Housing crisis: Tenants can 'look elsewhere' if landlords hike rents - Robertson

Property investors are threatening to increase rents after the Government on Tuesday announced they'd no longer be able to claim back interest costs for tax purposes.

But Finance Minister Grant Robertson says it won't "necessarily" push prices up, because renters have the option to "go looking elsewhere". 

Meanwhile, first-home buyers are disappointed the long-awaited announcement didn't include extra financial support for getting a deposit together, or more incentives for banks to lend to people who can clearly afford to service a mortgage, but are denied on technicalities.

Removing tax deductions

Perhaps the most surprising part of Tuesday's suite of changes was stopping landlords from being able to offset interest costs against their rental income, reducing their tax liability. 

"I simply couldn't believe it would happen, to be honest," president of the NZ Property Investors' Federation Andrew King told The AM Show on Wednesday. 

"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." 

King was particularly angered by 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." 

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."

Rent inflation versus GDP growth, by month.
Rent inflation versus GDP growth, by month. Photo credit: Statistics NZ

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 on a monthly basis; 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. 

The changes aren't expected to be fully in place until 2025, with consultation on how it will work still to come. 

First-home buyers left out

Also in Tuesday's announcement were changes to the First Home Grant and First Home Loan schemes, mainly in the form of higher caps on incomes and property values that qualify

Lesley Harris of the First Home Buyers Club said they were "all a little bit disappointing".

"I mean, $700,000 in Auckland, where do you find anything for under that? There just seems to be too many caps. There was some really, really easy cherries we could have picked and we just didn't."

She said thanks to low interest rates, many people currently paying rent could easily pay a mortgage - but getting the deposit together was too hard, and banks won't lend to them.

"I don't think they're asking the right questions to the right people, and they're not listening to what the actual problem is... Are they aware of the fact banks don't want to lend? ... We saw last week four professionals, near on $400,000 combined income, parent gifted the deposit. It was declined because the deposit was gifted." 

Andrew King and Lesley Harris.
Andrew King and Lesley Harris. Photo credit: The AM Show

A recent report found Auckland prices, compared to local incomes, are among the most unaffordable in the world - the average place costing about 10 times the average household income.

"The biggest issue we're seeing at the moment is people can't get the lending to buy the house - people can't get the deposits together. We've got a massive, big gap between what the average income is versus what you need to buy a house... 

"We wanted to see some kind of tangible relief... where is the help? How do the changes of yesterday help people actually get a deposit and help them get a mortgage? They're the two biggest issues we're seeing all the time."

She would like to see any first-home buyer qualify for a First Home Grant, not just those who have been in KiwiSaver for three years or more, and something to encourage the banks to loosen the purse strings and lend to people with incomes high enough to service a mortgage, but not can't get a deposit together thanks to high rents. 

Supply side

Both Harris and King said the ultimate solution is tackling the supply side - building more houses. To that end, the Government announced a multibillion-dollar package to fund infrastructure construction, making land build-ready for councils and developers. Robertson called it the biggest of its kind since the 1970s. 

"It is quite good they did look at the supply side," said King. "It would be interesting to see the detail of it and how it's going to work... Everyone knows that it's supply, we need to get supply up. Focusing on these demand-side solutions is the wrong way to go. It makes things worse."