‘Mom and Dad’ landlords angry about tax breaks for ‘business’ investors

Build-to-rent landlords will soon be able to declare interest as an expense on their tax return, but the average landlord cannot – and they are angry about that.

Housing Secretary Megan Woods announced on Friday that a new bill that would give developers an exemption of the interest deduction rulesas long as the houses they built were kept as long-term rentals.

To be eligible, developments must meet certain conditions, including offering leases of at least 10 years and at least 20 homes.

Developers who have worked on a build-to-rent model, which involves the development of multi-unit residential buildings for long-term rental rather than sale to individual ownerswould likely qualify for the tax benefit.

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But traditional mom and dad landlords, who owned several rental properties, didn’t want that, and some investor advocates said that was unfair.

The chairman of the Property Investors Federation, Andrew King, said the selective reversal of interest deductions would not benefit the majority of renters, as most could not afford brand new, high-quality rental properties.

Eliminating interest charges as a legitimate tax deduction had led to a rise in rents, and they would continue to rise as taxes rise for most rental properties over the next four years, he said.

“Rental groups have said there is a rental crisis, but allowing mortgage interest deductions for high-end rents won’t solve anything for the majority of renters.

The chairman of the Property Investors Federation, Andrew King, says the reversal of interest deductions for build-to-rent developers will not benefit most tenants.

David White/things

The chairman of the Property Investors Federation, Andrew King, says the reversal of interest deductions for build-to-rent developers will not benefit most tenants.

“Interest deductions should be reversed for all rental properties, not just high-end build-to-rent.”

The government’s announcement showed that it had given in to big business lobbying and changed the rules for major developers becoming landlords, he said.

“But the vast majority of rental properties are provided by regular Kiwis who operate with low overheads and low margins that provide real value for tenants. These are the rental providers that need to be supported, not the big corporate developers.”

Auckland investor Peter Lewis, who has been a landlord for over 30 years, said “build-to-rent” was being promoted as the solution to the shortage of rental housing.

The problem was that, contrary to popular belief, renting out homes in New Zealand was a low-return activity with a high workload, he said.

“Over many years, I’ve seen a number of companies get excited about the idea of ​​building a large rental portfolio, but those are quietly wiped out once the hard light of economic reality kicks in.”

The build-to-rent concept worked in overseas jurisdictions where rent laws and customs were different from here, he said.

“The reality is that these companies will only stay in the market if they can make a profit.

Arc Onehunga is a recently completed 48 apartment complex, which is exclusively intended for tenants.

Delivered/Delivered

Arc Onehunga is a recently completed 48 apartment complex, which is exclusively intended for tenants.

“To do this, they must set their rents at a level that takes into account the costs of professional management, trading costs for maintenance, and still have enough left over for a shareholder dividend.”

That meant rents would be well above current levels, he said.

“Private landlords who already own some 540,000 homes could be the solution to the problem, but we’re never asked to.”

But Sam Stubbs, from build-to-rent developer Simplicity Livingsaid rents were determined on a case-by-case basis and it wasn’t possible to say arbitrarily that all build-to-rent developments would have higher rents.

Sam Stubbs from Simplicity (pictured) and Shane Brealey from NZ Living joined forces to build quality low cost rental properties.

Chris McKeen / Stuff

Sam Stubbs from Simplicity (pictured) and Shane Brealey from NZ Living joined forces to build quality low cost rental properties.

“Rentals are determined on the basis of supply and demand. The government’s announcement is aimed at increasing rental supply, so in the long run that should lower rents, not drive them up.”

While he could understand the call for the change to the interest deductibility of all rental properties, that was not the point of the government move, he said.

“It’s to encourage institutional investment in build-to-rent developments that they want to see more of and need. It is perfectly sensible and will achieve what it sets out to.”

Changing the real estate market would take a long time, he said.

Renters United spokesperson Geordie Rogers said it was positive for tenants who could rent a build-to-rent home that they would have access to greater security of tenure.

But what was needed was security of tenure for all tenants, and that shouldn’t come at the expense of giving landlords a tax break, he said.

“There seems to be a belief that if landlords get more money, they’ll be nicer to tenants, and that hasn’t turned out to be the case.

“Remember, when the cost of mortgage rates fell in recent years, rents were still going up.”

He doubted the new policy would make housing more affordable for most tenants, saying there was a need for more rights for all tenants and better enforcement of those rights.