Any hope of large-scale build-to-let development will vanish unless the government rethinks its new tax policies for investors, the Property Council has said.
When the government announced in March that it would phase out the ability for property investors to offset interest charges against rental income, it was unclear what this would mean for the build-to-let sector.
Building-to-rent involves the development of multi-unit residential buildings for long-term rentals, rather than sales to individual owners. It was presented as a solution to the housing supply crisis.
The government has said new builds will be exempt from changes to interest deductibility, but it is still unclear what this will mean for build-to-let developers and investors.
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At the end of consultation on the proposed changes, the Property Council delivered a letter to responsible ministers, warning that the build-to-let sector could be lost unless the government rethinks its approach to getting more buildings built. houses.
The proposed changes did not provide the level of certainty developers needed to build more homes, the letter says.
“They complicate a system that allows legitimate claims for interest deductions and create complex exemptions and rules that incentivize potential loopholes that don’t help add supply to the market.”
Property Council chief executive Leonie Freeman said its members were clear that the proposed changes to the interest deductibility rules would have a “significant chilling effect on increasing large-scale supply and on the beat”.
In particular, the changes could pose a massive barrier to built-to-let developments, she said.
“Not only is there not enough certainty about how interest deductibility will work in the second-hand market, but without a specific exemption, investors will be reluctant to invest.”
There was growing interest in building to let, but to amplify the potential of the emerging sector, the government needed to create the right parameters, she said.
“In our brief, we specifically called on the government to exempt build-to-let developments from the interest deductibility proposal to encourage this dynamic new asset class.
“The feedback we’ve had is compelling: these rule changes will make it much more difficult to unlock the potential of build-to-let.”
The council backed the government in using its full toolkit to tackle the housing supply crisis, but believed the changes would make it less likely that people would help build more homes for Kiwis.
Freeman said the exemption of new construction from the changes was encouraging.
But there were a range of levers the government could use to incentivize the building of more housing that didn’t pull the rug from under developments, she said.
“The government should focus on reforming planning laws, allowing councils to free up more land, supporting local infrastructure development and cutting costs and red tape on new supply to house more Newcomers. – Zealanders.”
In its brief, the council said the government should not go ahead with the planned tax changes but, if it did, it made a number of recommendations about them.
This included several proposals for build-to-rent developments, which she said would unlock the full potential of the model.
One proposal was to create an asset class that viewed build-to-let as a commercial asset rather than a residential one.
A more general recommendation was that original owners of new construction be exempted from the interest deductibility changes in perpetuity and that subsequent owners of new construction be granted a fixed-term 50-year exemption.
The consultation on the tax changes proposed by the government was due to end on July 12.