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Out With The Old ... In With The New

Out With The Old ... In With The New

There’s a raft of new regulations set to come into play in 2024, as the new government resets the agenda for the property sector. Sally Lyndsay investigates.

By: Sally Lindsay

14 March 2024

When the National-led coalition government was elected, it promised a raft of reforms for property investors and the rental market.

It has outlined significant changes to tax, tenancy and planning laws – some a priority and others taking longer to introduce.

Here are the changes being planned and what it will mean.

1. Tax Changes

Along with eased lending restrictions, investors will also pay less tax under the government’s restored mortgage interest deductibility.

For the current tax year, 60 per cent is deductible, 80 per cent will be deductible from April 1 next year and 100 per cent from April 1, 2025. This is part of the coalition agreement, although ACT wanted it to be brought in immediately.

This will substantially affect investors’ cashflows. As an example, under Labour’s policy of phasing out tax deductibility, a property bought for $600,000 in 2021, renting for $600 a week, has a cashflow of 5 per cent, but the investor is topping up the mortgage by $30,000 a year for the next 15 years. Over 15 years that would mean a negative cashflow of $131,000.

Under the coalition government’s restored mortgage interest deductibility, the first five years are still negatively geared because of high interest rates, but the next 10 are in positive territory and the investor saves $72,400 in tax.

2. The CCCFA

This has been touted as the one piece of legislation that wrecked the housing market more than anything else under Labour.

As a priority, Consumer Affairs Minister Andrew Bayly is removing the prescriptive affordability requirements for lower risk lending as well as undertaking a substantive review of the Credit Contracts and Consumer Finance Act, including its penalty and disclosure regime.

Six months after the CCCFA restrictions were introduced, mortgage loan approvals slumped 40 per cent. In December, 2021, 81,900 mortgages were completed but by May 2022 this had sunk to 45,440.

Processing times for lending applications increased 50 per cent across all loan types and Bayly understands an estimated 6-7 per cent of mortgage applicants at the major banks, who would have previously qualified for borrowing, had to be turned down because of prescriptive and intrusive lending rules.

When the CCCFA changes were signalled, some banks brought in special software which could scan bank statements and put people’s spending into 17 buckets.

The prescriptive affordability requirements became all-encompassing, stopping banks from lending to people who were spending what was considered too much on coffees, Uber Eats, Netflix, Christmas and in other ways seen as normal by most people.

Before that, banks recognised people would spend what they had in their bank account, but once they got a mortgage they would rein in their spending to afford repayments, but that went out the window.

It led to fewer people taking out loans, fewer houses being sold and prices dropping.

Property market operators say there needs to be a simple test under the government’s revised CCCFA to approve loans for people who have a good income and can clearly afford a mortgage. They say the $200,000 penalties for bank directors and senior management who make a mistake and lend to people who cannot afford it should be dropped, and toughen up the regulations to target loan sharks, truck and payday lenders, which was originally the intention of the CCCFA but caught the main banks in its net.

3. Bright-Line Rethink

On July 1, the bright-line test will be pulled back from 10 years to two, which could prompt a wave of selling.

Before the original two-year bright-line test was introduced in 2015 by the previous National government, just under 130,000 houses a year were being listed on the market. Between then and the extension of the bright-line to five years in 2018, 13,000 fewer properties were put up for sale and between 2018 and 2021, when it was extended to 10 years, 8,000 fewer properties came onto the market – a total of 40,000 fewer homes now being sold every year, about a 30 per cent drop.

Research shows when the bright-line changes in July, about 250,000 properties will be outside the test. Not all of these will be investor-owned properties, perhaps 75,000-100,000 will fall into this category. Not all of these will come on to the market, but up to 10 per cent could as investors struggle with cashflow.

4. Less Risk For Landlords

Labour’s changed tenancy policies making it difficult for landlords to evict rogue tenants are also going to be kicked to touch.

Under the National ACT coalition agreement, landlords are going to be allowed to issue no cause 90-day termination notices to end a tenancy. It was taken away by Labour six years ago, although research shows it was only used by about two per cent of landlords.

Pet bonds will also be introduced, allowing tenants to keep a small pet if the landlord agrees. They will have to pay a bond.

These and other minor changes to tenancy laws will mean investors perceive there is less risk in rental property investing and will push up demand.

5. MDRS Review

While National pulled its support for the bi-partisan medium density residential standards (MDRS) before the election, it is now up to councils whether they follow them or not.

MDRS allows the construction of three buildings up to three-stories high without the need for resource consent in Auckland, Hamilton, Wellington and Christchurch.

Instead of the MDRS, the government says councils have to immediately zone for 30 years’ worth of housing growth, either through greenfield developments or more density in existing areas. Future urban zoned land on the edge of cities will probably become available for housing immediately.

6. Infrastructure

Infrastructure for new greenfield developments will be funded by rates and levies on that development rather than being subsidised by the rest of the community. A portion of GST collected on new residential builds may be shared with councils by the government.

The government still supports the National Policy Statement on Urban Development (NPS-UD), which requires councils to allow density around certain key public transport networks and other infrastructure.

7. RMA Repeal

The government has repealed the Natural and Built Environment Act (NBEA) and the Spatial Planning Act. It has reinstated the RMA with amendments to make it easier to consent new infrastructure and create a “fast track, one-stop shop” for consents.

The longer-term plan from the government is to replace the resource management laws with rules that are based on “enjoyment of property rights” as a key principle.

8. Build-For-Growth

The government will introduce a $1 billion Build-for-Growth fund.

For every house delivered above the five-year average in a council area, the council will receive $25,000. This will be funded by closing KiwiBuild and the Affordable Housing Fund and ending Kāinga Ora’s land acquisition programme.

9. Hidden Gem

While there is now little money in development – as the margins developers expect have been squeezed drastically and it is also difficult to get lending – hidden in the Seniors section of the New Zealand First/National coalition agreement is a proposal to allow any small structure up to 60m, requiring only an engineer’s report, to be built on the back of an existing property.

For an investor this is a financial boon. If a minor dwelling costs $200,000 and rents for $550 a week the gross yield is 14.3 per cent, a huge return for carving off a piece of unencumbered land in the backyard.

For those investors struggling with higher interest rates, this might be one thing that can be done to improve cashflow – a classic property investment strategy.

10. Law Reform

The government plans to reform the Infrastructure Funding and Financial Act to reduce “red tape” for developers to fund infrastructure. Housing growth will also become a priority for transport funding from Waka Kotahi.

11. Consents, Insurance

A builder with extensive indemnity insurance and able to self-certify may be able to opt out of building consent. They take themselves out of the mix in terms of having their work checked by the council and the council is no longer responsible for the quality of the build, limiting the exposure the council has. Construction can then move more quickly.