Interest deductibility changes hitting rental market


A quarter of landlords put up rents in the six months before May 2022, and one of the big reasons for this was increased costs lumped on by the Government, a survey commissioned by the Ministry of Housing and Urban Development finds

As a result of Government policy changes in 2021, landlords are no longer being able to claim their full interest costs as an expense. Once, 100% of interest could be claimed by residential landlords, but that is now being incrementally phased out. Currently at 75%, that moves to 50% on 1 April, to 25% on 1 April 2024, and then to zero on 1 April 2025.

“The loss of tax deductibility on interest costs is having a negative impact on the rental market,” Owner of Century 21 New Zealand Tim Kearins says.

“Alarmingly, that’s only going to get worse as interest rates increase and the policy rolls out to completion.

“Banning interest deductibility really seems to be both hurting and deterring ‘mum and dad’ landlords. Many of these people once viewed a rental property as a good investment. Now many of our ‘mum and dad’ investors are now either getting out of the residential rental market, or not considering it in the first place,” says Kearins.

The ongoing costs on landlords is seeing them direct their money and focus towards the likes of commercial property syndications, the share market, or even bank term deposits given the rising returns.

“Not only do extra costs see Kiwi landlords fleeing the residential rental market, but it’s flowing through to rents, with overall rents reportedly up $150 in the past five years, only adding to our country’s cost-of-living crisis,” says Kearins.

For a lucky few who might be able to get a deposit together to buy a house and secure finance, now is the time for renters to do their sums on lending affordability with some great opportunities out there for first-home buyers.

“With rents still sky-high, but with house prices softening, flatmates will be looking at each other and wondering if they can cobble a deposit together and service a mortgage. Likewise, couples and single people will be considering a boarder to help secure them a mortgage.

“While it’s not a good time to rent, it’s quite a good time to buy.”