New Zealand seeks to cool scorching housing market with new law By Reuters
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SYDNEY (Reuters) – New Zealand moved on Tuesday to cool its red-hot housing market by introducing rules designed to make property speculation less appealing and improve record low housing affordability, a major issue for the government of Prime Minister Jacinda Ardern.
First announced March 31, the new draft law will allow property investors to deduct mortgage interest from their income taxes. It is one of a series of measures in South Pacific country of 5,000,000.
“Tax is neither the cause nor the solution to the housing problem, but it does have an influence, and this is part of the Government’s overall response,” Finance Minister Grant Robertson said in a statement.
The combination of historically low interest rates, a large amount of government stimulus money, and the relative success of COVID-19 in New Zealand have all contributed to an increase in house prices. Returning Kiwis and investors invested in real property, which has driven up house prices far faster than wage growth.
The OECD nations have the most affordable housing, with house prices rising by nearly 26% year-on-year in August.
In August, the Human Rights Commission of the country stated that the “punishing effect” has been felt by marginalised groups as the commission launched an inquiry into housing crises.
In March, the government imposed new taxes on investors and promised more assistance for first-homebuyers by increasing supply of affordable housing.
Robertson indicated that there are early signs suggesting these policies have helped to reduce investor interest in buying existing houses, thus creating an equal playing field for first homebuyers.
New rules restrict the ability to deduct interest costs incurred by residential property owners for properties acquired after March 27th.
Existing residential properties acquired before March 27th, 2025 would see interest deductions phased out.
These rules don’t affect either the family home or any new constructions.
Ardern, who has enjoyed a rise in popularity after she successfully controlled the spread COVID-19 within the country, is now facing a difficult task in changing the housing policy.
Opposition National Party attacked the policy, saying that it would not reduce prices but rather increase rents. This will worsen the crisis.
Andrew Bayly (National’s Shadow Treasurer) stated in a statement that “This is yet another badly-conceived policy with no real input from tax specialists.” Every landlord will have to pay this additional tax starting Friday.
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