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Tax changes will affect tenants

Tax changes will affect tenants


The arguments for a Capital Gains Tax (CGT) have so far focused on tax equality, increasing tax revenue and reducing house prices. The Labour Party must have undertaken research into the effect on rental prices of their tax policies, but this hasn't been made public in the campaign yet.

The NZ Property Investors' Federation (NZPIF) has studied the potential effects of both a CGT and ring fencing rental property losses. These two policies will have a direct and major impact on rental prices.

The NZPIF figures show that the cost increases of these two proposed taxes on the average rental property will be around $100 per week, most of this coming from ring fencing rental property losses.

It is difficult to predict what effect this will have on rental prices. However Andrew Coleman from Motu Economic and Public Policy Research said "a capital gains tax will lower returns to landlords, and, for a given level of house prices, rents will be higher than they would otherwise have been."

There is no doubt that a proportion of the proposed tax increases will be borne by tenants through higher rental prices and more overcrowding.
In deciding if it is worth asking tenants to pay this price, we need to carefully analyse the benefits expected to be gained through increased tax revenue and lower house prices.

ENDS

Notes to Editors.
The NZ Property Investors’ Federation (NZPIF) is the only national voice representing private owners of rental properties. Twenty associations around New Zealand are affiliated to the NZPIF and these represent 3,000 memberships and 7,000 members.

The NZPIF has done the following analysis.
Using the latest REINZ and Tenancy Bond Centre data available, the current median dwelling is worth $427,000 and would rent for $450pw.
After accounting for expenses and current tax laws, it would cost a rental property owner $6,005 in the first year to provide this property as a home for a tenant. This is a large cost.

If a CGT was introduced, then the return to the owner would be reduced. Assuming property prices increase on average by 2.5% a year, then the lost return per year would be $1,683 if the property was sold in five years, $1,794 if sold at 10 years and $1,914 if sold at 10 years.

On a weekly basis, this would equate to between $32 and $36 or around 7.5% of current rental prices.
If ring fencing of losses was introduced, the first year’s cost of owning a rental property would increase from $6,005 to $9,971. This equates to a $77pw loss of cash flow which is 17% of current rental prices.

Link to the quoted Motu Economic and Public Policy Research - http://www.victoria.ac.nz/sacl/centres-and-institutes/cagtr/twg/publications/3-long-term-effects-of-cgt-coleman.pdf

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