What the New Zealand housing policy announcement means for you

In March 2021, the New Zealand Government announced a suite of housing policy changes.  

Investors

The biggest impact will be on this group as the government seeks to curb what it called “speculative investing”.

· The bright line test has increased from five years to ten years. The bright line test is the length of time you can hold an investment property without the fear of attracting tax when you sell the property.

· Interest is not tax deductible for any properties bought after 27th March 2021. This has an impact on how much you’ll pay to service your investment property.

· If you have investments bought before 27th March, your ability to deduct tax on interest will reduce over the next four years and then it’ll no longer be tax deductible.

· The details aren’t clear yet, but new builds will be exempt. The bright line test for newly built properties will stay at five years and there’s an indication that interest will still be tax deductible– this will be clarified in the coming months.

Though property remains a good investment, these changes make property investment slightly less attractive than they were before (and that's largely the intention).

Owner-occupiers

If you own the home you live in, there’s nothing to really worry about here.

· Property prices might not increase as dramatically as they have in recent years, but it doesn’t look like they will reduce either.

· It’s not clear yet, but if you decide to rent your home out for more than 12 months, it looks like you might be subject to the bright line test for every year your property is a rental.

Renters

It’s unclear what will happen, but it is hard to imagine that the housing policy changes won’t affect renters in a few years.

· There’ll be less rentals in the market as more home buyers will have access to grants and loan schemes and first home buyers will have less competition from investors. 

· Investors will have lower returns with higher tax to pay, so many will increase rent to offset this.  

In short: watch this space. Fundamentally, the government’s intent was to make things easier for first home buyers, not to make things harder for renters. There may be other policies in place soon to prevent negative effects on renters.

First home buyers

The main intent of the housing policy announcement was to make the market easier for first home buyers to get into.

· A higher income threshold means more people are able to access grants.

· Caps have been increased, so you can now access a loan scheme at a higher value than you could before. This means you might be able to look at higher value properties, and you’ll have more options in the market.

Other impacts of the housing policy

There’d been a lot of talk about interest rates rising over the next six months. But this announcement is likely to push out any increases in interest rates.

In fact, Westpac have announced that interest rate increases are off the table for the foreseeable future. So it looks like low interest rates will continue for a wee while longer.

What the housing policy announcements mean for you will depend on your individual circumstances. If you’re a Become Wealth client, keep calm and carry on. We design financial plans with changes in the market in mind. We’re comfortable with everything we have in place for you, but you’re always welcome to give us a call if you do have any questions.

If you don’t have a plan in place, it’s important to think about what you want to achieve in life in the short, medium and long term. Make sure you have clear goals. Pick up the phone and chat to us – we can do a 30-minute Financial Health Check, where we’ll do a sense check of where you are now and what you could consider doing in terms of a financial plan.  

Remember, this article is general in nature and not advice. Final decisions are up to you and it’s important to get individualised advice before changing your financial plan.