyers doing this, it is often referred to as 'house hacking' . But if the new changes means they can't borrow as much, then it is working how it, should because they would also be form of investor. But wouldn't the interest deductability still apply if it was a new build? Maybe we should wait until the details come out? Investors still have it really sweet, and compared to shares, and doing heaps of research into companies, it is easy.
The whole point of this is that it is supposed to stop these crazy price rises, which are really only benefiting some people. If less people can afford to borrow these crazy high amounts due to the record low interest rates, then these crazy high prices won't be paid.

How many first home buyers who were renting out rooms in their house, would have even known to deduct interest as an expense?
First home buyers doing this, it is often referred to as 'house hacking' . But if the new changes means they can't borrow as much, then it is working how it, should because they would also be form of investor. But wouldn't the interest deductability still apply if it was a new build? Maybe we should wait until the details come out? Investors still have it really sweet, and compared to shares, and doing heaps of research into companies, it is easy.
The whole point of this is that it is supposed to stop these crazy price rises, which are really only benefiting some people. If less people can afford to borrow these crazy high amounts due to the record low interest rates, then these crazy high prices won't be paid.

How many first home buyers who were renting out rooms in their house, would have even known to deduct interest as an expense?
First home buyers doing this, it is often referred to as 'house hacking' . But if the new changes means they can't borrow as much, then it is working how it, should because they would also be form of investor. But wouldn't the interest deductability still apply if it was a new build? Maybe we should wait until the details come out? Investors still have it really sweet, and compared to shares, and doing heaps of research into companies, it is easy.
The whole point of this is that it is supposed to stop these crazy price rises, which are really only benefiting some people. If less people can afford to borrow these crazy high amounts due to the record low interest rates, then these crazy high prices won't be paid.

In Australia it is very, very common for FHB to buy a property and live in it for 6 months, then rent it out. That is the minimum occupation time for legally obtaining the FHB grants and the stamp duty exemptions. They then have 6 years to move back into it, in order to claim the capital gains primary residence exemption (there is no CGT on the time spent being rented in that 6 years). I imagine that FHB were doing something very similar in NZ - buying a home with their KiwiSaver and Govt grants, living in it for 6 months, then renting it out until such time as they can afford to move back into it, or to sell it and buy something more affordable. Usually this is the only way single people could afford a home - they buy it, rent it out, then hope that within a few years they will become part of a double income couple and can afford to live in it and pay the mortgage. The Labour Govt's new rules have indeed cut off this traditional avenue to home ownership by making the mortgage unaffordable even if rented out, and by taxing the equity in the home when they want to sell it to buy something more suitable down the track. That is why FHB are withdrawing from the market along with investors.

IF first home buyers are sitting on the sidelines my guess is it's due to buyer fatigue. We helped one of our adult children buy a house last year. It's a soul destroying process that sucks energy and money. If FOMO is dissipating, that's good.

It needs to be 3 years, like it is for kiwibuild homes IMO. IMO we need to remove these grants, as all they do is push prices higher, and as some FHBs don't qualify because they haven't been paying enough into kiwisaver, it is unfair for those FHBs which don't qualify.

Word on the street - the real oracle, ie they local hairdresser who does the perfect coiffed hair for many real estate agents had alarming news to report.

Since govt policy announcements real estate agents were getting 40 or so groups to open homes. Now they're getting 4 or 5 groups for homes of all kinds.

Great article, points out a lot of problems with the new rules which will probably make the housing situation worse over time. Its not black and white. The high LVRS are starting to kick in, doing the job of stopping price rises just like they did in 2016, less is selling at auction ect. I've been through the property cycle a few times now, if first home buyers in general think the market will fall, or they loose confidence they will hold off. Grant Robinson and co are dangerous. Equivalent to putting a witch doctor in charge of a modern hospital. Good luck !

But I thought that interest deductability was being phased in over four years? Do the numbers quoted reflect the situation at four years, not next year? If so that is misleading.

Well, the market is certainly crazy if you are looking for houses for sale in Wanganui. Or even renting for that matter. I would recommend https://whanganuimansions.co.nz which is a free online real estate magazine featuring houses for sale in Wanganui, Waverley, Marton & Bulls, New Zealand. All the local real estate agent & private listings. All price ranges. All in the one place for your convenience. All properties listed for free.