Otago Property Investors Association Inc
Labour leader Andrew Little has confirmed that in addition to increasing the Bright Line Test for rental property from two to five years, Labour will also remove negative gearing for rental property.
Little said that these policies were aimed at property speculators, but this just isn't the case. These policies will have no affect on traders or speculators as they turn over the properties quickly. These policies will directly affect people who are providing rental accommodation for tenants.
It currently costs around $9,000 a year for someone to buy the average NZ property and provide it as a home for a tenant. This is in addition to putting in a 10% deposit of $52,000, assuming they can risk using equity in their own home because they now need a 40% deposit.
By removing the ability to use negative gearing, which will be available to all other forms of investment, providing a new home for tenants will cost an extra $58 per week. The number of people who are in a position to afford these kinds of numbers and provide homes for tenants is dwindling, meaning that supply will fall.
The outcome of this policy will be fewer rental properties when we need more and even higher levels of overcrowding. The tax directly encourages rental property owners to increase rental prices to avoid paying the new tax. Renting the average NZ home is currently $104 per week cheaper than owning the same property. This means there is more than enough room for rental prices to increase by the $58pw cost of this policy.
It is ironic that Labour are set to make it extremely hard for people to provide rental property when superannuation changes are also being proposed.
Late Baby Boomers and early Generation X'ers I have spoken to were all under the impression that Government Super would not be around by the time they were ready to retire. The clear message was that we should make our own plans to keep ourselves financially secure in our old age.
Many people looked to the sharemarket to provide for their retirement, though many of them were also put off, as young adults, by the sharemarket crash of 1987. Property came to be seen as a less risky way to provide for retirement and Governments seemed very happy to have rental property owners provide for an increasing population and more tenants.
We were seen as saving Government funds in the short to medium term and reducing our own reliance on Government funds in the long term. Successive Governments seemed very happy with the idea.
It has never been easy to provide rental property, which is why a higher percentage of people don't do it. The many rental property owners I know tend to be average people planning ahead and putting in a lot of effort to secure their finances in old age. How did all this turn around so that we are now seen as evil doers requiring special and excessive tax laws to make our job harder?
Hopefully labour will consult on this policy a little more and widen their information sources. They may see it as an election winner, but it will be dreadful for their tenant constituents.