• A  Discussion on the New Housing Changes and The Effect on our Property Predictions. 


The pressing question on everyones mind is the impact of the new legislation on house prices, with the key changes being the lift in the Brightline period from 5 years to 10  years and the change to ones ability to claim interest paid as an expense.

The lift in the Brightline test was almost an inevitability and one signaled in the last newsletter. It was just too easy to do and then blame it on the previous Government. Grant Robinson must kick himself that he is recorded as saying he would not do exactly what he did do, just last year. He must be glad that he did not hold up a piece of paper with the word “No” on it like Winston.

The second aspect is the inability to claim interest expenses against the income received. This is creating quite a stir, principally because it will be the first time you cannot claim legitimate business expenses against income. It is fraught with difficulties and I would not be surprised to see a partial back- track before long. Most people know when a tax is fair and when it is not, and this one is unfair and will create a real headache for future tax assessment. 

 The legislation has not been drafted yet and the devil will be in the detail. The government is going to have to include “no interest’ on all residential property or people will simply move their property holdings to company ownership. If they do make it all residential property how are they going to assess:- 

* Property developers and building companies who buy a property for subdivision that has an existing house on it? 

* How will they assess a residential  house that is on  commercial land. 

* How will they assess the numerous businesses that operate out of residential houses? 

* How will they assess part usage, where part of a house is used for  residential purposes and part for business purposes?  

* If the legislation specifically excludes businesses, then what is to  stop property investors from setting up a company and buying through it.

* If you sell before 10 years and come under the Brightline test are you going to be able to claim your interest component off your profit. 

* If the answer is yes then people will accumulate their interest component for the number of years they own the property and claim it off the profit.

* If the answer is no, then investors will be effectively paying a double tax. Once by not being able to claim the expense and twice by not being able to deduct it from profit.  

Some years ago it was popular to set up a company to buy and own rental properties. This fell out of favour as there was little advantage in buying through a company. But the new rules will change this and the details of this change will demonstrate it as unworkable, as it changes a key aspect of business Tax law. Expenses are deductible. The Butterfly effect of this change will be huge and overly complicate a tax system that various governments have spent  20  years trying to simplify. 

One key advantage in buying through a company is GST. When purchasing you can claim the GST portion back from the purchase. 15% of your purchase price. You must pay GST on your sale, but you have the use of the GST money from day one.

One interesting and amusing question is how the Government is planning on handling the interest component of by far the largest borrower for residential property in the country.  Kainga Ora owned by themselves. Another 2 billion allocated in this legislation for further borrowings. You can bet that they will exclude themselves from this legislation, which will fan the fires of unfairness.

Just a quick note about this type of Government exemption. Over two years ago now, the Government found out that the guidelines for Meths in homes were wrong and they decided to change the standard to from 1.5 μg/100 cm2 to 15 μg/100 cm2. The government changed the criteria to their own state houses to 15 μg/100 cm2 immediately. However, the 1.5 μg/100 cm2 remains on the legislative books unchanged and all tenancy managers and landlords still have a 1.5 μg/100 cm2 level in their legislation. Some banks therefore still apply it for lending purposes. It is very frustrating when the actual written legislation does not catch up with the known safety standards. If you own a house with a meth reading of over 1.5 μg/100 cm2 you are legally obliged to clean it for your tenant, yet the Government can house that same tenant with a reading of 15 μg/100 cm2.

The removal of interest payments claim-backs is going to be an ongoing thorn in the Governments side.  Apart from the inherent unfairness of not being able to claim a legitimate expense, and apart from it being a retrospective tax in that it applies to existing properties with no lead in period, this will make a lot of properties unaffordable to the owners, who often have simply tried to set themselves up for the future. Some will have no choice but to sell and then they fall into the perfect trap set by the government. We ( The Government )  put you in a position where you must change your long-term plans and sell your property now. Then we have extended the tax net so we tax you as you fall.  It reminds me of the Crow and Blackfoot Indians of the USA, who had “Pishkins” where they drove the Buffalo herds over a cliff, thus harvesting a massive amount of meat, but having no idea of conserving animals for future generations. For the slow amongst you: – the Indians are the Government, the buffalo the landlords and the bottom of the cliff is the Tax department whose job it is to be fair!

The Sacred Cow that Just Won’t Lie Down!

The fundamental problem is that we do not have enough houses in the country. The old supply and demand issue raises its ugly head again  and again, and until it is truly addressed, it will come back time and time again to haunt any government. For proof of this we only need to look at Canterbury. The only province in New Zealand without rapidly rising house prices. (Until last month) Why? Because they had two massive earthquakes that damaged most of the city. They had to rush through special legislation to allow them to shortcut the RMA and  create vast tracts of new land for building, and then they had to build new homes on a massive scale. The consequence is that enough homes are being built for the demand, thus the prices are not going up to the same level as the rest of the country.

No amount of juggling the chairs on the Titanic’s’ deck is going to fix the supply problem. We will not see an end to the housing crisis until we have enough houses, and we are 10-15 years short of that. The recent timber supply issues being signaled by Carter Holt, show how complicated this issue is. Pull one string and a dozen objects move. Stopping the investor buyers will not address the shortage of houses. Other groups will quickly take up the slack. In Christchurch the massive, organized building program equaled the  lowest capital gains in the country. Lesson learnt!! . The average price in Christchurch (New Zealand’s third largest city) is $556,446 now similar to Whangarei’s with less than a quarter of the population.

