Most property investors venture into private rental housing to improve their financial position and to provide for their financial security in retirement. Along the way the majority renovate and carry out improvements to their properties and endeavour to maintain warm, dry, safe, comfortable homes suitable for renting.

In addition to their own sweat-equityefforts they provide work and financialbenefit to a range of tradespeople (and their families) including builders, painters, plumbers, electricians and the like. And then there is the requirement for building materials and hardware in addition to the purchase of professional legal, insurance, valuation, accounting and similar services. In short, most private landlords add value to the New Zealand housing stock and generate significant positive financial activity.

Hard-working Kiwis

Like most other New Zealanders, the providers of private rental housing are hard-working and wanting to get ahead for themselves and their families.

They are typically ambitious and socially responsible citizens who prefer investing in bricks and mortar, as opposed to shares and equities.

Government statistics record that of the 1.7 million privately-occupied dwellings in New Zealand, 603,500
(35.5%) are rented. Recognising the contribution of the state-owned Kāinga Ora – Homes and Communities portfolio of 67,000 (approximately), the majority of the nation’s rental portfolio is privately
provided. This is around 89% of the total rental pool.

It is a fact that private landlords are doing the “heaving lifting” in the provision of rental housing in New Zealand.

Housing, be it owner-occupied or rented, meets the basic human need for shelter. The provision of warm, dry, and safe housing provides a measurable economic and social benefit to the wellbeing of people and communities. Contrary to what the Government would have us believe, the provision of rental accommodation is demonstrably a productive sector in the New Zealand economy.

This Government has long remained silent on the value that most private landlords deliver to the economy, and to social and community health and wellbeing through the provision of rental housing. The private sector can provide rental housing far more cost effectively than the Government. The national median rent for a two-bedroom flat is currently $425pw. By contrast the Government is currently spending $900,000 per day for 6,641 transitional housing spaces; this equates to $135 per space per day, or $948pw. The need for more social housing is dire and in plain sight.

Investors Not Speculators

The Government has been mischievous in its messaging by conflating “property investors” with “speculators”.

Genuine private rental housing landlords are not speculators. Surveys by the New Zealand Property Investors Federation and our Taranaki Association prove they are “buy and hold” people, in the sector for the long run. The conventional wisdom is that if you want to invest in residential rental property
you need to be in it for a minimum of 10 years.

Extending the bright-line test from five to 10 years will not be an issue for most private rental housing providers. Most are in the business for the longterm. It is a nonsense to say that someone owning property for up to 10 years is a “property speculator”.

Removing the tax deductibility of loan interest specifically targeting private rental housing providers is unfair, unjust, and unkind to a specific class of business taxpayer.

Private rental housing providers run businesses that generate revenue and incur legitimate business costs. In
addition to loan interest, a wide range of business expenses are incurred obtaining goods and services to repair and maintain residential rental properties. They also pay insurance, rates and water charges, and often electricity and gas for multi-unit studio-style properties.

Removing tax deductibility on interest will impact on the cash available for property repairs and maintenance and overall business profitability. Those providers reliant on their earnings for day-to-day living will be adversely affected, particularly those in retirement.

Negative Impacts

Also, of financial impact to the sector will be the negative effect on the asset values of private rental housing as an asset class. The non-deductibility of loan interest will negatively affect net yields on private rental housing portfolios. This will further dissuade investment in the sector. It could result in banks becoming uncomfortable with security values resulting in private rental providers having to exit the market through forced sales.

The introduction of the nondeductibility of loan interest as a business expense will likely see many private rental landlords’ transition from profitable business to “just on broke” or really broke.

Claiming loan interest as a business expense is as legitimate and equitable for a private rental housing provider as it is for any other business. Would the Government be game enough to try to foist non-tax deductibility of loan interest on the private rest-home sector, who, like private landlords, borrow capital to finance accommodation? I think not.

To characterise that the Government is closing a “loophole”, as between interest paid on a home mortgage by a private homeowner and that paid by a private rental housing provider is dishonest. While a private owner occupied residence has utility and asset value, it is not an asset in the true sense as it does not generate revenue; further, tax deductibility of loan interest has never been available to owner-occupiers.

Unintended Results

If the Government stays on its current policy course, the unintended consequences that will result will amplify the current rental housing shortage, and social housing in particular.

There is already anecdotal evidence of private rental providers selling-up and exiting the sector. First home buyers may have greater opportunity and that is a good thing. However, there is also evidence that investors have retreated to the side-lines at open homes and auctions. This suggests, in the absence of urgent and bold Government action to incentivise the private sector to build more rental (including social) housing, the private rental housing pool is only going to get smaller. Thus reducing renting opportunities. The combination of displacing tenants in exchange for owner-occupiers together with a diminishing private rental pool will likely result in increased demand for emergency/transitional and social housing, the domain of central government.

The provision of private rental housing is a very worthy enterprise and, in my experience, most providers in the sector are proud of their contribution.

The messaging of the Government, both verbal and written, in introducing these most recent housing policies, has been insincere and dishonest. These polices will have the net effect of undermining the provision of private rental housing while doing nothing to address the real rental needin New Zealand, the provision of more social housing.

Lack Of Appreciation

The March 23, 2021 announcements demonstrate a lack of understanding and appreciation by the Government of the contribution the private rental housing sector makes to the economic and social wellbeing of New Zealand. Kicking the private rental housing sector “for touch” and into uneconomic oblivion is not the solution to any part of the housing crisis.

The Government should immediately abandon the proposed non tax deductibility of loan interest policy to restore confidence and certainty to the private rental housing sector. It should also do the decent thing and consult with the sector that provides most of the rental housing in New Zealand. Getting out of the bunker, taking advice from its own officials, and collaborating with the private rental housing sector would be a far more productive Government endeavour toward solving the housing crisis.

Colin Comber is a former President and currently active member of the Taranaki Property Investors’ Association and has been a provider of private rental housing in New Plymouth for 20 years.