What the government’s housing plan means for you

The nuts and bolts of the government’s housing plan.

21mar what the govts housing plan hero

Last week, the government announced its plan to tackle the country’s housing crisis. The changes are intended to tilt the playing field towards first-home buyers and away from investors.

The key changes:

  • Increase the income cap for the First Home Grant and First Home Loan schemes
  • Double the “bright-line test” from five to 10 years
  • Remove the ability for property investors to offset mortgage interest against income tax.

What it means for you

Trying to buy your first home?

The income cap has risen for the First Home Grant and First Home Loan schemes from $85,000 to $95,000 for single buyers and from $130,000 to $150,000 for two or more buyers.

The First Home Grant gives buyers $5000 to buy an existing house or $10,000 for a new build. The First Home Loan allows first-timers to apply for a mortgage with only a 5 percent deposit instead of the 20 percent lenders usually require.

The price cap on houses that can be bought through these schemes has also been lifted. The cap differs between regions and whether you’re buying an existing or new dwelling.


Thinking about buying an existing house and renting it out?

You’ll now need to hold on to a house for more than 10 years if you want to avoid paying income tax on the profit when you sell. That’s up from 5 years. The move is meant to make flipping properties less lucrative.

You also won’t be able to offset your mortgage interest against rental income as landlords have previously done.

Landlords have been able to subtract the interest they pay on their mortgage from rental earnings and only pay tax on the income left. This tax break is being phased out. From 1 October 2021, interest deductibility won’t be allowed for investment properties bought on or after 27 March.

Interest deductibility will be phased out for other existing investment properties over the next four years.

What about if I invest in a new build to rent out?

You’re the type of person the government wants to encourage. The new-bright line rule doesn’t apply to you – you’ll only pay income tax if you sell within the first 5 years of owning the house.

The government will also be consulting on exempting new builds from changes to the mortgage interest deductibility rules.

Already own an investment property?

The changes to the so-called bright-line test apply to property bought on or after 27 March 2021.

Property purchased between 29 March 2018 and 26 March 2021 will continue to be subject to a 5-year bright-line test – so you’ll only pay income tax if you sell within the first 5 years.

I’m a renter. Will it affect me?

The changes for landlords mean owning a rental will no longer be as lucrative. Some landlords may try to hike rents to make up for the financial hit.

Since 12 August 2020, rent increases have been limited to once every 12 months, up from every six months. The law doesn’t limit how much rent can be increased by. However, you can apply to the Tenancy Tribunal if you think your rent is a lot higher compared with similar houses in the same area.

The tribunal can make an order for the rent to be reduced if it finds you’re right.

Stay in the know

Keep up-to-date with Consumer's latest news, investigations and product and service reviews, plus join the Consumer panel with invitations to take part in surveys.

Member comments

Get access to comment

Annie T.
03 Apr 2021
Annie

I own a second property which I currently rent. This only came about through having to move for my job and being mortgage free in the first instance. I could have rented in my new location but I did not want to pay some landlords mortgage while they profited. The current sweet deals for landlords pushed me to make this decision to own a second home. But honestly I would rather invest in something that created employment, put NZ on the world stage and was an ethical enterprise than be a landlord.
Perhaps these changes will encourage landlords to sell their rental investments look at investing in other enterprises and sell their rental properties to some first home buyers.
Just a thought.
Smart move Labour.

Lisa C.
03 Apr 2021
Bright line discourages landlords selling

Unfortunately it’s not sensible to sell your rental if you are having to pay income tax on it under the bright line rules.

Glenn M.
04 Apr 2021
I’m alright Jack

Rarely will one ever see such a self serving comment with such self justification. Labour will come for farmers next, then sole traders, then slowly remove 100 years of legal business deductions, destroying businesses in their destructive wake. They are coming for your two homes too, you’re just not aware that you are their perfect cashed up target. They want everything you’ve worked hard for, just to give to those who haven’t thought to save as much as one dollar for tomorrow.

Simon E.
04 Apr 2021
Reply to Glenn M

What a load of nonsense. If you can't see that every move the labour government has made here, is to slow the property market down without penalising a broad range of people, well then you are not looking in the right place. No one is coming for your cash under your bed, this is very specific sensible government.

Raymond S.
04 Apr 2021
Smart move really?

There is a shortage of housing including houses for renters. As renters are generally the lower income group I fail to see how moving homes from the rental supply to home owners is a moral thing.
Peoples hate and envy of landlords is blinding them to the increased hardship this will cause those poor people trying to find a rental home.

Mr MICHAEL DOLAN
03 Apr 2021
Interest non deductibility

I'm at a loss to understand how the Labour government can make this legal, and workable. Interest payments are deductible for all other businesses, why not property? How will this affect short term rentals such as bed and breakfasts etc?
Also, if your business is renovation and 'flipping' you're already liable for income tax on your profits. Or if you sell within 5 or 10 years. This is an extra tax that is poorly thought out and unnecessary.
This non deduction is going to hurt businesses already damaged by Covid 'control' measures, and push some to insolvency.
What is Consumer doing to question or challenge this added burden?

Connor M.
03 Apr 2021
Income Tax for Intent

There is an important law that this article has omitted: regardless of the bright-line periods, if you buy a house (not your "family home") intending to sell it for a profit, you have to pay income tax.

Cathy B.
03 Apr 2021
Anti-landlord

Your comment saying "This tax break is being phased out." annoys me. The claiming of interest on the purchase of a business asset is not a 'tax break'! This interest is a valid business expense & now landlords are penalised compared to any other business. I'm surprised Consumer has bought into this anti-landlord retoric.

B & L A.
04 Apr 2021
Anti-landlord

Well said Cathy B. I suspect this move will be contested in court. Maybe Consumer should instigate such action?

Glenn M.
04 Apr 2021
Consumer drinks the government Kool Aid - without a hesitation or investigation of tax law

Over 100 years the tax laws of the whole world have encouraged enterprise, job creation and investment in growing businesses to grow the GDP! Buy more equipment, employ more people benefit the nation with the resulting services and goods. Now they have turned on the heat and will slowly be adding new business sectors as ingredients into their envy tax-take soup cauldron until every last business has been consumed and they will not be happy until they can rename us New Venezuela. One thing is for sure, they are coming for you. You have been warned.

Greg M.
04 Apr 2021
Enough ranting Glenn

That's enough wild, baseless ranting for one day Glenn. Aotearoa NZ is about as far removed from Venezuela as you are from reality my friend.

Lynette B.
03 Apr 2021
Limits on rents

Why not limit rent increases to no more than the CPI?

Mr MICHAEL DOLAN
03 Apr 2021
HNZ rent increases

That's exactly how Kainga Ora adjusts their private ownership leases.
Via an annual CPI Increase (or decrease) This is sometimes quite out of line with the market rate.