Interest deductibility back on the table — here is what it means for investors and renters
With New Zealand's election less than five months away, one of the most consequential unanswered property questions is whether a Labour government would wind back interest deductibility for landlords.
Full interest deductibility was restored by the National-led government after its 2023 election win, allowing landlords once again to write off all mortgage interest against rental income. Whether a returning Labour government would reverse that is, as yet, unanswered — Stuff reported that a Labour spokesperson said the party "hasn't decided on interest deductibility and will release further information when the party releases its fiscal plan."
The stakes are significant. Treasury and Inland Revenue estimated in early 2024 that restoring full deductibility would mean collecting approximately $2.9 billion less in tax over roughly five years to 2028 than if Labour's previous rules had remained in place.
What economists think would happen to prices and rents
The debate among economists and industry figures centres on two questions: would house prices fall, and would rents rise?
On prices, Infometrics chief forecaster Gareth Kiernan (pictured left) believes a modest downward adjustment is likely over time.
"My sense would be that the adjustment does start to come through a bit more on the property price side of things, it will happen over time," Kiernan told Stuff.
He also notes that a differential between new builds and existing properties — as Labour's previous policy included — could support residential construction activity.
The major banks are already forecasting price weakness regardless of what Labour decides. ANZ's May 2026 Property Focus pencils in a 2% decline over 2026, and the median across the four major banks and the Reserve Bank is a fall of around 0.5% to March 2027, per Opes Partners.
The rent debate is less settled.
"My view is, if there is a legislative change that does not change my ability as the investor to put the rent up, I do not necessarily see there being a big adjustment in rents," Kiernan said.
Max Rashbrooke, senior research fellow at Victoria University of Wellington, goes further, arguing that rents are falling not because of tax policy but because the economy is weak and people cannot afford to pay more — pointing to the current softening in rents as evidence that broader economic conditions, not tax settings, are the dominant driver.
The most likely outcome — and what brokers should watch
The Property Investors Federation believes Labour may adopt a middle path, allowing deductibility on only 50% of mortgage interest costs — a position consistent with comments from recently retired Labour politician David Parker, who suggested the previous policy went too far. Given Labour's simultaneous commitment to a 28% capital gains tax on investment property sales, a full removal of deductibility would risk a politically damaging "double whammy" perception.
Cotality's June 2026 Monthly Housing Chart Pack captures Labour's political tension neatly: first-home buyers accounted for 27.7% of purchases in the first five months of 2026 — the only major buyer group to grow — while mortgaged investors pulled back 5.7%, with Cotality citing election uncertainty and questions over future tax settings as likely contributors.
For brokers with landlord clients, the practical concern is cash flow. One regional investor told Stuff that even at current settings his portfolio was at "the tiniest numbers above breaking even" — suggesting that any tightening of deductibility rules could accelerate decisions to sell, particularly among leveraged investors in softer regional markets.
With the average earner now spending approximately 40% of income on mortgage payments for an average home — above internationally accepted affordability thresholds — the policy direction after the election will carry direct consequences for both the investor and first-home buyer segments of any broker's book.
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