Landlords threaten rent rise for Labour reforms

Landlords threaten rent rises if tax policy changes. Photo/Doug Sherring

Landlords are threatening to push up rents in reaction to Labour's new rental sector tax policy change.

Andrew King, NZ Property Investors Federation executive officer, said there was no doubt rents would rise nationally if policy announced by Labour leader Andrew Little was introduced.

He was reacting to Little's election year congress announcement of the Labour policy to phase out the tax breaks which allow investors to claim tax deductions on other income for losses on rental properties.

King predicted any changes to negative gearing would backfire.

"Labour's proposal would likely result in increased rents, making it harder for first-home buyers to save the deposits required to purchase homes. Labour's policy will not make it easier for first-home buyers," King said.

Little said the tax breaks mainly benefited big-time property speculators, foreign owners and high income earners - and were cited as a driver of house price increases by the International Monetary Fund and the Reserve Bank.

"One in seven property buyers in the Auckland market right now are people who own five or more properties. They are the people I am targeting. They are the people shutting out young couples trying to buy their first home," Little said.

But King said the tax policy did not benefit landlords hugely.

"If an investor pays $10,000 more for a property it will cost them an extra $391 a year in mortgage interest after claiming a tax deduction. If a home owner did the same, they would pay an extra $583 a year, or just $192 more than the investor.

"Yes the investor has an advantage, but it is not so great that the investor will pay a significantly higher price for a property than a home owner," King said.

"Even with a tax deduction and fronting up with a $54,000 cash deposit, it will cost an investor $6184 in the first year to buy and provide the average New Zealand home to a tenant.

"If the ability to claim losses is taken away from rental property providers, it will increase the cost of providing the average NZ home from $6,184 a year to $10,293. This will add over $4000 a year to this cost, an increase of over 65% or $79 per week.

"A new Government study shows that it is cheaper to rent a home in New Zealand than it is to own one," King said referring to last week's release of the Home Affordability Measure released by the Ministry of Business, Employment and Innovation.

"The average NZ home currently costs $6975 a year less to rent than it does to own. This is a saving of $134 each week," King said.