Controversial changes to the tax treatment of landlords mean that rent controls are now “almost inevitable”, a property management consultant is warning.
The changes, which remove property investors’ ability to offset home loan interest costs against their rental income, prompted many commentators to predict they would lead to rent increases.
This has not pleased the Government and Finance Minister Grant Robertson said it would “take action if necessary” should rents be raised to offset the effect of tax rule changes.
While Robertson would not comment on whether that could mean national or targeted rental increase caps, property management consultant David Faulkner, of Real-iQ, said some sort of rent controls were now “almost inevitable”.
The benefits of owning a rental property were set to take a massive hit due to what was a “discrimination tax” around the deductibility of interest payments, he said.
“The inevitable thing that many landlords will do is increase the rents and increase them significantly as interest payments will be an additional cost to the landlord of nearly $100 a week.
“And this is why I believe we will see rent controls kick in. Landlords will try and aggressively push rents to levels that will be beyond sustainable for many renters and the Government will be forced to act.”
Further consequences of an increase in rents would be less disposable income for the economy and more people moving on to the social housing waitlist which was already up by 548 per cent since December 2015, he said.
“Rent controls could be implemented on a regional basis. They could look at rental stats based on MBIE [Ministry of Business, Innovation and Employment] data and cap rents to that effect, only allowing rent increases in line with inflation.
“If an owner makes substantial improvements to the property, they might then be able to apply to the Tenancy Tribunal to set the rent if there are disputes.”
When New Zealand went into alert level 4 lockdown this time last year, a six-month freeze on rent increases in existing tenancies was introduced in a bid to support people through the uncertainty.
Following the end of the freeze, rents continued to increase and theprospect of rent caps being introduced started to come up.
When asked about the prospect of additional changes to the rental market in the form of rent controls earlier this year, Associate Housing Minster Poto Williams did not rule it out and said the Government was looking at a range of options.
Since the housing announcement last week, tenant advocacy group Renters United has already called for a cap on rent increases – unless landlords made significant improvements to the property.
Robertson has said the Government would be monitoring the impact of the policy changes on the rental market closely but Kiwibank economists have pointed out that rent hikes have their limits.
They said landlords might increase rents to try to recoup losses but, like any market, the price was determined by supply and demand rather than arbitrary threats from suppliers.
“On the demand side, rent hikes are constrained by what tenants can afford, which in turn is limited by income growth. Importantly, a vacant rental is far more costly to a landlord than a lack of interest payment deductions.”
After peaking at 3.7 per cent at the start of 2020, rent inflation had eased to 2.9 per cent by the end of the year – due to the Covid-related rent freeze, the Kiwibank economists said.
“With the rent freeze no longer in play, recent healthy homes requirements, and a general shortage of rentals, a rise in rent inflation was already on the cards prior to last week’s announcement. We don’t think tax changes will add significantly to rent inflation.”