Ministry warns about impact of housing package
Over 30% of property investors in New Zealand did not make an income from their investments, recording significant annual average losses, according to the Ministry of Housing and Urban Development’s (Ministry) report.
Prepared in December 2020, the paper examined the potential impact of the government’s housing package, which was announced in March 2021. It revealed that 37% of investors (107,530 taxpayers) reported significant losses to Inland Revenue. Meanwhile, 63% of those who reported profiting from their properties recorded an average profit of $14,000.
“Most allowable deductions reflect real cash costs to investors, e.g., insurance, body corporate fees, and maintenance,” the Ministry said.
If the housing package is implemented, landlords might increase rent to cover additional costs, take their property out of the rental market, lower maintenance to reduce costs, or even sell one of their properties, the Ministry said.
“Property investors will weigh up their willingness and ability to pay for any increased up-front costs against the returns to the investment, including rents and untaxed capital gains,” the Ministry continued.
“It is unlikely that investors will be able to fully pass on additional costs through increased rents. Stressed renters are already at the limit of what they pay and may respond through sharing housing costs and crowding. Rising rents can also lead to more well-off renters opting to buy, subject to being able to raise a deposit, or paying higher rent to secure properties.”
If many landlords choose to sell their property, the Ministry warned that the associated “churn” in the rental market could impose significant costs to renters, and some might find it difficult to find a property.
“There is a risk that for some renters in the lower-priced parts of the rental market that they will not be able to find a new rental property at a price they can afford. This could lead to either further pressure on emergency special needs grants, transitional and public housing, or too much overcrowding to enable rent to be affordable,” the Ministry said.
