The NZ Property Investors Federation (NZPIF) and other organisations have called on the government to reconsider removing mortgage interest costs on rental properties. However, it seems their pleas have fallen on deaf ears.
In March, the government launched a new housing package to address the country's housing crisis and support first-home buyers (FHBs) into homeownership. It extended the bright-line test to 10 years (with an exemption to incentivise new builds) and removed the interest deductibility loophole for future investors and phased out on existing residential properties.
Last week, NZPIF president Andrew King and executive officer Sharon Cullwick discussed with Finance Minister Grant Robertson, Housing Minister Megan Woods, Revenue Minister David Parker, Associate Housing Minister Poto Williams, Revenue Under-Secretary Dr Deborah Russell, and 12 policy advisers about research showing that the bright-line extension would not affect 69% of investors.
King and Cullwick pointed out that removing the ability to claim mortgage interest payments as a legitimate tax deduction will impact 90% of landlords by an average cost of $4,542 per rental property annually. Therefore, Kiwis could face higher rents while saving money for a home deposit.
King said the First Home Buyers Club, Tenants Protection Association (Christchurch), and Renters United in Wellington backed the NZPIF's belief that removing mortgage interest tax deductibility was not in the best interest of their members.
“We asked them to support us in requesting the government reconsider this policy, which they did,” he added, as reported by Good Returns.
The organisations sent a letter to the ministers, pointing out concerns about removing tax deductibility and asked the ministers to reconsider the policy.
“It was a powerful letter because it included the perspective of tenants, who will be collateral damage in the change,” King said. “The First Home Buyers Club doesn't believe it will help their members, but it will, in fact, make it harder for them to save deposits required to purchase their first homes.”
However, King said their feedback on the new tax policies were “dismissed out of hand.” As a result, they prepared a Plan B, proposing a modification of how the removal of interest deductions will be introduced. They based Plan B on the British government's less severe introduction of a similar policy, which King said did not have as much impact on investors.
“The more measured reduction in claiming mortgage interest as a tax deduction meant only an estimated 18% of rental property owners with debt were affected, and rental prices have not been affected to a large degree,” King said.
“In New Zealand, 100% of property investors will be affected, and we are disappointed to find the UK policy has been considered, but Robertson says it is unlikely the government will look at changing the New Zealand policy's structure.
“It appears no consideration is being given to advice from tenants, first-home buyers, and officials from the IRD, Treasury, the Housing and Urban Development Ministry, economists, and tax experts who do not agree with this tax change.”