Govt whacks property investors

The government has announced a range of new measures to tackle the housing crisis, including an extension of the bright line test to 10 years and the removal of interest deductibility, as the clampdown on investors continues.

Tuesday, March 23rd 2021, 10:04AM 2 Comments

The housing package was announced by ministers this morning. Here are the main details for investor clients.

An extension of the bright line test to 10 years

The current bright line test will be doubled up to 10 years as part of the new reforms.

Grant Robertson said the move was needed to curb "rampant speculation", with investors making up the biggest share of buyers in the market.

“Extending National’s bright-line test and removing interest deduction loopholes for investors will dampen speculative demand and tilt the balance towards first home buyers," he said.

The new plan will keep the bright line test for new builds at the current five years.

Removal of interest deductibility "loophole"

The Government said the current tax system, which allows investors to offset interest payments against their tax bill, "favours debt-driven residential property investment over more fully taxed and more productive investments".

The "advantage" will be removed for investors.

Interest-only lending review

Ministers said they were considering a clampdown on interest-only loans.

The RBNZ will report back to ministers in May, and will also review debt to income rations.

$3.8 billion housing acceleration fund

The Government is launching a $3.8 billion Housing Acceleration Fund to speed up the pace of residential construction.

The fund will boost housing developments by funding infrastructure services like roads and pipes.

The Government will also help Kāinga Ora borrow an additional $2 billion to help with new land purchases.

Caps on First Home Loans lifted

Price caps on First Home Loan-eligible properties will be lifted to ensure that more homes qualify for the government scheme.

Income caps to get financial assistance will also be lifted to $95,000 for single buyers, and $150,000 for two or more people.

The changes come into effect on April 1.

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Comments from our readers

On 22 March 2021 at 10:17 pm Don Clarkson said:

I think the Brightline extension to 10 years is unfair and unnecessary. I can't imagine any "speculator" waiting even 5 years to save tax. All this will do is result in less rentals, at a time we need more.
But of more significance, IMHO, is the removal of interest deductibility. I can't see any alternative to rent increases to cover this increased cost. And we need more affordable rentals (and more affordable homes for that matter) not increasing rents. I notice comment on the fact that house prices have risen more than rentals. This will see rentals start to catch up!
I also see comment that suggests investors will be encouraged to build new. I doubt it because it is not possible to build new and rent out at an affordable rent. The rich renters may get something but those most in need won't!

On 22 March 2021 at 10:50 pm Penny Darwin said:

About time. I am a landlord with a few properties, and applaud the measures. The Labour government missed an opportunity to moderate house price increases when three dissenters on the tax working group recommended targeting investors - instead Jacinda Ardern promised no CGT on her watch. Now that we have seen such mad increases, we can expect quite a correction - not good for confidence. A pity measures weren't introduced sooner.

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