APIA Blog

RSS Feed

Kelvin Davidson: Our ‘top down’ perspective on the Government’s investor tax policy changes

Tuesday, April 27, 2021

IMG SOURCE: PIXABAY

It’s an understatement to suggest that the content of the Government’s housing policy announcement on 23rd March was a surprise to most. In reality, it was a major surprise to all. However, now that the dust has settled a bit, our perception is that the changes won’t have as much impact as first thought. Sure, some landlords will look to sell properties and/or raise rents sharply, but for the most part, we think people will carry on, just a bit less profitably than before.

 

Our analysis boils down to three key points:

  • Existing landlords are unlikely to sell en masse over the next few years. After all, the full brunt of the removal of interest deductibility won’t be felt until 2025/26, and only by those with large mortgages. Then we also need to keep in mind that the cheapest option for many investors from a tax perspective is still going to be to avoid Brightline by not selling. And finally, there’s still the thorny issue of what to do with any sale proceeds anyway.
  • Rents are unlikely to rise noticeably more sharply than they would have done anyway. First, if there’s no big landlord sell-off, then the supply of rental stock will be similar. Second, the historical evidence suggests that rents are much more closely tied to tenants’ incomes than landlords’ costs – for example, previous law changes (such as depreciation removal and Healthy Homes) haven’t caused rents to spike across the board. And of course many landlords value a good tenant and want to avoid vacancies.
  • But further investor purchases of existing properties from here on will be curtailed. The extension of the Brightline Test to 10 years for purchases of existing properties and the instant loss of interest deductibility incentivise investors to shift their focus more towards new-builds (which of course are also exempt from the loan to value ratio speed limits).

Now it’s important to note that those views reflect a top-down, aggregate perspective – but we also acknowledge that some individual landlords will of course follow a different path, and that’s understandable. We had already heard anecdotally that some long-time residential landlords had started to question whether they had the time/inclination anymore, so that might be a cohort looking at their options – especially if interest rates were to rise over an 18-24 month horizon.

Finally, looking out five or 10 years, it’s uncertain how these regulations might impact the market, but we suspect that property will still be a chosen path by many. They’ll just look at other ways to make property ‘stack up’, which of course could include paying less in the first place than they otherwise would have done. In addition, for new landlords 10 years down the track, they may never know that interest deductibility even existed, so it just won’t be a factor them.


 

This is a guest blog submission from Kelvin Davidson from CoreLogic NZ. Guest submissions are a way for APIA members to share their views and experiences with each other and do not necessarily reflect the views and position of the APIA.  The content of this article is general in nature and not intended as a substitute for specific professional advice on any matters and should not be relied upon for that purpose.


ABOUT THE AUTHOR

Kelvin Davidson

Kelvin is the Chief Property Economist of CoreLogic NZ. Prior to joining CoreLogic, Kelvin spent 15 years working in private sector economic consultancies in NZ and the UK, and he is well practised in applying macroeconomic trends and data to the property market.


 

Recent Posts


Tags

ird Tribunal case study education barfoot and thompson insurance capital gain initio interest deductibility building sale and purchas meth contamination wins Level 4 letting fee investor election2020 market rent boarding house Landlording investment strategy worksafe trust warm up new zealand kiwibuild gluckman report subdivision retaliatory notice Standards New Zealand cgt lvr property maintenance Q&A CCC ocr anz finance HHGA positive cash flow anti-social behaviour termination buying ring-fencing TCIT Property (Relationships) Act property management commerce commission beginner investor early termination watercare rta khh shortland chartered accountants daikin buyer's agent CoreLogic tenancy issues rta reform sale and purchase bad tenant Investment tip tenancy tribunal opes partners equity minor dwelling rent increase airbnb election 2017 partners short-term rental renovation tax Case study insulation re agent reserve bank p lab HHS unitary plan robert kiyosaki parry v inglis fixed-term tenancy market mortgage interest only shower dome bankruptcy housing package rent arrears LIM property value auckland council clnz development rent control cash-flow asbestos legal brightline heating twg report recycling equity Gluckman house prices holiday house television buying rules Investor story structure How to speculator bond wealth creation tenancy services legal cost rental wof data security HSWA privacy rental market mindset warren buffett ask an expert heat pump covid-19 landlord damage management return Kris Pedersen Mortgages and Insurance relationship maintenance rent meth nzpif rtaa2020 housing affordability productivity smoke alarm Sponsored post Editor's Choice ventilation water bill Must knows interest rates inspection off the plan personal growth debt enforcement will scotney williams skill shortage yield tenant advice winz extractor fan property cycle Holler auckland trespass first home buying Jeff Bezos Must know letting negotiation apia Guest blog business bond form quiet enjoyment sublease heater cat financial advisers act income government housing bubble property banking RBNZ RTAA 2019 DTI property apprentice Market report Question and answer trademe principal and interest

Archive

Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo