Landlords feeling the heat – Government won’t care

A property investor survey by independent economist Tony Alexander shows people generally support the Government’s housing goals but overwhelmingly oppose the means it has chosen to achieve them.

Tuesday, April 6th 2021, 3:57PM

More than 3,600 people replied to the survey and a gross 85% say they will be affected by the Government’s bright-line test being extended to 10 years. And its intention to scrap mortgage interest being deductible against the expenses of running a rental house, to be phased in over four years.

Alexander says in all probability, this will not concern the Government given the inaccurate language it has used to describe people choosing to build retirement wealth through providing rental accommodation.

“But 11% of respondents say they will not be negatively impacted and perhaps these are people without a mortgage on their property,” says Alexander.

Data from CoreLogic shows about 12% of people investing in property do so without a mortgage.

Planning changes

Asked about making changes as a landlord in response to the Government’s new policies, a gross 70% of respondents say they will change something, 16% say they will change nothing and 14% are unsure whether they will or not.

One of the biggest changes will be in rent. A gross 74% of survey respondents say that they will raise their rents more than they had previously been planning to.

About 29% of landlords will look for tenants who can pay more rent.

Alexander says a number of people feel because of the policy changes they will have to abandon their previous policy of not matching market rents because they want to retain their preferred tenants.

Buying further property

Of those planning to buy more rental houses, 32% say they will abandon that idea, and 25% say they will sell. Only 8% will switch their accommodation from long-term rental to short-term accommodation for visitors.

Alexander says in an environment of rental property shortages, this shift – plus the high proportion of owners saying they will sell – will have a noticeable impact on availability and eventually average rents.

Making ends meet

However, 26% of landlords will cut spending on themselves to offset a fall in net rent cashflows, 23% will switch to an alternative investment, 6% will renovate their properties and 2% will take in boarders.

When he reviewed 1,000 of the responses to see what people listed under “other” Alexander found a small number of landlords saying they will switch to commercial property investments. A few are planning to pay down their mortgage, some are looking to load their mortgage debt onto other assets where deductibility of interest costs will remain.

“A number say they will switch towards property trading or property development.”

Comments

Alexander also listed a number of comments from the first 300 survey respondents.

• Misguided and angry at being lied to in the lead up to the last election.
• Needed very much. I worry for my kid’s future. For me – yield is still OK, I'm still long-term bullish on Christchurch, happy to take a longer view.
• I do not believe they will have any effect on the housing “crisis”. They will decrease the availability of rentals and make it harder for tenants to secure a property.
• It does not address the issue. There is no supply side resolution in the short term, they only need to look at the Christchurch market to see that it can be resolved through an increase in supply. The statement “tax loophole” for the interest deduction is political stupidity.
• They have made matters worse for tenants, there will be fewer houses to rent.
• This is hurting working NZ. Yes, there may be more access for FHBs, but I feel the renters will be left behind creating greater social inequalities.
• Not fair that other asset classes get to still claim interest expenses. Mates who invest in businesses get to, but I now don't as I choose residential property. But new builds and commercial are exempt ... It's a very odd policy that has singled out property investors. I'm now going to change my [tack] and do more flips instead of just buying for long-term hold.
• I believe something needed to happen but not clear the Government has thought through things properly particularly when it comes to the non-deductibility of interest expense. This is the main reason I will consider upping my rents more due to the direct cash flow hit.
• I think rents will generally rise to offset landlords’ increased costs.
• I believe the Government intervention is a way to pretend to solve a problem without solving a problem. I believe a strong message has been sent to landlords that we are not wanted and not required as per previous statement. I doubt professional landlords will be deterred by the changes, many ma and pa friends want to throw the towel in, but the most determined landlords still want to own property, so there will be the odd property available to rent. I describe the changes as being like a carbon tax. You add a levy onto the product you don’t want to succeed in order to make the other more attractive, at least if rents skyrocket, people that can’t afford a home will surely have the ability to buy a house and not rent.
• It seems a rash and poorly considered political decision to appeal to a voter base, rather than a carefully considered economic decision designed to create a better level of living for renters and first home buyers. We seem to have this obsession with home ownership for all, when for many long-term renting will lead to better outcomes.
• I do not believe recent changes will make any difference to the housing market in the short term. The bright-line test will reduce the stock on the market even further.
• It hurts but at a cost of $5k per rental I am assuming even small capital gains will offset that and some.
• Not well thought out, unfair. Who makes legislation retrospective, labelling landlords “speculators”, and saying it was a loophole? More worrying was the statement that in May they will be looking at interest only loans. They have no idea.

Tags: Bright-line test landlords Tony Alexander