OPINION: Most real estate investors venture into private rental housing to improve their financial situation and ensure their retirement security.
Along the way, most renovate and improve their properties and strive to maintain warm, dry, safe and comfortable homes suitable for rental.
In addition to their own equity efforts, they provide work and financial benefits to a range of tradespeople. And then there is the need for building materials and hardware in addition to the purchase of professional services.
In short, most private owners add value to New Zealand’s housing stock and generate significant positive financial activity.
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Like most other New Zealanders, private rental housing providers work hard and want to make progress for themselves and their families.
They are generally ambitious and socially responsible citizens who prefer to invest in bricks and mortar, as opposed to stocks and stocks.
Government statistics show that of the 1.7 million private dwellings in New Zealand, 603,500 (35.5%) are rented.
Acknowledging the contribution of the Kainga Ora – State Owned Homes and Communities portfolio of approximately 67,000, the majority of the country’s rental portfolio is provided by the private sector.
This number of rental units is approximately 536,500, or 89 percent of the total rental stock.
It is a fact that private landlords are making the ‘uplift’ in the provision of rental housing in New Zealand.
Labor and government have long been silent on the value that most private landlords offer.
The private sector can provide rental housing much more cost effectively than the government.
The national median rent for a two-bedroom apartment is $ 425 pw. In contrast, the government spends $ 900,000 per day on 6,641 transitional housing units; this works out to $ 135 per space per day, or $ 948 pw.
The government has been malicious in its messages by confusing “real estate investors” with “speculators”.
The real owners of private rental housing are not speculators. Polls from the New Zealand Federation of Real Estate Investors and our Taranaki Association prove that they are “buy and hold” people, in the long-term business.
It is commonly accepted that if you want to invest in a residential rental property, you must be there for at least 10 years. This is hardly speculation.
Extending the Bright Line Test from 5 to 10 years will not be a problem for most private rental housing providers. It is nonsense to say that someone who owns a property for up to 10 years is a “real estate speculator”. The extension of the BLT can only be seen as the introduction of a capital gains tax, despite repeated promises to the contrary.
Removing the tax deductibility of loan interest specifically targeting providers of private rental housing is unfair, unfair and mean to a specific category of commercial taxpayers.
Private rental housing providers operate businesses that generate income and incur legitimate business costs.
The removal of interest tax deductibility will affect the cash available for repairs and maintenance of properties and the overall profitability of the business.
Additionally, the financial impact on the sector will be the negative effect on the asset value of private rental housing as an asset class.
The non-deductibility of loan interest will negatively affect the net returns of private rental housing portfolios.
Real estate investors have expressed opposition to the government’s announced new housing policy and say rent increases are an inevitable consequence. (First published on March 31, 2021)
This will further deter investment in the sector. This could make banks feel uncomfortable with security stocks, forcing private rental providers to exit the market through forced sales.
The introduction of non-deductibility of loan interest as a business expense will likely cause many private owners to transition from renting a profitable business to “just out of business” or truly out of business.
If the government intends to turn private rental housing providers into ‘nonprofits’ and hobbyists, it should do the decent thing and nationalize New Zealand’s private rental housing portfolio ASAP and take the stress out. and the uncertainty currently hanging over private owners. .
Claiming loan interest as a business expense is as legitimate and fair to a private rental housing provider as it is to any other business.
Would the government be cunning enough to attempt to impose non-tax deductibility of loan interest on the private nursing home sector, which, like private landlords, borrow capital to finance housing?
To characterize that the government is closing a “loophole” between the interest paid on a mortgage loan by a private landlord and that paid by a private rental housing provider is dishonest.
Although an owner / occupied private residence has utility and asset value, it is not an asset in the literal sense because it does not generate income; furthermore, tax deductibility of loan interest has never been offered to owners / occupants.
If the government maintains its current political course, the unintended consequences that will result will exacerbate the current shortage of rental housing, and social housing in particular.
A unique iwi collaboration of Toitū Tai Rāwhiti, which includes Ngāi Tāmanuhiri, Rongowhakaata, Te Aitanga-a-Māhaki and Ngāti Porou, brings a new sense of hope to the people.
There is already anecdotal evidence of the sale and exit from the sector by private lessors. First-time homebuyers may have more options, and that’s a good thing.
However, there is also evidence that investors sidelined at open houses and auctions.
This suggests that in the absence of urgent and bold government action to incentivize the private sector to build more rental housing (including social), the stock of private rental housing will only decrease, reducing rental opportunities. .
The combination of relocating tenants in exchange for owner / occupants and shrinking private rental stock is likely to lead to increased demand for emergency / transitional and social housing, the domain of central government.
Encouraging new construction through Bright Line Test exemptions and tax deductibility of loan interest for the first 10 years is unlikely to result in the rental of many new constructions.
From a rational investment perspective, why would anyone want to “invest” in newly built private rental housing knowing that even though they will benefit from the BLT exemptions and tax deductibility for up to 10 years? , the value of their investment will decrease dramatically when the tax deductibility exemption is terminated.
Providing private rental housing is a very commendable endeavor and in my experience most providers in the sector are proud of their contribution.
The government’s messages, both verbal and written, in introducing these latest housing policies, have been hypocritical and dishonest.
These policies will have the net effect of undermining the provision of private rental housing while doing nothing to meet the real rental need in New Zealand, the provision of more social housing.
The government should immediately abandon the proposed policy of non-tax deductibility of interest on loans in order to restore confidence and security in the private rental housing sector. He should also do the right thing and consult with the industry that provides most rental housing in New Zealand.
Getting out of the bunker, following the advice of its own officials, and collaborating with the private rental housing sector would be a much more productive government effort to address the housing crisis.
– Colin Comber is a past president and currently an active member of the Taranaki Property Investors’ Association and has been a provider of private rental housing in New Plymouth for 20 years.