Investors: Labour policy would increase rents

Labour leader Andrew Little

Andrew Little revealed yesterday that Labour would not allow investors to claim losses from their investment portfolio against other income.

“This will create a level playing field for home-buyers and help families get a fair shot at buying a place of their own.”

He said investors had avoided paying $150 million in taxes last year, by claiming losses from negatively geared investments.

“The loophole is heavily used by foreign buyers and most of the gains go to the people on the highest incomes.

“The speculators’ tax loophole will be phased out over five years. This will save taxpayers around $150 million a year once fully implemented, and a total of $1.2 billion over a decade.  Labour will invest this money into making homes warm and healthy.

“As well as closing this loophole Labour is going to ban foreign speculators from buying existing homes, and we will make someone who sells a rental property within five years pay income tax on the capital gain.”

Little said the savings would be invested in grants for insulation and heating.

But NZ Property Investors Federation executive officer Andrew King said Labour was overstating the benefits of the losses being deducted.

"If an investor pays $10,000 more for a property it will cost them an extra $391 a year in mortgage interest after claiming a tax deduction. If a home owner did the same, they would pay an extra $583 a year, or just $192 more than the investor. Yes, the investor has an advantage, but it is not so great that the investor will pay a significantly higher price for a property than a homeowner," he said.

"Even with a tax deduction and fronting up with a $54,000 cash deposit, it will cost an investor $6184 in the first year to buy and provide the average NZ home to a tenant. If the ability to claim losses is taken away from rental property providers, it will increase the cost of providing the average NZ home from $6184 a year to $10,293. This will add over $4000 a year to this cost, an increase of over 65% or $79 per week. 

"Labour's proposal would likely result in increased rents, making it be harder for first home buyers to save the deposits required to purchase homes. Labour’s policy will not make it easier for first-home buyers."

Commentator Olly Newland agreed with King. "If an owner of a block of apartments suddenly finds that his tax bill has gone up, where do you think he will look to be compensated? That’s right. The tenants. As sure as God made little apples rents will be pushed up as the easiest line of resistance. Worse still, investors who provide housing may quietly offload some of their properties which will only exacerbate the rental shortage."

He said Labour would find it hard to delineate losses from rental properties as opposed to losses from other types of business, which will continue to be deductible.

Property Institute chief executive Ashley Church said negative gearing was only a factor in the early years of an investor.

“Over time, rents rise and properties become ‘positively geared’ – at which point the additional income becomes taxable. Is Labour suggesting that they will forgo this tax income – or that they’ll make property investors pay tax on profits while removing the ability to claim losses?"