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Coalition Government: Growing our rental market

A friendlier environment for property investors and a new policy for pet-owning tenants too.

By Gill South 31 October 2023

The new coalition Government is reversing two current housing policies to improve conditions for property investors and, it believes, boost Aotearoa New Zealand’s rental market.

Under the former Labour-led government, mortgage interest deductions on residential rental properties were either denied, or were being phased out, adding to landlords’ annual tax bills.

The newly formed coalition Government is restoring mortgage interest deductibility for landlords in phases over the next couple of years.

  • In the 2023/2024 tax year: 60% of interest cost will be deductible
  • In the 2024/2025 tax year: 80% of interest cost will be deductible
  • In the 2025/2026 tax year: 100% of interest cost will be deductible

Meanwhile in the coming year, the time frame of the bright-line test will change from 10 years to two years under the new Government. At the time of writing, this change is expected to come in from July 2024. The bright-line test rules that if you sell a residential property that’s not your main home within a certain time frame, you’ll have to pay income tax on any gains you make.

The bright-line test was first introduced to disincentivise short term property investors from buying homes, doing them up and flipping them. In 2021, the Labour-led Government extended the bright-line test time frame from five to 10 years.

The reduced time frame of the bright-line test may lead to investors selling properties they no longer want or can afford. Meanwhile, the phased return of mortgage tax deductibility may lead to property investors adding to their portfolios once more, although their biggest constraint in the current market remains relatively high interest rates and low yields.

Tenancy law changes affecting tenants and landlords

In another policy change in tenancy law likely to please property investors, the coalition Government is reintroducing no-cause terminations to property leases. Landlords will simply have to give tenants 90 days’ notice before terminating their lease. They will no longer have to produce a ‘valid reason’ for terminating the lease.

Notice periods on leases have also changed under the new Government. A tenant will now only have to give 21 days’ notice if they wish to move from their rental, while landlords will need to give 42 days’ notice before they go to sell the property.

And in a bid to make it easier for tenants to have pets in their rental homes, pet bonds are now being introduced where tenants will pay an extra pet bond on top of their usual bond, to cover any damage that’s done by a pet during the tenancy. It’s hoped that this will encourage more landlords to allow tenants to keep a pet at their rental property.

The Government is also ending the automatic roll-over of fixed term tenancies to periodic tenancies. At the moment a fixed-term tenancy has an end date that’s been agreed. If this fixed term ends and neither party gives notice, the tenancy automatically becomes periodic, in other words has no set end date. The new Government believes these steps will make rents less likely to rise as they’ve been doing in recent years.


Gill South
Gill South