COMMENT: Ring-fencing rules could mean 116,000 less rentals

Tuesday 12 February 2019

Ring-fencing of rental losses on rental properties could end up resulting in 116,000 fewer rentals, Stop the War on Tenancies spokesman Mike Butler cautions.

In response to an Official Information Act request, I received confirmation from Inland Revenue last week that 116,000 rental property owners declared a loss on earnings in the 2016/17 tax year.

Inland Revenue also said that the average loss declared by each owner was $7138, and that includes both individual and non-individual (trusts, partnerships and companies) taxpayers.

Owners who run a rental property at a loss do so to claim the losses against tax paid on their day job to get a refund.

Yet advice to the Government about the impact of loss ring-fencing has proceeded without anyone knowing how many private rental property owners are negatively geared.

A figure of 40% was given in that advice without stating the total number of private rental property owners.

In fact, the 116,000 number now received from Inland Revenue is much higher than I expected and it means that we could be looking at up to 116,000 fewer rental properties on the market.

That’s because once a rental property owner has to top-up his or her rental with $138 every week from their day job and with a greatly reduced chance of ever getting it back, it won’t be long before that owner decides to sell.

Early last year Inland Revenue and MBIE advised the Government that ring-fencing losses would result in the sale of an unknown number of properties to owner occupiers, reducing availability of rentals and increasing rents by around 10%.

MBIE thought the housing shortage would increase by 16,600 over the two years from 2018, when taking into account the building of 6,000 KiwiBuild homes over that period.

Those briefing papers were produced under the expectation that KiwiBuild would deliver 6,000 dwellings in two years.

But just three weeks ago, Housing and Urban Development Minister Phil Twyford said he could not guarantee that the Government will meet its target of having 1,000 KiwiBuild houses built by July.

That means the 6,000-extra-dwelling figure is now off the table.

If every negatively-geared owner then sold to an owner-occupier, and if each owner then sold one property, the shortfall would be more like 116,000 properties, not 16,600.

The looming new rules relating to the ring-fencing of rental losses mean it’s decision time for negatively-geared owners.

But it is also decision time for the Government as it may unwittingly create a further massive shortfall of rental properties by not listening to advice.

Submissions on the bill relating to the ring-fencing of rental losses close on February 28. Those with something to say on the topic can make a submission here.

Mike Butler is a Hastings-based owner and manager of rental properties. He is also the founder of Stop the War on Tenancies.

Read more:

Ring-fencing Bill hits Parliament

Tax policy could heighten rental crisis

Comments from our readers

On 12 February 2019 at 1:18 pm bArt said:
Hmmm... We sold our rental for other reasons (future maintenance req.).Anyway, I digress.... If housing stock of rental quality is being sold, and it is then sold to an owner/occupier (else it would be rented again), then the negative consequence you state is rents increasing by 10%. Do you mean because of supply and demand? Also where will the xtra renters come from to create the "massive" shortfall. Didn't a number of those renters just become owner/occupiers? Unless the property sold is being rented out again! See? Sorry devils advocate here :-)
On 14 February 2019 at 11:45 am mstenbo said:
I agree with previous comment. This article makes some bizarre assumptions. If 116,000 properties are dumped on the market at short notice the price will plummet and one of 2 things will happen. Either landlords will withdraw them from the market because they can't afford to sell in the new market or tenants will buy the houses because they will be able to afford it. Landlords are earning plenty. They might be declaring a loss of $138 per week but with average capital increases of $1000 per week TAX FREE they don't really have much to complain about. Property investment is grossly under-taxed in NZ and allowing negative gearing is just a further tax avoidance bonus for landlords. Bear in mind that I say all this as a self-managing residential property investor for over 15 years who has benefited well from negative gearing as well as a lack of capital gains tax. There is no war on tenancies, there is a war on inequality.

Sign In / Register to add your comment

Property News

Ditching CGT a win for common sense

Celebration is the name of the game for property investors nationwide after the Government announced that it won’t be introducing a capital gains tax.

House Prices

Auckland a “buyers market”

Prices remain high in the Auckland region but new data from two real estate websites indicates the market has shifted to favour buyers.

Commercial

Changing world, changing property market

Technology and changes to the way people work are set to transform the commercial property sector and investors need to be attuned to these developments.

Mortgages

New flames to fan housing market

The demise of the capital gains tax proposal and record low mortgage rates will led to a pick-up in housing demand and boost the market, ASB economists say.

Site by PHP Developer