COMMENT: Ring-fencing rules could mean 116,000 less rentals

Ring-fencing of rental losses on rental properties could end up resulting in 116,000 fewer rentals, Stop the War on Tenancies spokesman Mike Butler cautions.

In response to an Official Information Act request, I received confirmation from Inland Revenue last week that 116,000 rental property owners declared a loss on earnings in the 2016/17 tax year.

Inland Revenue also said that the average loss declared by each owner was $7138, and that includes both individual and non-individual (trusts, partnerships and companies) taxpayers.

Owners who run a rental property at a loss do so to claim the losses against tax paid on their day job to get a refund.

Yet advice to the Government about the impact of loss ring-fencing has proceeded without anyone knowing how many private rental property owners are negatively geared.

A figure of 40% was given in that advice without stating the total number of private rental property owners.

In fact, the 116,000 number now received from Inland Revenue is much higher than I expected and it means that we could be looking at up to 116,000 fewer rental properties on the market.

That’s because once a rental property owner has to top-up his or her rental with $138 every week from their day job and with a greatly reduced chance of ever getting it back, it won’t be long before that owner decides to sell.

Early last year Inland Revenue and MBIE advised the Government that ring-fencing losses would result in the sale of an unknown number of properties to owner occupiers, reducing availability of rentals and increasing rents by around 10%.

MBIE thought the housing shortage would increase by 16,600 over the two years from 2018, when taking into account the building of 6,000 KiwiBuild homes over that period.

Those briefing papers were produced under the expectation that KiwiBuild would deliver 6,000 dwellings in two years.

But just three weeks ago, Housing and Urban Development Minister Phil Twyford said he could not guarantee that the Government will meet its target of having 1,000 KiwiBuild houses built by July.

That means the 6,000-extra-dwelling figure is now off the table.

If every negatively-geared owner then sold to an owner-occupier, and if each owner then sold one property, the shortfall would be more like 116,000 properties, not 16,600.

The looming new rules relating to the ring-fencing of rental losses mean it’s decision time for negatively-geared owners.

But it is also decision time for the Government as it may unwittingly create a further massive shortfall of rental properties by not listening to advice.

Submissions on the bill relating to the ring-fencing of rental losses close on February 28. Those with something to say on the topic can make a submission here.

Mike Butler is a Hastings-based owner and manager of rental properties. He is also the founder of Stop the War on Tenancies.

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