The rental scene could change if there's a change of Government next month. Photo / Ted Baghurst
The Herald’s political and specialist reporters examine the big issues facing New Zealand and how the main political parties plan to deal with them. Property editor Anne Gibson examines 10 key policy platforms.
Next month’s election could have a big impact on owners of nearly 600,000 rental properties and 1.3 million tenants if the Government changes.
Already, National has come out swinging firmly in favour of landlords.
Housing spokesman Chris Bishop said if elected, they would reverse Labour’s removal of no-cause terminations, and the provisions which see fixed-term tenancies roll into periodic tenancies in most cases. Both were introduced in 2020 under the Residential Tenancies Amendment Act.
New Zealand has nearly 600,000 rental properties that house around 1.3 million people. The private sector provides around 510,000 or 85 per cent of that. The Government owns or leases around 72,000 rental properties or 12 per cent.
A chart compiled by the Auckland Property Investors Association clearly shows how things could go if the Government changes.
National and Act promise to reverse changes to the Residential Tenancies Act which this current Government amended three years ago to strengthen tenants’ rights.
Those changes came into force on February 11, 2021.
One of the most important changes could be tenants’ rights to stay where they are. The Labour Government ended no-cause terminations meaning landlords have in the past two years been banned from ending tenancies without extremely strong reasons like selling their property, renting it to their family, demolishing or changing a premises’ use.
Landlords can’t just give notice to tenants, without good reason, aligning housing more towards employment and people’s basic rights.
But the Christopher Luxon-led party has slammed that and other tax moves as “the war on landlords”, railing against tenancy termination restrictions, tax changes which banned landlords’ interest deductibility claims on mortgage payments and the 10-year bright line test which taxes landlords who sell.
This is a guide to the policies proposed by the five parties with seats in the House on 10 key areas.
It examines how the lives of landlords and tenants could change, from tax law to tenancy terminations.
1. Reinstating landlords’ mortgage interest deductions: Inland Revenue is phasing out the ability to deduct interest from October 1, 2021 to March 31, 2025 for properties bought before March 27, 2021. Landlords were shocked about this when the Government dropped that unexpected bombshell in the 2021 Budget. National and Act want mortgage interest deductions reinstated.
2. Winding back the number of years which the bright line test applies to when selling a rental property: This test means if you sell a residential property within certain timeframes, you might have to pay tax on any gains at your applicable tax rate. National wants to dial this back from the current 10 years to only two years. It would change that from July next year, restoring it to what it was when introduced by National in 2015. The change would mean that the bright-line test would more closely target property speculators or flippers, reflecting the original policy intent, the Nats say.
3. Reversing ringfencing: People cannot now use rental losses to offset other income like their salary or wages. APIA found no party wanted a change to this - although some landlords do.
4. Introducing a wealth tax: One of the key election platforms, given widespread coverage. Greens and Te Pāti Māori want this. The Green Party want to introduce a wealth tax of 2.5 per cent on assets over $2 million owned by individuals, or over $4m on assets owned by couples.
5. Introducing a vacant house tax on so-called ghost homes: In 2021, the Treasury produced a document on this, saying a tax on vacant dwellings would increase the holding cost to the owner, helping to incentivise them to either rent out their house or sell it to someone who does rent it out. Te Pāti Māori wants this.
6. Introducing a land banking tax: An anti-flipper tax. Inland Revenue said in 2019 there was no data to confirm that the issues policy proposals were intending to address were currently a problem. But it also acknowledged the fear the Government was missing out on tax revenue from those reaping trading profits from buying and selling of land and relying on main home, residential or business premises exclusions to escape the tax net. Te Pāti Māori backs such a tax. .
7. Reinstating 90-day no fault terminations: This could be the biggest change for landlords and tenants if National and Act reign. They are promising to change the law on tenancy terminations or evictions. Currently, the law allows landlords to end a tenancy mainly if they intend to sell, use for family occupation, demolish or change premises’ use. Before February 2021, landlords didn’t have to give any reasons for termination. Nats and Act back this change - a return to pre-February 2021.
8. Introducing rent controls: Lobbyists Renters United have long argued for this. The Green Party says there should be a limit on how much landlords can increase rents every year, and wants a national register for all property owners to monitor compliance with rent controls. Rents shouldn’t rise by more than 3 per cent a year, the Greens say.
9. Introducing a rental warrant of fitness: Greens are calling for the Government’s existing Healthy Homes Standards to be backed up with a Warrant of Fitness on rental properties to ensure warm, dry places which they say are a human right.
10. Introducing a landlord register: Greens want this for landlords and managers, saying housing was a “get-rich scheme for a lucky few” and a “source of misery” for hundreds of thousands. This could show how many properties are rented, who owns them, how much rent is charged over time, and compliance with the warrant of fitness proposal.
National and Act are promising a reversal of the tenant-favoured policies Labour ushered in, swinging the balance back more in landlords’ favour.
“Labour’s removal in 2021 of no-cause terminations and the near-automatic rollover of fixed term tenancies into periodic tenancies may have been well-intentioned, but they have backfired badly, discouraging landlords from offering their properties up for rent,” Bishop says.
The property investors’ association chart showed Act’s policies aligned with National.
David Seymour, Act leader, said last month National’s proposal to restore interest deductibility for landlords was welcome, but it can and should be done immediately, not be phased in over three years.
“Under ACT’s fully costed alternative Budget, Labour’s removal of interest deductibility for residential landlords will be reversed immediately, taking effect in April 2024. This will ease pressure on rents and simplify the tax code,” Seymour promised.
“Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. The pressure on landlords and tenants is severe and they need relief now, not in the future,” he said.
“Someone with the average new investor mortgage debt of $492,342 faces $6400 more tax this financial year than they would have three years ago, he said.
If they choose to pass this cost on to tenants, it’s another $123/week in rent. If they don’t or can’t, then that’s an added pressure on Mum and Dad investors at a time when all their other living costs – including the mortgage on their own home - have gone up, Seymour said.
Act would incentivise and resource councils to provide infrastructure for new homes by sharing half of the GST with them; scrap the Resource Management Act, replacing it with a new Urban Development Act that respects existing property rights while making it easier to increase housing supply and automatically allow building materials approved by jurisdictions with high-quality regulators and similar seismic situations to ours (e.g., Japan and California) to be used in New Zealand.
On the more extreme edge of rental sector policy are the Greens and Te Pāti Māori seeking a wealth tax and the Greens aligning with tenant lobby group Renters United seeking rent controls, rental WOFs and a landlord register.
The NZ Property Investors Federation says it hears many ways each political party talks about the housing crisis and their solutions.
“Adding a new tax to rental property provider and adding more Residential Tenancies Act rules to make it harder to supply is obviously not the answer,” that association says.
“All of them acknowledge we do not have enough homes and because of this lack of supply and the high cost to provide housing, we have higher rents. Rent controls, new taxes, extensions to the bright line test, new RTA rules, lower loan to value ratios and tougher Credit Contracts and Consumer Finance Act lending criteria are all topics that put restrictions on supply and make the attractiveness of providing a rental property rather unattractive.”
In the meantime, it’s all up in the air.
Tenants and landlords might only know on the night of October 14 if their lives and the law might change.
The result could possibly alter or else reinforce what was two years ago the biggest shakeup in the rental sector in 35 years.
That assumes there’s a clear result on the night. Stand by.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
Fletcher Building, Spark and Ryman are potentially all on the radar.