New Zealand is scrapping tax incentives for investors in an effort to cool one of the hottest property markets on the planet as it responds to the country’s “housing problem”.
Property values have increased nearly eight times faster than income with prices up 27 per cent on average according to Corelogic.
The draft legislation would limit the availability of deduction for interest expenses for existing residential properties, however would not extend to new builds.
Finance minister Grant Robertson said they needed to stem investor demand.
“We want to curb investors’ appetite for existing residential properties but also want to stimulate investment in new housing,” Robertson said.
“That’s why we’re also proposing an exemption for property development and for new builds, allowing interest deductions in full.”
Interest deductions on borrowings drawn down for homes acquired on or after March 27, 2021 would be phased out between 1 October 2021 and March 2025.
Mortgage lending restrictions were also introduced in March by the Reserve Bank of New Zealand, targeting investors who would only be able to borrow 60 per cent of a property’s value.
Robertson said since the limitations proposals were announced in March early indications suggested that enthusiasm for existing residential investment properties might be waning.
“The detailed proposals we are releasing today will further level the playing field for existing homes in favour of first home buyers,” Robertson said.
“Tax is neither the cause nor the solution to the housing problem, but it does have an influence, and this is part of the government’s overall response.”
Exemptions extended to new purpose-built rentals and hotels as well as owner-occupiers with flatmates who would not be affected by the changes.
Change in New Zealand property values
| Location | Month | Quarter | Annual | Average Value |
|---|---|---|---|---|
| New Zealand | 1.6% | 5.2% | 27.0% | $937,148 |
| Auckland | 2.1% | 5.7% | 24.7% | $1,337,648 |
| Hamilton | -2.8% | -0.5% | 21.8% | $782,774 |
| Tauranga | 2.6% | 5.4% | 28.0% | $1,021,021 |
| Wellington | 2.4% | 6.3% | 35.0% | $1,065,224 |
| Christchurch | 1.5% | 6.7% | 26.0% | $654,198 |
| Dunedin | 1.1% | 4.0% | 23.2% | $672,058 |
^Source: Corelogic NZ HPI for August 2021
Lockdowns in New Zealand were further adding to the transition towards a more sustainable growth rate.
Corelogic NZ head of research Nick Goodall said any reacceleration of house price growth rates, if it eventuates, was likely to be short lived.
“Apart from the prospect of rising mortgage rates and the impact of tighter credit policies, it’s important to factor in the weight of worsening housing affordability,” Goodall said.
“However, as property values rise faster than incomes, the cost of purchasing a home will simply become out of reach for a growing number of would-be buyers, especially as increasing interest rates start to impact the amount of money people can borrow.”
New Zealand ranked second, globally for house price growth behind Turkey this year.
Low property stock was also fuelling this growth with residents preferring townhouses over apartments, with units making up 10 per cent of approvals compared to Australia at 34 per cent.
Despite this, development of 7000 residential apartments and 167,000sq m of commercial office space is under way in Auckland.
