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Investors: Labour policy would increase rents

Property investors have slammed Labour’s plan to ring-fence rental property losses.

Monday, May 15th 2017, 12:00AM 2 Comments

by The Landlord

Labour leader Andrew Little

Andrew Little revealed yesterday that Labour would not allow investors to claim losses from their investment portfolio against other income.

“This will create a level playing field for home-buyers and help families get a fair shot at buying a place of their own.”

He said investors had avoided paying $150 million in taxes last year, by claiming losses from negatively geared investments.

“The loophole is heavily used by foreign buyers and most of the gains go to the people on the highest incomes.

“The speculators’ tax loophole will be phased out over five years. This will save taxpayers around $150 million a year once fully implemented, and a total of $1.2 billion over a decade.  Labour will invest this money into making homes warm and healthy.

“As well as closing this loophole Labour is going to ban foreign speculators from buying existing homes, and we will make someone who sells a rental property within five years pay income tax on the capital gain.”

Little said the savings would be invested in grants for insulation and heating.

But NZ Property Investors Federation executive officer Andrew King said Labour was overstating the benefits of the losses being deducted.

"If an investor pays $10,000 more for a property it will cost them an extra $391 a year in mortgage interest after claiming a tax deduction. If a home owner did the same, they would pay an extra $583 a year, or just $192 more than the investor. Yes, the investor has an advantage, but it is not so great that the investor will pay a significantly higher price for a property than a homeowner," he said.

"Even with a tax deduction and fronting up with a $54,000 cash deposit, it will cost an investor $6184 in the first year to buy and provide the average NZ home to a tenant. If the ability to claim losses is taken away from rental property providers, it will increase the cost of providing the average NZ home from $6184 a year to $10,293. This will add over $4000 a year to this cost, an increase of over 65% or $79 per week. 

"Labour's proposal would likely result in increased rents, making it be harder for first home buyers to save the deposits required to purchase homes. Labour’s policy will not make it easier for first-home buyers."

Commentator Olly Newland agreed with King. "If an owner of a block of apartments suddenly finds that his tax bill has gone up, where do you think he will look to be compensated? That’s right. The tenants. As sure as God made little apples rents will be pushed up as the easiest line of resistance. Worse still, investors who provide housing may quietly offload some of their properties which will only exacerbate the rental shortage."

He said Labour would find it hard to delineate losses from rental properties as opposed to losses from other types of business, which will continue to be deductible.

Property Institute chief executive Ashley Church said negative gearing was only a factor in the early years of an investor.

“Over time, rents rise and properties become ‘positively geared’ – at which point the additional income becomes taxable. Is Labour suggesting that they will forgo this tax income – or that they’ll make property investors pay tax on profits while removing the ability to claim losses?"

« Past the peak?Pessimism clouds house price expectations »

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Comments from our readers

On 15 May 2017 at 10:56 am Peter L said:
The whole political bias is founded on the belief that Landlords comprise a very few, very wealthy individuals - who therefore have minimal voting power and can be safely classed as villains.
The reality is there are around 275,000 private residential landlords in NZ, most (at least 75%) of whom own just one or two properties.

Given that there are about three million registered voters in NZ and the number who actually get out and vote on the day is somewhat less than that, it would seem that some 10% of those who do vote are residential landlords.
Why would they want to antagonize 10% of their prospective voting public?
10% is quite enough to swing many of the more marginal electorates.
On 15 May 2017 at 1:08 pm hsharkey said:
It is time that everyone stops generalising about New Zealand's property market. Auckland, Wellington, Queenstown and Wanaka (perhaps some others too) house prices and demand are totally different to the rest of New Zealand, particularly Christchurch, Dunedin etc. Houses are affordable in these areas for first home buyers. There are many options under $300-$350in ChCh. Commentators need to use 'high demand areas' and 'medium demand areas' and even 'low demand'(e.g.SI West Coast). More importantly, politicians need to understand how crucial these differences are when assessing the benefits of new policies.

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ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
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BNZ - Classic - 2.55 2.69 2.79
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China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 3.85 3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.65 2.79
Kainga Ora 4.43 2.93 3.07 3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
SBS Bank 4.54 3.05 3.19 3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.55 2.69 2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 3.29
TSB Bank 5.34 3.29 3.45 3.59
TSB Special 4.54 2.49 2.65 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.15 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.00 3.13 3.02

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