Powerful commercial forces lobbied the Government to gain back rental property tax breaks for rentals of 10 years and longer but tens of thousands of less powerful investors won't enjoy the same benefits, a sector
How landlords reacted to the Government U-turn on tax breaks for long-term investors
![Anne Gibson](https://s3.amazonaws.com/arc-authors/nzme/e0de7024-0172-42f3-9af8-6387088c9929.png)
Andrew King of the Property Investors Federation. Photo / Jason Oxenham
Unfortunately, the discriminatory removal of interest costs as a legitimate tax deduction had only seen the cost of many rental properties increase and will continue to increase as the taxes are increased over the next four years, King said.
Tenants had been vocal in expressing how their rental prices had been increasing and they don't have a good supply of rental accommodation to meet their needs, he said.
"While many claim that it is landlord greed causing these problems it is actually Government policies such as removing interest deductibility that are the main problem."
Allowing mortgage interest for high-end rentals would not solve the rental crisis that many Kiwi tenants are facing. Interest deductibility should be reversed for all rental properties, not just high-end ones, he said.
"The vast majority of rental properties in New Zealand are provided by so-called mum and dad owners of one or two rentals. They mostly provide an excellent service to their tenants and new laws mean they must provide a warm dry rental home for their tenants. They operate with low overheads and low often negative margins that actually provide true value for tenants."
Those are the rental providers that should be supported.
The federation had argued against three tax changes: removing mortgage interest as a tax deduction, ringfencing and the brightline test.
Removing those changes would actually provide some real relief for the majority of tenants, King said today.
"We also suggest introducing a security of tenure model based on the German system to provide real security for tenants, not just high-income tenants as this latest announcement does," he said.
![Gloves off: Leonie Freeman, Property Council chief executive. Photo / Fiona Goodall](https://www.nzherald.co.nz/resizer/v2/BH6AQKODGOA5WCRMO5VZADCRC4.jpg?auth=25847695dcce83e4a43856e83d0f6a0751a36144ca3cd53ef2bec50e3930d7c2&width=16&height=11&quality=70&smart=true)
Today's Government's U-turn on tax will favour the build-to-rent sector which won back the deductions.
That followed skilled negotiations which involved the chief executive of one of New Zealand's largest landlords, Kiwi Property Group with an NZX market cap of $1.6 billion.
The Property Council, representing major institutional investors, made persuasive representations to the Government about the importance of the growing build-to-rent sector - and how it needed those tax advantages.
Leonie Freeman, council chief executive, acknowledged her entity's role in the change announced today by Housing Minister Megan Woods to restore the breaks to investors renting properties for a decade or more.
For Freeman, allowing owners of longer-term tenancies to get the benefit made perfect sense because it will encourage more new tenancies to be built.
"When you look overseas, we don't yet have those large-term institutional investors in residential. This is a good step to unlocking that," Freeman told the Herald after Woods' announcement.
"I don't think it's a U-turn. I think it's an understanding of a specialist asset class and the importance of being to unlock this. If you think about retirement villages or student accommodation - build to rent is actually commercial residential," Freeman said.
"This unlocks this. Everyone has now understood build to rent is an asset class in its own right that can not solve housing entirely but it's one really important part of it."
Asked if it was so important and why the Government had axed the deductions last year, Freeman said she was unsure.
"I wonder if that change was targeting the smaller investors and not taking account of this large market. We really haven't had this build-to-rent market in New Zealand at scale before and that's what we're really excited about - the potential number of new homes."
She acknowledged lobbying: "We worked with a ministerial taskforce, so we worked with the Government for the last 18 months."
Kiwi Property chief executive Clive Mackenzie was on it along with lawyer Paula Ormandy of Dentons Kensington Swan.
Freeman said six to eight from her council worked with the Government.
![Kiwi Property chief executive Clive Mackenzie. Photo / Dean Purcell](https://www.nzherald.co.nz/resizer/v2/6C5QBYKVPQMTNX6ECRPR3MAUGI.jpg?auth=2c01da3c338e4adf055e80ae6dc9e1824b1d78999d3352a82ee66e5394519aa7&width=16&height=11&quality=70&smart=true)
Mackenzie himself praised the change he had a hand in.
"We're excited by the potential of build to rent to play an important role in helping alleviate New Zealand's housing shortfall," he said, citing Kiwi's own 295-apartment build-to-rent development at Sylvia Park, Mt Wellington on ex-car park area around the mall.
Those new apartments would offer residents the security of long-term tenancies, the flexibility of renting and a line-up of new facilities and services, Mackenzie stressed.
"Today's announcement is an important step towards helping build-to-rent grow at scale in this country, offering more Kiwis access to high-quality rental accommodation, secure tenure and an attractive new resident-focussed way of living."
Last March, the Government unveiled plans that would bar landlords from deducting the interest costs of their mortgage from their tax bill. That would effectively increase the tax bill of each landlord by thousands of dollars a year.
Advice from IRD said the changes would bag the Government $1.82 billion in additional revenue over the years 2021-2025, depending on the interest rate.
The Government said last year it would exempt new build homes from the changes as this would encourage people to invest money in new housing. But the Government did not say what qualified as a new home under the rules.
![Todd welcomed today's announcement but is watching Kāinga Ora with interest. Photo / Michael Craig](https://www.nzherald.co.nz/resizer/v2/WSMLLQ2PC3N7GRFWNT25T6EMBA.jpg?auth=418568b3c1a0c386de920f287ec214f3984501f263ca768d9e32c5b2efb93f74&width=16&height=11&quality=70&smart=true)
Mark Todd of Ockham Residential said the announcement was a sensible and far-sighted decision by the Government.
"New Zealand's housing crisis has arisen from decades of under-investment and dismal Government policies that arose out of a muddled vision. The only way out of this crisis is a principled partnership between the Crown and the private sector. The encouraging thing about today's announcement is that the government has listened to the concerns from our sector, but also made its expectations clear," Todd said.
The private rental market had been skewed in favour of short-termism and speculators – not committed, long-term investors and certainly not renters/tenants, he said.
"So I'm pleased the interest deductibility is dependent on build to rent operators offering their residents a minimum 10-year tenancy. That is fair, that is right: that is a step towards giving these residents the security they need to make the home they pay for truly theirs, not a tenuous arrangement dependent on the grace and favour of landlords," Todd said.
Build to rent was not a silver bullet, but it's part of the puzzle to solve the housing crisis, he said.
"We need to work with the Government to ensure the dream of home ownership remains achievable for as many New Zealanders as possible. Not urban sprawl; not distance suburbs along clogged, time gobbling motorways, but quality homes in well-connected areas where people want to live," he said.
The Crown had a role to play by providing well-built, high-quality state houses and Todd said he was watching Kāinga Ora with interest and supporting them where he could.