Ban On Interest Deductibility Hits Rental Market

“The loss of tax deductibility on interest costs is having a negative impact on the rental market. A future government of any stripe must bring it back as soon as possible,” says Tim Kearins, Owner of Century 21 New Zealand.

Tim Kearins

His comments follow a survey, commissioned by the Ministry of Housing and Urban Development, that found that a quarter of landlords put up rents in the six months before May 2022, and one of the big reasons for this was increased costs lumped on by the Government.

“A key factor is landlords now not being able to claim their full interest costs as an expense. Alarmingly, that’s only going to get worse as interest rates increase and the policy rolls out to completion,” says Tim Kearins.

Once 100% of interest could be claimed by residential landlords, but that is now being incrementally phased out. Currently at 75%, that moves to 50% on 1 April, to 25% on 1 April 2024, and then to zero on 1 April 2025.

“Banning interest deductibility really seems to be both hurting and deterring ‘mum and dad’ landlords. Many of these people once viewed a rental property as a good investment. Now many of our ‘mum and dad’ investors are now either getting out of the residential rental market, or not considering it in the first place,” says Tim Kearins.

The Century 21 leader says the ongoing costs on landlords is seeing them direct their money and focus towards the likes of commercial property syndications, the share market, or even bank term deposits given the rising returns.

“Not only do extra costs see Kiwi landlords fleeing the residential rental market, but it’s flowing through to rents, with overall rents reportedly up $150 in the past five years, only adding to our country’s cost-of-living crisis,” says Mr Kearins.

He says for a lucky few who might be able to get a deposit together to buy a house and secure finance, now is the time for renters to do their sums on lending affordability with some great opportunities out there for first-home buyers.

“With rents still sky-high, but with house prices softening, flatmates will be looking at each other and wondering if they can cobble a deposit together and service a mortgage. Likewise, couples and single people will be considering a boarder to help secure them a mortgage. While it’s not a good time to rent, it’s quite a good time to buy,” says Tim Kearins.

www.century21.co.nz

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