The Government isn't ruling out putting limits on how much landlords can hike rents, if investors turn out to be right and prices go up rapidly.
Landlords were taken aback on Tuesday, when the Government announced landlords would no longer be able to use the interest they pay on borrowing to shrink their tax bills. The policy, of which the finer details are yet to be worked out, is intended to balance the playing field between investors and owner-occupiers - the latter group not having that money-saving option.
The hope is that it will stop the rapidly increasing house prices from turning into a bubble and destabilising the economy.
But landlords have threatened they'll hike rents to cover the loss, making it even harder for tenants to save up for a home of their own. One told The AM Show he would put the rent on his 40-plus properties up $135 a week.
Finance Minister Grant Robertson has brushed off their threats, saying rent prices are a product of supply and demand.
"What happens with rents is a product of a number of factors, the demand and supply side, and we are moving to incentivise more supply. So that's why we're exempting new builds from the bright-line test extension and from the interest deductibility rule changes," he told Newshub Nation.
"It's also affected by people's ability to pay as well. So we have to make sure that, you know, we keep an eye on what happens in the rental market.
"But we got a range of advice on this matter. And actually, you know, to be honest, every time we've made a change in housing, we've heard from some people that it will mean rents will go up to an enormous extent. And often that hasn't actually happened when those changes have been made. But we'll keep an eye on that because we obviously want to make sure that renting remains affordable."
Asked if that could include caps on rent hikes, he didn't rule it out.
"That's not on our agenda at the moment, but we will keep an eye on what happens."
The reason it's not on the agenda right now is because he doesn't think rents will spike.
"We're certainly hearing a lot of rhetoric about that at the moment. But I know actually that a lot of the landlords that people talk about, the people who've got one property that's, you know, perhaps they're for their retirement, they actually don't do big rent increases. They look after the tenants. We want to keep supporting those people...
"But some of the things that I've heard over the last few days from some of the speculators and people who own multiple investment properties... you know, they might increase rents by a particular amount. What I would say is that under the Tenancy Tribunal rules, if rent rises are above the market rate, then that can be challenged. And if people do start behaving that way, then that may well be."
Rents in New Zealand have gone up steadily in recent years, regardless of changes made in Government policy.
The UK introduced similar tax changes about four years ago. It didn't push rents up - data shows rents in London kept increasing at the same pace they have for the last decade, while they stagnated in the rest of the country.
But New Zealand's changes are a little more dramatic than the UK's, which still allowed for some deductions.
"What the UK did is equivalent to going halfway to doing what New Zealand did," Westpac chief economist Michael Gordon told Newshub.
Our changes are expected to exempt new builds, for example.
"When it comes to interest deductibility we are phasing that in over that four year period, which will give those people time to assess whether or not they want to continue with this investment or move to another investment for them or for new investors.
"I would say, I would encourage you to look at investing in new builds, because then you will still be able to claim the interest deductibility rules and you'll be adding to the stock."
While the new rules were rushed out after an unexpected rise in house prices in the wake of COVID-19, the law isn't expected to be in place until October, leading to confusion around the new builds policy. Some developers have told Newshub they're pressing pause on some new builds until they have more clarity around what's going on.
"When we're making a significant change like this, we can make the overall decisions, but the process we now go through, as we do with any major tax change, is to consult with those very people on the finer details of this, and people will be able to understand that over the next couple of months," said Robertson.
"So obviously, if there are some people who want to take a pause and a breath while that happens, that's fine. We'll have those decisions as soon possible. But I would equally be criticised, Simon, if we rush those decisions and didn't consult with the people."
