Ban on interest deductibility hits rental market

Century 21 New Zealand owner

His comments follow a survey, commissioned by the Ministry of Housing and Urban Development, which found that a quarter of landlords put up rents in the six months before May 2022, and one of the big reasons for this was increased costs lumped on by the government.

“A key factor is landlords now not being able to claim their full interest costs as an expense. Alarmingly, that’s only going to get worse as interest rates increase and the policy rolls out to completion,” Tim says.

Once, 100 percent of interest could be claimed by residential landlords, but that is now being incrementally phased out. Currently at 75 percent, that moves to 50 percent on April 1, to 25 percent on April 1, 2024, and then to zero on April 1, 2025.

“Banning interest deductibility really seems to be both hurting and deterring ‘mum and dad’ landlords. Many of these people once viewed a rental property as a good investment.

“Now many of our ‘mum and dad’ investors are now either getting out of the residential rental market, or not considering it in the first place,” he says.

The Century 21 leader says the ongoing costs on landlords is seeing them direct their money and focus towards the likes of commercial property syndications, the share market, or even bank term deposits given the rising returns.

“Not only do extra costs see Kiwi landlords fleeing the residential rental market, but it’s flowing through to rents, with overall rents reportedly up $150 in the past five years, only adding to our country’s cost-of-living crisis.”