The New Zealand government’s proposed changes to interest deductibility rules on residential properties are expected to see it generate an estimated additional revenue of $1 billion over the next four years according to a statement given by Revenue minister, David Parker.
The key change that will contribute to the government’s coffers is a proposal to limit property investors from deducting mortgage interest from taxable incomes. This is expected to take effect from 1 October and will apply to properties acquired on or after 27 March, this year. It will however not apply to those buying main homes or new purpose-built rentals for up to 20 years. This change is expected to further boost plans to better support first-time home-buyers. In March, the government pledged to aid the segment by boosting the supply of affordable homes.
The rules are also expected to cool the housing market by making speculations less lucrative and improve housing affordability. Housing figures from August indicate that prices have risen by an estimated 26% over the last year. This steep increase has made New Zealand housing the least affordable of all the Organisation for Economic Cooperation and Development (OECD) countries. It has also prompted the Human Rights Commission to term the situation a ‘punishing impact’ on marginalised communities.
The National Party has however opposed the interest deductibility changes, suggesting that it would worsen the housing crisis by leading to rent increases. This would be as a result of many landlords earning even less from their properties. National Shadow Treasurer, Andrew Bayly, has criticised the move, saying no real input was sought from tax experts. Parker however dissented with this view, saying that rents were mainly determined by what people were able to pay. He said that generally, landlords were already charging as much rent as they could from tenants.
Real estate professionals like Tim Kearins of Century 21 New Zealand have however also voiced concern over the changes. He said there would be unwanted pressure placed on residential rents that were already at record high levels. He highlighted advice given to ministers by the Inland Revenue Department (IRD) earlier in the month that predicted a negative impact on rent levels and recommended not opting for the deductibility changes. They stated a preference for the status quo as additional taxes would not be an effective solution for housing affordability. Kearins noted that with this clarification, landlords could be expected to pass on costs to New Zealand’s 1.5 million tenant population, terming it a tenants’ tax.
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