First-home buyers are the big winners in a major housing sector shake-up that is tipped to reduce competition with deep-pocketed investors for sought-after properties.

But rental groups fear new measures targeting landlords will force rents higher for thousands of the nation’s poorest families – putting home ownership even further out of reach.

A suite of changes announced yesterday by the Government are designed to tackle the country’s runaway housing market.

They include:

• Extending the brightline test from five to 10 years, meaning those who sell a house other than their family home within a decade will have to pay tax on the capital gain.

• axing a tax break that allowed investors to claim home loan interest repayments as a business expense.

• pouring $3.8 billion into a scheme to accelerate infrastructure supply, such as vacant land, for new homes.

• allowing the Kāinga Ora housing agency to borrow a further $2b to buy land for housing.

• lifting the First Home Grant caps from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers.

• raising the price threshold for eligible houses by up to $100,000 in some parts of the country.

Prime Minister Jacinda Ardern argued the changes would help more first-home buyers into the market by curbing “rampant speculation” that was helping to fuel booming house prices.

And while some first-home buyers stood to win from reduced competition from investors, the new measures still did little to help other would-be property owners save for a deposit, one buyer group said.

Economists warned the economy could take a hit if investors sold up or avoided buying rental properties altogether as a result of the tax changes, and both rental groups and the Real Estate Institute said the shakeup could create a rental shortage driving rents even higher.

Westpac economists are tipping house prices to fall as the changes have a “chilling effect on investor demand”.

“We estimate that house prices could settle around 10 per cent lower over the long term,” acting chief economist Michael Gordon said.

Skyrocketing house prices have defied earlier predictions of a Covid-19-led fall to enter one of the biggest booms in the past two decades.

Auckland’s median sales price soared to $1.1m in February, jumping almost 25 per cent year on year.

National prices climbed 23 per cent to $780,000.

Much of the price boom had been fuelled by record low interest rates.

The Government’s changes aimed to curb price growth and slow investor activity.

National leader Judith Collins pounced on the brightline test extension.

She accused the Government of breaking its promises after Finance Minister Grant Robertson ruled out tougher brightline restrictions in September.

Nick Goodall, head of research with analysts CoreLogic, said the most influential change was the axing of interest deductions on rental properties.

It meant property investors could no longer claim home loan interest repayments as a business expense – a benefit that helped them reduce their taxable income.

Andrew King, NZ Property Investors Federation president, said the Government’s “crazy” change had blindsided investors.

He said rents often failed to cover the cost of managing a rental property. If investors couldn’t offset that as a business cost, many would be unable to afford their repayments and forced to sell.

“When you’ve just bought a rental property, the cost of the mortgage is the biggest single cost for an investor. This will add a huge amount to the cost of providing rental property.”

However, Revenue Minister David Parker said the ability of investors to write off interest repayments had led debt-driven residential property investment to become favoured over more fully taxed and productive investments.

“To reduce investor demand for these investments, the Government will remove the advantage investors have over first-home buyers,” he said.

Matthew Gilligan, director at Gilligan Rowe & Associates accountancy, said the Government was making one rule for residential investment and another for all other businesses.

He said he didn’t know of any other business where interest repayments couldn’t be claimed as a business expense.

The Government’s decision also went against its own Treasury advice which opposed scrapping the tax break and recommended extending the brightline test to 20 years.

Ashok Jacob, a Renters United spokesman, said the Government’s package did little to help about a third of New Zealanders who rented.

“It’s possible rents could rise as a result of this. I’m disappointed that the Government has not addressed the concerns of that large sector of the population because it’s more than one million people and growing daily.”

Lesley Harris from the First Home Buyers Club welcomed moves to open the First Home Grant to more people but said the small changes would benefit few buyers.

Those wanting to secure the grant in Auckland, for instance, needed to either buy an existing home for $625,000 or less or a new-build home for $700,000 or less.

“Good luck finding that,” Harris said.

She said the biggest problem first-home buyers faced was getting a deposit and getting lending from the bank.

Couple make use ofthe First Home Grant

Shontelle Hira and husband Henare purchased their new-build Tauranga home last year using the First Home Grant.

The couple found it hard to find a home below Tauranga’s then new-build First Home Grant price cap of $550,000 and the impending cap increase to $600,000 would have allowed for “a bit of wiggle room”, Shontelle said. “There wasn’t really anything left in that $550K bracket that was brand new,” she said.

Shontelle worked for a developer and when a buyer pulled out of a deal for a $550,000 new build with her company, the couple jumped in to take over the purchase.

“For us, in October, if that had of been what we could’ve used, yes it would’ve helped us immensely because the house we got was the last package at that price in the whole of this area. If [the cap] had been up a bit more, we would’ve had a little bit more to choose from.”

She said it will still be hard for first-home buyers despite the increase. “It is better because at least [the caps] have gone up because that’s the way the market is moving but it’s severely under. I couldn’t tell you anything at that price cap that a first-home buyer could buy if they are wanting to use [the First Home Grant].”

“Toning down investor appetite is not going to fix that,” she said.

“It could be said that it is going to make the rental market tougher, and therefore tougher for people to get a deposit together given the rents will potentially be higher.”

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