The rental market is under fire again. Photo / Felix Desmarais
A government policy offering significant perks to people leasing investment properties for social housing has been described as a “war on mum-and-dad landlords”.
National Party housing spokesman Chris Bishop’s comment on the Government’s tax policy comes as landlords also speak out against the system, saying it is resulting in more expensive and fewer rentals on the market.
However, Housing Minister Megan Woods said the tax changes were designed to encourage new builds and shift the balance to first-home buyers.
The Government removed the ability to deduct mortgage interest on rental properties from taxes but landlords whose properties were used for social housing were exempt from the change.
“We remain absolutely committed to urgently increasing supply, including those for rental properties, which is why we are also exempting build-to-rent developments that offer long-term rentals, from the interest deductibility changes,” Woods said.
Bishop said, in his view, the tax rules had backfired and driven up rents.
According to figures he obtained from MBIE median rents from October 1, 2017, to January 1, 2023, jumped by $175 a week nationally and $200 a week in Tauranga.
“Ultimately it’s about getting people into houses but ... when Kāinga Ora takes a home from the private rental market, it gets somebody off the social housing list but it reduces the supply in the private rental market. You are taking with one hand and giving with another.”
National has already announced it would bring back interest deductibility for rental properties.
Landlords who spoke to NZME said the policy was reducing the number of homes on the private rental market. In some cases, new investors were evicting working tenants so they could lease the property for social housing and cash in on the incentives, one claimed.
Rotorua landlord Debbie Van Den Broek said some new investors were buying existing rentals, evicting the working tenant, and turning them into social housing.
“The Government thereby incentivises landlords to remove their home from the private rental pool which hurts the average New Zealander and makes the number of people on the ‘social housing waiting list’ look better and increases the cost of private renting.”
Another glaring issue with renting was “I can claim all my mortgage interest if I allow my house to go into the social housing pool”.
Rotorua Property Investors Association president Sally Copeland said as more houses were taken from the standard rental market and moved to social housing, “the supply will drop and rents will undoubtedly rise”.
“ I would expect more investors to consider moving properties to social housing providers, especially when they receive a significant tax bill after the financial year ends.”
The tax liability placed on property investors had placed some people under financial pressure.
“It is a shame that the removal of interest deductibility is likely to see a lot of mum-and-dad investors exit the market.”
Tauranga’s Tony Carson, who recently downsized from 18 investment properties to 15, said if one of his tenants moved out he would be tempted to lease it for social housing because of the incentives.
“They will take it for a minimum of 12 months, they will return it in the same condition they got it in and I believe they pay higher rents than what we would normally get. So there are quite a few incentives for doing it ... you don’t have to collect your rent or do anything.”
He would also have to consider tenants who lived in neighbouring flats and whether a change in dynamics could “drive them out”.
The tax paid on rental mortgages had also increased on average by $60 a week “and there is no way you can tell the tenant to pay that”, Carson said.
Tauranga Property Investors Association spokeswoman Juli Tolley said, in her view, the Government was “essentially punishing landlords who did not put their homes into the social housing by taking away the right to deduct mortgage interest”.
“It isn’t reasonable or fair. Why does one class of tenant determine whether you can deduct interest or not? Everyone needs a home, and a lot of people are not in social housing.”
“Every other type of business can write off the interest on business loans. The mortgages are essentially business loans.
“It simply means that rental property owners have continued to exit the market and will do so if this law change remains in effect.
“I’ve heard of some investors out there targeting this particular angle (leasing to Kāinga Ora) to secure the mortgage interest deduction and guaranteed rent but it does come with some risks.”
Tauranga Rentals principal officer Dan Lusby said he was aware of developers who were approached at the start of a project and Kāinga Ora had been successful with a number of properties.
Rental demand continued to outstrip supply, prices were going up and he agreed ‘‘good tenants could lose their homes to social housing’'.
Kāinga Ora figures show the number of leases is falling. Nationally, in the 2021/22 financial year, it spent $53.5 million from about $1.6 billion in rental revenues for 2,161 leases (down by 121). In the Bay of Plenty, over the same timeframes, it spent $1.5m on 60 leases.
On average it paid about $25,222 a year or $485 a week for leases in the Bay of Plenty.
Kāinga Ora Bay of Plenty regional director Darren Toy said as an urban developer it works with other developers and build partners.
“Kāinga Ora is often approached by developers but we have specific requirements for our public homes that mean we prefer to work with developers during the early stages of design and planning.”
Kāinga Ora asset services and maintenance contracting director Andrew Booker said there was a shortage of public housing in the country and that had been further impacted by recent weather events.
“People in need is the reason why Kāinga Ora leases homes.’'
It had delivered more than 8370 new houses nationwide in the past five years with 5000 homes under contract or construction at the moment and another 40,000 public, affordable, and market homes in the mix over the next 10 to 15 years.
‘‘In order to do this and other work, Kainga Ora often needs to find other homes in which customers can live. One of the ways to do this is lease properties to help meet the urgent demand – shorter or longer term - for public housing.”
Housing and Urban Development said in a written statement it was focused on building new public housing, with Kainga Ora leading the delivery.
“Among the expectations set out in the Public Housing Plan for 2021 to 2024 is to increase the number of new-build public housing and a progressive decrease in the proportion of private market homes that HUD redirects for public housing.”