The problem has been created by successive governments failing to address the supply issue adequately and urgently. Combine this with the incredibly open migration policies, and the current housing situation was inevitable and has been signaled and discussed for over  20 years now. We simply do not build enough new homes.

The latest rule changes are designed to partially exclude new builds, in the hope that this will drive people to new homes. It is a great idea but misses the point. There are not enough new homes being built. Look at any building company based in Whangarei and they are swamped with demand. They have more buyers than they could build homes for. Most building companies and independent builders are booked up 12-24 months ahead, What they do not have is the land to build on and the crews and subbies to build them, nor, it now appears, the basic raw materials to build with. You can throw feathers at a sacred cow, but you are not going to turn it  a homing pigeon.


I listened to the minister of Finance argue that rents would not go up through his new legislation, because tenants would leave those rental properties and move to cheaper ones where the rent had not gone up. This again shows a lack of appreciation of what is happening. There is a chronic shortage of rental properties and this will get worse as the Government continues to drive people away from being landlords. There are simply no houses for these tenants to move to.

Presumably, the government intends to build lots more rental properties, with all the money they are going to borrow, (and claim the interest expenses), however this will take 20-40 years. Surely it makes more sense to wait until you have at least made a significant dent in public rental supply and demand before shooting the golden landlord goose in the head.

I note Tony Alexanders’ comments in his latest newsletter. ” Data from MBIE tell us that since Labour were elected in September 2017 average rents throughout New Zealand have risen by 24%. In contrast, average incomes have risen by about 11%. The rise in rents we can largely put down to the government increasing the cost of rental accommodation.” 

I wrote the below article in 3/3/2019. Its 2 years old, and allowing for more properties to have been added to both the private and Government owned list, I am sure the ratios will be more of less the same;

What a sad day it would be if the Government and the Reserve Bank ever succeeded in driving the private landlords out of the rental market. Some simple facts.

  • 450,000 households rent (Census figures 2013)
  • Housing NZ own 62,000 rental homes (this figure is gathered by stealth as they seem to fudge their actual ownership by claiming properties, they lease off private landlords)
  • That means 388,000 rental properties are owned by private landlords.
  • That is 6 out of every 7 rentals provided by private landlords. 
  • If the private landlords all got out, you would presume it would be the governments job to provide the missing rental housing.
  • At an average cost of $500,000 each the Government ( i.e. you the taxpayer) would need to stump up with 194 billion dollars to replace them.
  • Or $53,000  in extra tax for every one of the 3.64 million people who pay tax in NZ.
  • To put that in perspective the Christchurch earthquake rebuild has cost around 40 billion so far.

The logical conclusion is …we need the private landlords,  so stop beating up on them. 


The Brightline test was brought in under the John Key government to stop house flipping. ( where someone purchased a property, held it for a few weeks or months and then sold it at a profit). Two years was ample to achieve this purpose. It was then extended to 5 years under the current government, and at this point the purpose changed from a flip prevention to a capital gains tax. The new 10-year extension to 10 years is dishonest in that we were promised no capital gains tax by both the Prime Minister who said “Not on my watch “and the Finance Minister who simply said “No” to a question about if he would raise the Brightline Test. This is a capital gains tax and became one after the 5-year change when its purpose was no longer to stop people flipping properties.

The latest legislation will only affect a few investment buyers. Those that borrow heavily against the property they buy  or other property they own. The larger number of investment buyers we are seeing are the ones who are moving their capital out of bank deposits and putting them into housing. Basically, swapping their interest income to a rental income. These people are not going to worry about the lack of interest provision as they are cash and are not going to worry about the Brightline test as it taxes profit if they sell, when their purpose is to create an income stream now and in all likelihood will be the estates problem when they are gone. The profit is just a bonus they were not getting with their bank savings.

This legislation seems to have little purpose apart from collecting tax. There is no incentive for first home buyers, For example the cap rate. If a first home buyer buys a property under a set price (the cap rate) then the government will give them a grant of $5000 per person if it is an existing house and $10,000 if it is a new house. In Whangarei, the cap was at $500,000 before the new legislation and its at $500,000 after the new legislation. No difference. No wonder the first home buyers have been left underwhelmed!

It has been said by many people and I totally agree, this will push up rents. I deal with many landlords who deliberately charge a rent below market for several reasons. This legislation will force most of them to charge the highest they can get simply to survive as landlords. Any talk of it not pushing up interest rates, is just that… talk!

Landlords can only put the rent up on an annual basis now ( it was every 180 days) . This means landlords will charge the maximum they can get annually as they know that rental cant be changed for another 12 months.  

The government is not ready to take over from the private rental market. They desperately need the private landlords as they provide 6 out of every 7 rental properties. This move is way too soon and will backfire spectacularly, either pushing people to set up companies to go around it, or by selling, or by raising rental  rates.

I strongly believe that they will have no option but to reverse their stance on the interest rate option. Its just dumb, and they will see this before too long, especially as they get into the detail.

What effect on Whangarei Prices?

We will see more investment owners selling. Some have been waiting for the right time to sell and that will be now. Those that were thinking of selling and had owned the property for 6 or more years will wait out the 10 years if required to beat the Brightline test . The properties that do go on the market will get snapped up by the huge number of first home buyers. We will hardly see a blip on the available supply.

Investor buyers will exit the market for now to see what happens with prices.

We may see a pause in the market while the new changes sink in, but the fundamentals of supply and demand will eventually drive the market onwards. Until there are enough houses built, the housing crisis will remain, and we will have upward pressure on prices and our prediction of a 12% gain by the end of December looks good. 

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