Property investors cheered when National promised it would restore interest payment deductions on residential rental properties. But there are a host of other changes proposed by the new government that will have a bearing on the property market for years to come.
The new coalition government has kicked off its 100-day plan to rebuild the economy, deliver tax relief, restore law and order, and deliver better health, education, housing, and infrastructure.
That’s quite a list.
While the freshly minted coalition’s plans for property investors and the rental market made the biggest headlines, a raft of lesser-known changes designed to drive the supply of housing should also get investors thinking.
First, the headline grabbers
The National Party is proposing to reverse three current housing policies.
- Restore interest deductions on residential rental properties: 50% interest deductibility will remain until April 2025 at which point the deductible proportion will increase to 75%. Interest charges will be 100% tax deductible from April 2026.
- Return the bright-line test to two years, the level it was when first introduced in 2015. In 2021, Labour extended the timeframe from five years to 10 years on property bought on or after 27 March 2021.
- Reintroduce no-cause terminations to property leases. Landlords will simply have to give tenants 90 days’ notice before terminating their lease.
Reinstating tax deductibility will provide financial relief for landlords and may even encourage some to make additional purchases. Pegging back the Brightline test will also have investors weighing their options, given the diminished risk of having to pay capital gains tax should they decide to sell within a short horizon. On the flip side, investors struggling with cash flow might be encouraged to sell if they suddenly find themselves off the hook for capital gains tax.
Going for Housing Growth policy
National’s policy aims to unlock land for new housing, build infrastructure to support new development and share the benefits of growth with councils through housing performance incentives.
Key elements include:
- Asking councils to bring more land forward for new houses, including land earmarked for development on undeveloped or greenfield sites at the edge of the city. The move is designed to lower the price of land and increase the supply of affordable housing.
- Repeal the Natural and Built Environment Act (NBEA) and the Spatial Planning Act, reinstating the Resource Management Act with amendments to make it easier to consent to new infrastructure and create a “fast track, one-stop shop” for consents.
- Financially reward councils for building more houses. Through a $1 billion Build-for-Growth fund, councils will receive $25,000 for every house delivered above the five-year average in a council area.
- Discontinue several first-home buyer initiatives, including the Buying Off The Plans initiative (formerly known as KiwiBuild) and the Affordable Housing Fund.
- Amend the Building Act and the resource consent system to allow granny flats or other small structures up to 60m² to be built with only an engineer’s report.
- National has also pulled its support for the medium density residential standards (MDRS), an agreement allowing the construction of buildings of up to three storeys on most sites in Auckland, Hamilton, Wellington, and Christchurch – without the need for resource consent.
The proposed changes have received a mixed review.
Economist Shmubeel Eaqub was underwhelmed. ”It’s extraordinarily disappointing. The country has been making some good, bipartisan progress on improving housing supply. It wasn’t that the policies were perfect, [it was that] we had political support across the divide. Now we’ve gone back to ping pong politics on housing supply – a long-term, structurally important human rights issue is becoming a political plaything again.”
Independent economist Cameron Bagrie’s response was also lukewarm. “At the moment there seems to be a lot of piecemeal stuff. We’ll look at this, do this and this. It’s not all-encompassing.”
You can’t please everyone.
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