Housing Minister Megan Woods says upcoming tax legislation will give the exemption to new and existing build-to-rent developments rules in perpetuity.
The exemption will apply retrospectively from 1 October 2021. Owners of build-to-rent assets can claim interest costs relating to these assets for as long as the asset is held and operated as a build-to-rent development.
The proposed requirements for the new asset class include:
- That tenants must be offered a fixed-term tenancy of at least 10 years with the ability to give 56 days’ notice of termination, but they may agree to or request other tenancy offers;
- The developments must have at least 20 dwellings in one or more buildings that comprise a single development, on either a single parcel of land or multiple contiguous parcels;
- The dwellings and any common land or facilities for those dwellings must have a single owner;
- Dwellings can be held in one or more titles;
- The buildings that a build-to-rent dwelling is in, can include other dwellings or commercial premises that do not form part of the build-to-rent development;
- and the dwellings are used or available for rent under the Residential Tenancies Act.
Property Investors Federation president Andrew King says it appears the Government has bowed to big business lobbying and changed the rules for large developers turned landlords.
“Minister Woods says build-to-rent developers provide high quality rental housing so these tax benefits are going to benefit high income earning tenants rather than the vast majority of tenants as a consequence.”
King says the vast majority of tenants cannot afford brand new, high end accommodation. “They want well maintained, warm, dry but ultimately good value rental accommodation.”
Build-to-rent is a different model of residential housing to that commonly seen in New Zealand’s current private rental market, where small scale investors own individual or small numbers of dwellings, says Woods.
She says It has the potential to increase the supply of quality rental housing at pace and scale. “Build-to-rent can also support housing construction at times when securing buyers and finance for build-to-sell developments is more challenging, as it is now.
“The build-to-rent sector can attract different forms of long-term investment such as from iwi or superannuation funds. This is critical to providing new general and market affordable supply.”
Woods says the tax exemption will encourage further development of this type of rental supply and enable the full potential of this sector.
However, King says the vast majority of rentals are provided by ordinary Kiwis who own one or two rentals. “They mostly provide an excellent service to their tenants and new laws mean they must provide a warm dry rental homes. These private landlords operate with low overheads and low (often negative) margins that actually
provide true value for tenants. These are the rental that should be supported, not large corporate developers.
He says unfortunately, the discriminatory removal of interest costs as a legitimate tax deduction has seen the cost of many rental properties increase and will continue to increase as the taxes are increased over the next four years for the majority of rental properties.”
The federation’s published plan to fix the rental crisis include removing the three tax increases of disallowing mortgage interest as a tax deduction; ringfencing and the Brightline test would provide some real relief for the majority of tenants.
King says tenants groups have said there is a rental, but allowing mortgage interest deductibility for high-end rentals will not solve anything for the majority of tenants, it should apply to all rentals.
The federation has also suggested introducing a security of tenure model based on the German system and this would provide long-term security for the majority of tenants, not just for high-income tenants who are likely to benefit.