Few carrots for landlords in rental crisis
This week we sold our rental property. It was something of an emotional event, as it had been my first home, then our first home until our little family outgrew it.
It’s a fairly humble home in a humble area, but it’s saved by its location, a jaw-dropping view of the sea. I fell in love with it on the spot.
Rather than sell it, we did what lots of Kiwis do – suck out some equity to buy a new home and rent the old one out.
Twenty years later, we’ve decided to let it go, hopefully to a first-home buyer.
As a landlord, I don’t expect any sympathy. You hardly breathe the word when others don’t have a home.
And it’s true, bad landlords do exist. But we did try to be a good one and take a business-like approach.
Over the years we spent quite a bit of money fixing disasters, and of course, we’ll enjoy some capital gain in return.
But it does bug me that running a rental is still not really viewed as a business, especially as the tax laws tighten.
Chris Leatham, a tax expert with PwC, agrees with me that technically, rental property should be treated like any other business.
In any other business, you can also claim things like maintenance, losses and interest on your mortgage payments.
But it’s also true that the nature of property has given it a couple of big advantages that aren’t really related to tax at all.
For one, banks will lend a lot more on a property than they will for other forms of business.
And two, the capital gains – while not always as stonking as they have been in recent years – are untaxed.
But capital gains are often what makes the hassles of being a landlord worthwhile.
Many rental properties run at loss because there’s only so much that tenants can afford to pay.
The Tax Working Group is looking closely at whether we have taxed income too heavily and capital too lightly.
But in the meantime, successive Governments have skewed the playing field against property, arguing that too much has gone into housing when it could go into more ‘‘productive’’ parts of the economy.
The loss of depreciation, tougher brightline tests and proposed ringfencing have made property investing much less attractive.
From a tax purist’s point of view, Leatham finds these penalties ‘‘unprincipled’’. He’d rather the Government just bring in a full capital gains tax and be done with it.
But if the tax does come in, fairness dictates that property should not be the only form of wealth that’s targeted.
In the meantime, we have to ask what effects these measures will have on our critically short rental market.
If we penalise landlords too heavily, will they go away? It’s hard to imagine that Kiwis will easily give up their addiction to property.
Leatham believes they won’t because the banks have already ensured that anyone still in the game has plenty of equity and is therefore financially stable.
But as the capital gains flatten, I believe some landlords will definitely dip out.
That’s great news for first-home buyers, but it means a shrinking number of rental houses against an ever-growing pool of renters.
There is no single fix to our housing shortage. Ultimately, I think we will finally see the rise of corporate landlords with deeper pockets who can build houses specifically for the rental market.
They are common overseas and it’s well past time they came here.
Ma and pa landlords will always be around, but they’ll think twice now before they leap.
Catherine Harris works for Stuff.