Last week Labour leader, Andrew Little, said he was announcing new measures that he maintained were aimed at traders and speculators, not investors providing rental accommodation.
However it appears that Little does not understand the difference between traders, speculators and property investors. Rather than targeting traders and speculators, Labour is proposing to target rental property owners with an extension to the Bright Line Test and by banning negative gearing.
The Bright Line Test is currently aimed at speculators and traders to make sure they pay their fair share of tax. By increasing the test to five years, it turns it into a capital gains tax on rental property.
Good tax policy should never influence an individual's investment decision. Making rental property less attractive does just that and can only have a negative impact on the supply of rental property without any extra effect on traders or speculators.
Likewise, disallowing negative gearing for rental properties will not affect traders or speculators at all. It was tried in Australia and was quickly reversed after it was seen that it had a negative effect on rental housing supply and rental prices.
Rental property owners operate under current market conditions like everyone else. That includes the market price they can charge for rent.
The national median property price is $506,000 and the market rent for this property is $500pw.
This means that to provide the average rental home to a tenant costs $5,330 in the first year. If losses are not able to be claimed (as they are for any other investments, farms or businesses} then the cost of providing the average rental property would increase by nearly 70% to $8,954.
It is already highly difficult for people to provide rental properties to tenants. If Labour’s policy was introduced, many rental property owners would be unable to cope.
It is currently $197 a week cheaper to rent than to own the average NZ property. Despite what many people think, renting a property in NZ is good value. If Labour’s policy was introduced rents would have to increase.
Little quite rightly says that it was unacceptable for families to live in overcrowded properties, in garages and cars. Given that these people need homes, probably rental homes, how does Labour’s policies help any tenant, especially those with existing high needs?
For further information please contact:
Executive Officer, NZ Property Investors’ Federation
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