Deductibility the Cruncher for Voters in Election
October’s election will have the biggest impact on property investors in decades and all eyes are on tax.
29 June 2023
The difference in housing policies between Labour and National is a divide so deep it will take years to untangle.
During the past six years of Labour’s turn at the helm, it has taken away the ability for investors to use mortgage interest payments against rental income for tax deduction purposes, extended the bright-line test to 10 years, banned no-cause rental terminations, limited rent increases to once a year, introduced Healthy Homes legislation, increased tax on trusts, which many investors use to hold property assets, and allowed three units of three-storeys high each on almost any residential section across the country without resource consent.
National has vowed if elected it will reinstate the tax deduction on investment property, pull the bright-line test back to two years, reverse no-cause terminations and the near-automatic rollover of fixed-term tenancies into periodic tenancies, pull out of the bi-partisan agreement with Labour on housing intensification intending to push for more “green fields" development.
Waiting to Sell or Hold
For iFind Property director and operations manager Nick Gentle the election will have the most effect of any held for property investors.
Investors are sitting on the fence waiting to sell or hold, Gentle says.
“It’s not just investor property holders, its builders, developers, everyone.”
He says the biggest change investors want is the mortgage interest payments deductibility reversed.
“Under Labour, for example, if an investor has a new build and it is exempt from tax deductibility for 20 years, who are they going to sell it to at the end of 20 years because it no longer has any tax benefits. I think it lowers the value of everyone’s future assets.”
He says that the tax deductibility issue alone is turning people into one-issue voters. It is probably what 300,000 voters will be doing after they get their accounting tax bills in the next three months and it will really sting.
He doesn’t know how many investors will have to sell their properties as the removal of tax deductibility is completed in two years, but he thinks quite a few will have to.
“It is massive – a lot of investors are in the wait and see mode because National/ACT have been quite vocal in reversing in this stuff while Labour/Greens will keep the status quo.”
If Labour is elected again, Gentle says it could possibly add more punishment and regulations against landlords, such as rent controls similar ideologies.
Shine Back on Property Investment
Property Scouts NZ director Ryan Weir says if the tax deductibility rules were changed under a National government, they will improve the cash flow for many investors.
“Not only that, but it will put the shine back on property investment as an asset class because it has been getting hit time and time again by Labour policies,” he says. “It could also lead to higher prices as an asset class.”
He says it will also give a boost to mortgage advisers, who recently will have been writing far fewer mortgages. “As they are paid on the number of mortgages they write they will be getting a bit of a pay cut.”
Weir says if Labour is re-elected it has underway most housing legislation it wanted to make, so he doesn’t think the party will have much more to introduce aside from regulation of property managers.
“House prices will start to come back if the country has another Labour coalition, but not at the accelerated rate it would under a National-led government.” The changes in interest deductibility are such a game changer for investors, he says.