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Our thoughts on perpetual interest deduction for institutional BTR developers

Earlier this month, the government announced its intention to grant institutional build-to-rent investors an outright exemption to the interest limitation rule, that those meeting its (lowish) criteria would qualify for interest deduction in perpetuity. Once again, and rather unsurprisingly, private investors who own and operate 87% of residential rental properties in New Zealand are left out in the cold.

Undoubtedly, when the empowering bill comes to pass*, we will have more to say about the matter. In the meantime, here is our statement to the press:

It is inherently problematic when decisions are being made behind closed doors with invited lobbyists, and the spin room consists of almost only those big businesses that are in line for massive financial gains because of those decisions. This kind of opaque favouritism has never delivered any real housing solutions for New Zealanders. Where is the Treasury report? What’s the IRD’s input? Where are the longitudinal and cross-sectional studies that say tenants are better off renting from corporations than people? 

It is dishonest to characterise private landlords as incapable of delivering a top-notch rental experience, just as it is fanciful to suggest that corporations always put tenant customers ahead of shareholders. This government proposes to give institutional developers (likely funded by foreign money) a tax break. That’s their prerogative. But what’s the trade-off for the public? Merely offering but falling short of being bound by a 10-year tenancy is not good enough. New Zealanders, especially our renters, deserve real housing solutions, not lip service.  

We look forward to the bill’s introduction in Parliament and expect it to follow a rigorous legislative process, including broad public consultation. Something this consequential that stands to alter the landscape of our residential rental sector deserves all due process. To pass this law under urgency, as this government is prone to do, would not be in the public’s interest. 

The silver lining private investors can take away from last week’s announcement is that this government is capable of changing its mind. The challenge for those in the advocacy business with no corporate money is to work out how to press the right levers to get into the room. 

Since landlords and tenants have been denied the chance to input into the policy design, we think the select committee process is more important than ever. Given the current political calculus, this policy will become law very soon. We can’t stop that but we can, through the select committee process, advocate for common sense changes that would give private landlords and tenants a fairer chance to get ahead.

If you believe New Zealand should be about the advancement of industrious and hardworking individuals over corporate bailouts, if you are against the creation of two classes of renters, if you are for open government, then get ready to speak reason to power. Sign up for our newsletter (below) to receive more information and support materials.

*Update 1 September 2022: The Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill was introduced into the House on the 30th of August and withdrawn on the 1st of September 2022 as a result of the GST on Kiwisaver fees controversy. We expect the bill to be re-introduced into the House shortly and will update our followers accordingly.

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  • The article does a good job of discussing the pros and cons of the proposed change to the interest deduction for institutional BTR developers. On the one hand, it could help to make these developments more financially feasible, which would be a major boon for the sector. On the other hand, it could lead to an increase in costs for renters, who may end up paying more for their housing. Overall, I think the proposal is a good idea, but it’s important to make sure that renters don’t bear too much of the burden.

    • Hi Claire, For sure! Sluggish supply has plagued our housing market for far too long, and ultimately it’s the end users of housing who bear the cost. We look at the issue more broadly. If the policy intends to promote the supply of houses, then we think there ought to be room to discuss more favourable tax terms for private developers who can also contribute to a net increase in housing supply. In terms of supply, we don’t see a material difference between a developer who builds 20 dwellings on one single title and another who builds 20 dwellings across separate titles. Our view is that both developers ought to have access to similar or the same tax terms. On the tenant side, we are uncomfortable with the creation of two classes of tenants which this policy (as it stands) will do. There is already so much disparity in New Zealand, we do not need further division that tells one group of tenants who could not afford to pay corporate level rents that they deserve less rights and protections from those who could.

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