Landlords who threaten rent rises 'disingenuous', should accept housing as public good, not a product - investor

Landlords who threaten to raise rents as a result of the Government's new housing plan are being "disingenuous", an investor says, and they should accept housing as a public good - not a product.

Part of the Government's plan means property investors will no longer be able to offset their interest expenses against their rental income, reducing their tax liability.

In response to this, property investors have warned they'll increase rents to absorb the extra costs.

But Simon Angelo, an investor and CEO of Wealth Morning, says these threats are "disingenuous". 

"Having been a landlord for many years, I know all too well that most rents are already at the maximum level many tenants can afford to pay. And, for a good tenant, you're usually better off to keep the rent contained to keep them," he writes in a story on the Wealth Morning website.

"There will be very few cases where owners will be able to hike rents by $120 a week to cover the average expected shortfall when 0 percent deductibility hits."

Tax deductibility will be phased out over the next four years and will be completely axed by April 1, 2025.

He says some property investors have suggested it is unfair that all other businesses could claim interest tax deductions, but not landlords.

"Even more disingenuous is suggesting that most residential rental homes are a 'business'. Most operators do not provide the service at any scale," Angelo says.

"A very low-yield building that mainly allows one customer to have a roof over their head looks more like a social good, not a market product. Perhaps we need to change the way we provide it.

"Businesses produce profits across many customers. They, in turn, are subject to industry, health, trading, taxation, and countless specific regulations."

Landlords who threaten rent rises 'disingenuous', should accept housing as public good, not a product - investor
Photo credit: Getty Images

NZ Property Investors' Federation president Andrew King told The AM Show on Wednesday he was surprised the Government closed off the ability for landlords to offset their interest expenses against their rental income.

"I simply couldn't believe it would happen, to be honest," he said.

"You don't need to take my view on it either - Treasury and the IRD, their policy advisors advised the Government not to do it." 

While the IRD took a firm stance against it, analysts at Treasury were just being cautious - unsure what impact the change would have, not having enough time to dig into it in detail

"The Treasury recommends further regulatory impact analysis and consultation be undertaken before final decisions are made on this measure," Treasury said.

King was particularly angered by Minister of Finance Grant Robertson's use of the phrase 'loophole' since other types of businesses do it too.

"It is not a tax loophole, for a start. That is just rubbish. To call us tax avoiders and speculators is wrong." 

Grant Robertson.
Grant Robertson. Photo credit: Getty Images

Appearing on The AM Show after King, Robertson didn't hesitate to use the phrase again.

"You and I can't get interest deductibility for the properties we occupy, so why should investors get that? We're closing that loophole, and we think it will make for a fairer housing market... There's a tax loophole that's been exploited by speculators and investors that homeowners don't get to use, and it is making things more unaffordable for first-home buyers." 

King said it's not "scaremongering" to say this and other demand-side measures would push up rents, as landlords seek to recoup the lost income from their tenants.

"We've been saying this will reduce the supply of rental property, this will put up rents. What has happened? Supply has gone down, rents have gone up. We've got a waiting list for state houses of 22,000. Everything that we said would happen, has happened."

Rents have consistently gone up faster than inflation for several years now, regardless of Government policy. Since 2013, Statistics NZ data shows rental price inflation has only rarely dipped below 3 percent when measured monthly; while overall inflation has rarely topped 2 percent. 

And since the election of the Labour-led Government in 2017, rent hikes have typically outpaced GDP growth - and have been well ahead since the economic effects of the COVID-19 pandemic hit in early 2020, with huge hikes coming after the rent freeze was lifted in September.

Robertson said if landlords hike the rent too far, people will look elsewhere. 

"The rental level is a product of demand and supply... and people's ability to pay," he said.