SYDNEY, Sept.28 (Reuters) – New Zealand on Tuesday decided to cool its boiling housing market by introducing rules designed to make real estate speculation less attractive and improve record housing affordability, a major issue for the government by Prime Minister Jacinda Ardern.
The new law restricting real estate investors to deduct mortgage interest from their taxable income, first announced in March, will go into effect on October 1 and is part of a series of real estate measures introduced in the South Pacific nation of 5 million inhabitants.
“Taxation is neither the cause nor the solution to the housing problem, but it does have an influence, and it is part of the government’s overall response,” Finance Minister Grant Robertson said in a statement.
Billions of dollars in government stimulus measures, historically low interest rates and New Zealand’s relative success with COVID-19 have inflated house prices as returning Kiwis and investors parked their funds in real estate, pushing up house prices well ahead of wage growth.
House prices rose nearly 26% in August year-over-year, making it the least affordable among the Organization for Economic Co-operation and Development (OECD) countries.
This had a “punitive impact” on marginalized communities, the country’s Human Rights Commission said in August, as it launched an investigation into the housing crisis. Read more
In March, the government hit investors with new taxes and authorities pledged to further support first-time homebuyers by increasing the supply of affordable housing.
Early indications suggest that these measures have helped reduce investor enthusiasm to buy existing homes, providing a level playing field for first-time buyers, Robertson said.
The new rules will limit the availability of tax deductions for interest charges incurred by residential real estate investors for property acquired on or after March 27 of this year.
Interest deductions for existing residential properties acquired before that date would be phased out between October 1 and March 31, 2025.
The rules do not affect the main family home or new construction.
The strength of the housing market has made any changes in housing policy politically sensitive, posing a challenge to Ardern whose popularity has grown after successfully controlling the spread of COVID-19 in the country.
The National Opposition Party criticized the policy saying it would not slow down prices but rather speed up rents, thus exacerbating the crisis.
“This is another ill-conceived and rushed policy, with little real input from tax experts,” National shadow treasurer Andrew Bayly said in a statement. “Starting Friday, each owner will pay this additional tax.”
Report by Renju José; Editing by Muralikumar Anantharaman and Lincoln Feast.
Our Standards: The Thomson Reuters Trust Principles.