Property economist Kelvin Davidson says return of interest deductibility won't bring rents down but could ease rises

A housing expert thinks the return of mortgage tax deductions could slow down the growth in rents but won't see a large scale drop in prices.   

It comes after Associate Finance Minister David Seymour announced on Sunday that the Government would restore deductibility for mortgage interest for landlords from April 1 onwards. 

Seymour described the change as "a step in the right direction", adding it would "ease pressure on rents".    

CoreLogic Chief Economist Kelvin Davidson said although the change is likely to slow down the growth in rent, "it doesn't transform things".  

"I'm not necessarily sure we will see rents go down," he told AM on Monday morning.  

"There are so many other things going on in the market. There's higher inflow of net migration which is putting a lot of pressure on rental stock, demand for property is high, and also the availability of rental property is lower than it otherwise might have been because investors haven't been purchasing as much lately."    

"Some [landlords] might lower rents, but the ultimate impact of this would be the rental growth might be a bit lower than it otherwise would have been. That is where the benefit is for tenants."  

He said slower increases will be visible, as prices "won't be rising as quickly as they otherwise would have done".  

Davidson warned the tax deductions could make it a harder market for first home buyers.   

"If there's one more investor in the market, that is one less property available on the market for someone to buy - potentially a first home buyer," he said.    

But he's not predicting a rush of investors buying up properties.  

"There are reasonable challenges for landlords out there. Some [investors] will come back, but not numbers we have seen in the past." 

Watch the full interview above.