Hammered in the past three years by changes to the Residential Tenancies Act, introduction of the Healthy Homes Standards, removal of mortgage interest against rental income as a tax deduction and extension of the Brightline test to 10 years, landlords are already selling up and investing elsewhere.
NZ Property Investors Federation vice-president Peter Lewis says the Labour Government has been punishing property investors over the past two and-a-half years by having specific taxes that apply only to property investors and to nobody else.
“No other business in New Zealand is taxed on turnover rather than on profit, as we now are,” Lewis says.
“If this is not fixed, the number of private rentals will diminish.” There are about 600,000 rental properties in New Zealand, with the private sector providing the overwhelming majority, at around 510,000 or 85% of rental housing. The Government provides around 72,000 rental properties or 12 % of the total and cannot fill the gap if the private rental market collapses.
“We need something done fairly quickly because there are people who are literally losing hundreds, if not thousands of dollars each and every week and they simply can't continue to do that.
“It's all very well to say it’s a long-term investment, but in the short term it’s not sustainable. Many residential landlords are just ordinary people – school teachers, nurses, teachers, office workers and they're having to come up with other $200-300-400 week after week to prop up their investment because of Labour’s ideological tax punishment.”
National and ACT have already said they will reinstate tax deductibility. If a National-led Government is elected it will start phasing out Labour’s changes to tax deductibility from the 2023/24 Budget until they are fully phased out by 2027/28.
The party will bring the Brightline test back to two years and ACT will dump it.
On the other side the Greens philosophy is to stick it to landlords even further.
NZ Property Investors Federation vice-president Peter Lewis says the Greens have frankly admitted its goal is to drive any private property investors out of the market. It believes all rental housing should be provided by either the Government or by community housing providers. “There should be no such horrible animal as a private property investor. “We know where they stand.”
More tax coming
Differences between the parties are stark for property investors. From the federation’s point of view, the best option is a National/Act Government, then Lewis says they might be able to actually get somewhere.”
If Labour is re-elected, Lewis is going to have to pay another $16,000 a year in tax over and above the substantial tax he already pays.
Labour’s scrapping of tax deductibility phase in has another two years to run.
If it continues, he will have to sell one property and his long-term tenant is going to lose her home. Lewis says he will use the money from the sale to pay off the rest of his mortgages. Even though I will have sold a property from my portfolio, I won't be making anything less because I will have no interest to pay.
“The tenant and her two pets on the fully fenced property backing on to a reserve will suffer, She's been there for many years and she's not going to find another similar place in Auckland central where she can keep pets. So she is the one that ends up being punished.”
Lewis knows of quite a few property investors who hanging on for a change of government, but if the election result goes Labour’s way, they will get out of the sector. “And, of course, that's what Labour and the Greens want, basically, property investors out. That's the reality of the situation. – more tax and fewer private rentals in an already stretched market.”