Ilse Evans Looks at the Implications of the Government’s Housing Crisis Package

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At the end of March the government unveiled they will pour nearly $4 billion into a scheme to accelerate the pace of new house builds. The surprise for many however was the removal of the ability for all new investor purchasers to deduct interest costs from this week, and the gradual reduction in the ability of those already owning investment properties to deduct such expense over the next four years. 

This plan also doubles the capital gains tax-esque Brightline test from five to 10 years – meaning any gains on a residential property that is not a family home will be taxed if the property is sold within 10 years of purchase. And first home buyers have also been given a lifeline – the First Home Grant caps have been lifted from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers. The cap on the value of the house those eligible for this grant are able to buy has also been lifted by up to $100,000 in some parts of the country. 

 Tony Alexander who is an economics commentator and former chief economist for BNZ also comments. “What are the implications? My experience over the decades has been that many Kiwi landlords have not raised rents to levels they know the market could bear because they empathise with their tenants and could await capital gain to slowly accrue (sometimes swiftly) over time. Now the cost of doing that is much higher and we are likely to see quite strong rises in rents over the next four years. Many people who were thinking about buying an investment property now will not do so. Some people owning them will sell.  

Three final points: the news reduces the chances of the Reserve Bank raising its official cash rate before the end of 2022 – though it does not rule that out. The likelihood of debt to income ratios and restrictions on interest-only lending being introduced this year has fallen substantially. And prospects for renters at the low end of the socioeconomic spectrum have become decidedly worse and the news today will bring a rise in homelessness and extra blowout in the state house waiting list as the pool of rental properties shrinks and becomes more expensive. 

It is generally agreed that today’s announcement would help to dampen property speculation, and will make residential property ‘less lucrative’ for speculators, so for more information on real estate agents Hauraki, selling my house Belmont and property valuations Hauraki please go to http://www.ilseevans.co.nz . 

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