Tax Break for Long-Term Rental Investors

Housing minister, Megan Woods, has announced a change in rental housing policy that will allow landlords to enjoy tax breaks if they meet a certain criterion designed to promote access to affordable long-term rentals for kiwis. Landlords that own 20-plus units in one development and that offer tenancy agreements of at least 10 years will be able to claim interest deductibility on mortgages under this new deal.

This is a U-turn on an earlier government decision made last year to end tax breaks for landlords. The earlier tax breaks saw landlords able to deduct the interest on their mortgages for rental properties from their tax bills. This move encouraged more PAYE earners to buy rentals as it would reduce their tax bills. With the change in government policy, however, there was some uproar from landlords and warnings that it could result in a mass exodus of investors from the residential property market.

Under the recently announced amendment to the housing policy, Woods confirmed that developments that offered 10-year leases to tenants would be exempt from the interest limitation rules. Even if tenants asked for shorter lease agreements, Woods assured that the investors would still qualify for this exemption. Tenants may also break their tenancy agreement at any time, with a 56-day notice.

Woods stated that the change would help people enjoy security of tenure and feel more comfortable settling and personalising their homes. It would also reduce the need to keep finding a new place to live and cut down on associated costs like moving expenses. This was important at a time when people were already contending with higher cost of living concerns.

Targeted at existing and new built-to-rent developments, Woods added that the policy would help steer the country away from the housing crisis and encourage more investment in the sector. She expressed hope that with more affordable housing from the build-to-rent sector, the current momentum of the new housing supply would continue and help improve the quality of rental housing.

Renters are also seeing more support from the Human Rights Commission which is asking the government to re-instate a temporary freeze on rent increases. The government had applied such a freeze at the start of the pandemic for 6 months. Chief Human Rights Commissioner, Paul Hunt, has expressed concern that low-income renters, particularly students, low-income earners and single-wage families were faced with unaffordable rents and having to choose between adequate food and the right to decent housing.

 


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