What are the experts saying about Labour’s new property measures?

New Zealand’s housing market has seen a big change recently. In an effort to address availability and affordability, the Government has introduced a few new measures – and heavily incentivised development of and investment in new properties.

There’s a lot of information and opinions flying around about the implications – but what applies to you?

Let’s break it down and see how first-time buyers, investors, owner-occupiers and are all impacted.

What do the measures mean for first-time buyers?

According to Labour, these measures were introduced to give first-time buyers more opportunity to get their foot in the front door. They’ve increased the First Home Grants and Loans income cap from $85k to $95k for single buyers, and $130k to $150k for multiple buyers. The price caps for receiving financial support have been adjusted across different regions, with more pricey areas like Auckland and Wellington seeing an increase.

Megan Woods, the Minister of Housing, also said first-home buyers will only need a 5% deposit before applying for support.

What about investors?

Although investment now has a few extra considerations, there’s still plenty of opportunity. The two main changes to take note of are: the bright-line test extension and the phase out of interest deductibility.

The bright-line test was a measure introduced to make property flipping less appealing. If you bought a property for investment purposes, you’d have to hold onto it for five years to avoid paying income tax on the profits (which sits at 33% or 39%, depending on your income and how much the house sells for). This has now been doubled to ten years.

 The other measure is the removal of interest deductibility, which will take place gradually over the next four years. This means that investors will no longer be able to claim the cost of their mortgage’s interest as tax deduction – a factor that experts are saying will impact the rental market.

Speaking on Morning Report, Robin Oliver, Former Inland Revenue deputy commissioner, said that the laws “will make housing less affordable for people renting”. He predicts that the measures will prompt rental property owners to sell up. Other experts suggest that owners will increase rent to offset the costs incurred from mortgage interest. But the Government countered this, saying that they will act against any rent spikes – noting that the deductibility’s four-year phase out would mean no sudden rental increases could be justified.

It’s worth noting that none of these measures apply to new builds. The Government stated that they wanted to make existing properties less appealing and incentivise investment in new properties – which aims to address New Zealand’s housing shortage. So, those investing in new builds will be unaffected by either measure.

This makes new homes a far more attractive investment option.

The impact on owner-occupiers

Labour claims that the measures aim to curb speculation on existing properties, promote investment in new builds and pave the way for first-time buyers. Although owner-occupiers aren’t directly affected, Westpac’s chief economist, Michael Gordon, said that the measures may give them more influence and allow them to “determine the market price of houses”. But Antonia Brown, partner at Harcourts Wellington, says that the measures haven’t changed buying and selling behaviour so far.

In a nutshell

While things have changed, it’s far from the end of the world. Those looking to step onto the property ladder might find a bit more flexibility in doing so. It may be business as usual for owner-occupiers and those building new properties. And while investors may find existing properties a bit less attractive, the new build exemption means that there’s still a lot of opportunity in the housing market if you look in the right places.