31 March 2011

Fewer properties for tenants through property tax changes

Changes to rental property taxation come into affect today. Rental property owners will no longer be able to claim depreciation on their buildings and Loss Attributing Qualifying companies no longer exist.

Despite a slow housing market, reduced supply of rental properties and rising rental prices, the Savings Working Group is claiming that further "tax changes are essential to remove the distortions that favour housing".

The NZPIF believes that both the Tax Working Group and the Savings Working Group have been hijacked by the Financial Services Industry and have a vested interest in attacking rental property.

Rather than introducing further increases to rental property taxation, the NZPIF believes that the changes coming into affect today should be reversed.

The Tax Working Group were clearly told by the NZPIF that it was difficult to fund rental property in New Zealand and that any increases in taxation would make it difficult to provide tenants with a supply of well maintained homes to live in.

Government did not introduce many of the irresponsible suggestions by the Tax Working Group, such as ring fencing tax losses plus the introduction Capital Gains Tax and of a Risk Free Rate of Return method to tax property. While this is good, changes to depreciation look likely to reduce the supply of rental property and further increase rental prices.

The reduction in rental property supply appears likely to be gradual. An NZPIF study found that only 8% of rental property owners were likely to sell some or all of their rental property due to the tax changes coming into affect today.

Of more concern for the industry was that 31% of those who intended to buy more rental property would now not do so because of the tax changes.

Unless rents increase now to compensate for the tax changes, then the supply of rental property over time is likely to fall. With the abolishment of depreciation claims for residential rentals, then owners are unlikely to make improvements to their properties such as insulation or better heating, as there will be no longer be any ability to offset the cost through tax savings.

ENDS

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