Property speculators have become public enemy number one in New Zealand’s rampant housing affordability crisis. Those buying, selling and renting out multiple properties have become wealthy at the expense of those in the middle and at the bottom of the market, who are paying high rents and struggling to afford to buy decent housing.
It is no surprise therefore that the housing announcement by Prime Minister Jacinda Ardern and her colleagues on Tuesday was firmly focused on reigning in those investors driving up the prices – with the most significant elements of the package designed to hit investors with increased tax responsibilities.
The economic goal is to cool down rising house prices. And the political goal is to lay the blame for the housing crisis firmly at the feet of investors.
The first weapon in this assault on investors is a de facto capital gains tax – those selling investment properties now need to pay tax on their house sale profits if their investment is sold within 10 years instead of just five. This has already got the most publicity. It has been especially controversial because the party ruled it out on the campaign trail in last year’s general election.
Labour’s second tax weapon against property speculators is much more surprising and significant: an end to the ability to claim tax write-offs for the cost of interest on mortgages for investment properties. Previously, investors renting out houses have been able to use their interest costs like any business expense, and claim it against the tax they paid. This has made house investments particularly attractive business ventures. Some regard this write-off as a subsidy, and one that has made investors able to bid higher prices than those buying houses to live in.