Interest Deductibility Rules Reinstated: Impact and Predictions for NZ Housing Market

Date Published: 13 March 2024

Key Facts

• The Government is reintroducing the interest deductibility rules that were phased out by the previous Labour government.
• The interest deductibility rule allows property investors to deduct the interest paid on the mortgage of their rental properties from their taxable income.
• The previous Labour government removed this ability in 2021 with some exemptions for new builds and social housing.
• The current ACT and National coalition government is now gradually restoring this rule starting with an 80% deduction from April 1, 2024, and 100% deduction from April 1, 2025.
• Labour’s Finance spokesperson criticizes this move as a “tax advantage for the wealthy”.
• CoreLogic’s Chief Economist doesn’t expect rents to decrease or an influx of property investors as a result of these changes.

Article Summary

Interest deductibility rules, previously phased out by the Labour government, are being reintroduced by the current government. These rules allow property investors to offset mortgage interest rates against their rental income, reducing their taxable income. The Labour government had removed this advantage in 2021, apart from some exemptions, to curb investor demand and aid first home buyers.

However, the ACT and National coalition government has promised to restore these rules in stages. Starting April 1, 2024, landlords will be able to claim 80% of mortgage interest expenses, with 100% eligibility from April 1, 2025. Associate Finance Minister David Seymour views this as a positive move for the housing market, arguing the previous restrictions raised rental costs and made property less appealing to investors.

While the government insists these changes will help landlords and tenants alike, there are mixed opinions. Labour’s Finance spokesperson, Barbara Edmonds, criticises the decision, arguing it disproportionately benefits the wealthy. CoreLogic’s Chief Economist Kelvin Davidson, does not predict a significant drop in rental costs or an influx of property investors resulting from these changes. He suggests other economic factors, such as high migration, will continue to exert upward pressure on rental costs.

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