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30-04-2014

Rents could go up by 25% under Labour

Among the detail in Labour’s Monetary Policy Upgrade is ring-fencing of losses made in the early years of rental property ownership.

A similar proposal has been tried, failed and reversed in Australia. During the two year period it was tried in Australia, national rents rose by over 25%.

If Labour’s policy was introduced in NZ with the same result, the current median rental price would increase by $92pw to $462pw.

"We have seen so many policy changes over the last few years that are harmful to providing rental property to tenants that people are going to give up," says NZ Property Investors' Federation Executive Officer Andrew King.

Rental industry changes over the last few years include:

  • Removal of rental property owners’ ability to depreciate their properties.
  • Removal of rental property owners’ ability to depreciate their properties.
  • Removal of LAQCs as a structure for holding rental property.
  • Slower access to Tenancy Tribunal hearings causing greater losses.
  • Introduction of Loan to Value Ratios hindering rental property ownership.
  • Previously state owned land and buildings and rental income top ups being given to Social Housing agencies enabling them to compete with private rental providers.

Labour has been proposing a Capital Gains Tax on rental property for a number of years, and this will also affect shareholders, business owners and farmers.

However, Labour's announcement of ring fencing rental losses targets the rental industry directly and will make it extremely difficult to provide new rental property.

 Areas where house and rental prices are the highest, such as Auckland and Christchurch, will be affected the most, however these areas are where rental accommodation is also needed the most.

During periods of mortgage interest rate rises, rental property owners usually absorb much of the extra cost. However this is unlikely to occur if ring fencing of losses was  introduced.

NZPIF Media release 28 April 2013

Tags: cgt - labour - media release

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