Spooked investors, developers hitting pause on housing projects over Government changes

Newshub has been told investors and developers are hitting the pause button on housing projects after the Government changed the rules on them this week.

New-builds will be exempt from the removal of tax deductions on interest costs for rental properties, but investors have been spooked by the lack of details.

Prime Minister Jacinda Ardern pleaded with investors on Tuesday to direct their money at building homes, saying: "Invest in new builds - grow the number of houses that are being built in New Zealand."

But the Government's effort to soften demand is spooking them. Ernst and Young partner Brad Wheeler has clients - developers and investors - hitting pause on building. 

"Large-scale build-to-rent projects at various stages, and we've got people now having to put those abruptly on hold," he told Newshub. 

The Government blindsided investors by changing the interest deductibility rules. Investors will no longer be able to use their property income to offset mortgage interest costs, meaning they'll pay more tax.

But it's been unclear whether that applies to new-builds as well.

The Government has promised an exemption. 

"New-builds will be exempt to help build housing supply," Revenue Minister David Parker said on Tuesday. "Because we're exempting new builds we will be increasing supply."

But the policy is clear as mud.

The factsheets say the removal of interest deductibility will apply to all investment properties other than potentially new-builds - purchased after 27 March - that's on Saturday. 

 No one knows which side of the line in the sand new houses sit on. 

"We need to understand what is a new-build, for how long are you exempt - is this forever? Is it only for part of the time or in the future are they going to change the rules again?" said Wheeler. 

National MP Andrew Bayly says uncertainty isn't good for the housing market. 

"The worst thing you want to do if you're trying to do new-builds in New Zealand is create uncertainty for people who want to go out, invest their money and take on the risk," he told Newshub. 

The Revenue Minister wouldn't be interviewed on Friday but his office confirmed they will exempt new-builds, and they're just working through the details.

But a lack of details turns into uncertainty, creating fear and no risk-taking, which means large-scale developments - exactly what we need - are put on hold. 

"That's just going to really put hundreds more homes at risk or worst case delay them for another three, six years," says Wheeler. 

It's hundreds of homes which would've been a good start to solving the housing crisis.