Rental market impacted by ban on interest deductibility

"While it's not a good time to rent, it's quite a good time to buy," realtor says

Rental market impacted by ban on interest deductibility

“The loss of tax deductibility on interest costs is having a negative impact on the rental market,” said Tim Kearins (pictured above), owner of Century 21 New Zealand, as he urged the future government to bring it back ASAP.

Kearins’ comments come after a survey commissioned by the Ministry of Housing and Urban Development revealed that a quarter of landlords raised rents in the six months before May, due in part to the increased costs lumped on by the government.

“A key factor is landlords now not being able to claim their full interest costs as an expense,” Kearins said. “Alarmingly, that’s only going to get worse as interest rates increase and the policy rolls out to completion.”

The 100% interest claimed by residential landlords before is now being incrementally phased and is currently at 75%. This will move to 50% on April 1, to 25% on April 1 next year, then to zero on April 1, 2025.

Banning interest deductibility really seems to be both hurting and deterring ‘mum and dad’ landlords,” Kearins said. “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.”

Due to the ongoing costs, Kearins said landlords are now directing 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,” Kearins said.

He said now is the time for renters who might be able to get a house deposit and secure finance to do their sums on lending affordability with some great opportunities available 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,” Kearins said. “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.”

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