Loss ring-fencing ups war on renters and owners

The largely unreported end of the ability of rental property owners to claim losses against other income shows that the Government is unaware of the scale of the problem it is creating with accommodation, Tenancies War spokesman Mike Butler said today

The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill quietly became law while we were distracted with a Cabinet reshuffle that demoted Housing Minister Phil Twyford.

Under the vague sub heading “Allocation of deductions for excess residential land expenditure”, the omnibus tax Act:

(a) limits a person’s deductions for expenditure incurred in relation to residential land to income derived from the land;

(b) suspends deductions for the excess expenditure for the income year in which the expenditure is incurred;

(c) provides that the excess amounts are carried forward to later income years in which the person derives residential income; and

(d) releases the excess amounts on fully-taxed disposals of land.

Inland Revenue said in various statements that 116,000 owners declared an average loss of $7138 ($137 a week) on earnings in the 2016/17 tax year, bringing an average tax benefit of $2000 a year to each, creating a total cost of $232-million to them.

“The Minister responsible for this, Revenue Minister Stuart Nash, is probably unaware that losses accrue at the first stages of a property investing career, and that as debt is reduced and income increases, investors become taxpayers, with some paying tens of thousands of dollars in tax each year,” Mr Butler said.

“Rental property owners who are losing money now face a choice — raise the rent to cover the loss, absorb the loss to apply it in the future to any profit, or sell,” he said.

“With rents at historic highs it is unlikely owners could add an average extra $137 every week to rents,” Mr Butler said.

“This means owners must choose between hanging on or selling,” he said. “The short answer is to sell, with stand-alone dwellings going to first home buyers.”

“With loss-making owners selling and the prospect of an extended and more fraught period of trading at a loss creating a barrier to new investors, the Minister has just sped up the reduction of the supply of rental property,” Mr Butler said.

“As a result, rents will continue to rise and homelessness will increase,” he said.

The problem for everyone is that the Government is in denial that the policies it is enacting to solve a housing crisis are making the crisis exponentially worse, Mr Butler said.

Labour, New Zealand First, and the Green Party voted in favour on the third reading of the bill on June 20, while National and Jamie Lee Ross voted against it. Hansard has no record of a vote by the ACT Party.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

Retirement project turns into compliance nightmare

About 18 years ago my wife and I started worrying that we weren’t saving enough for our retirement. After reading some books about investment properties, we decided to take a gamble and take on some rental properties in locations close to our home.

Over 18 years, we purchased 9 properties in Manurewa and Takanini, renting these out to families and couples. We manage the properties. We get to know our tenants very well and have been pleased to see several of them move on to buy their own homes. Five of our properties have had the same tenants for more than five years with one couple having been with us for more than 15 years. Through the years we have spent many weekends cleaning, painting, landscaping and doing general maintenance while tenants are in place or between tenancies.

Our properties are two and three bedroom “Universal” type homes, Hardiplank or brick with Decramastic roofs, about 30 years old. Our current rents are $360 to $450 per week, our total income in rents is just enough to cover mortgage repayments, rates, insurance and some minor maintenance.

When it comes to paying for big ticket items, like new stoves, carpets, fencing and kitchen rebuilds, we pay for these out of our own savings from our day jobs. We have had security window catches fitted on all of our properties, so that they can be safely ventilated. Our tenants seem very happy living in our affordable, warm dry homes in South Auckland.

Our homes were all insulated when constructed with 75mm to 100mm blown cellulose fibre (recycled paper). This is globally recognised as an eco-option that is highly effective, with R value of 2.6 per 100 mm thickness, just fractionally under the new level required which is R2.9 for ceiling insulation in Auckland.

They all also had foil underfloor insulation where possible, which provides suitable R value insulation but is no longer in favour due to potential electrical short issues. The new government “healthy homes” legislation requires that ceiling insulation is at least 120mm thick, meaning that all of our previously compliant homes needed reinsulating. We had to sell one of our homes so that we could remedy the rest, which cost between $2400 and $3700 per house.

To add insult, we are told that we are not allowed to claim the cost of this work as an expense against our income. This beggars belief! Clearly the additional expense is only incurred because we are in the business of renting homes. This government mandated expenditure for a small change in insulation value is an unavoidable cost of being in the business of renting, so must surely be deductible? The additional work only provides minimal extra insulation and doesn’t increase the value or resale ability of the properties; to my way of thinking achieves very little for the $24k that we have spent.

Recently we were contacted by MBIE demanding that we send a copy of our Tenancy Agreement and of our Insulation Statement for a recently tenanted property. We were threatened with significant fines if we couldn’t comply, we sent through our documentation and received terse critique of the same with further threats of fines.

We are now facing more costs with the need to install kitchen and bathroom ventilation in addition to significant capacity fixed heating into our already warm, dry safe houses. The cost of this is estimated at $6k to $8k per house, we’ll need to sell another house to fund these upgrades. We have less than two years to get this work done for what will be our seven remaining homes with their 20 – 25 Year mortgages.

If 60 percent of Aucklanders are living in rental accommodation, then it follows that they all have to rent from someone. While undoubtedly there are some landlords who break the rules and take advantage of vulnerable people, we suggest that the vast majority of landlords are simply hard-working members of the community trying to save for their retirements and for their families.

The almost daily landlord-bashing stories in the news media leaves us feeling like the scourge of society, the ongoing interference in our relationships with our tenants is pushing us to sell all of our properties and get out of the business. Our existing tenants can’t afford to buy their own homes, where will they live once we exit the market?

Dale Young,

AUCKLAND

The crisis the Housing Minister created

A report yesterday of a woman, 86, moving because of a 73 percent rent hike illustrates the crisis created by Housing Minister Phil Twyford, Tenancies War spokesman Mike Butler said today.

This story of a property being sold with the new owner hiking rent from $150 a week to $260 provides evidence of the consequences of Mr Twyford’s agenda that he refused to accept – that owners would sell and rents would rise.

The new owner said that the property needed work to be brought into line with the “healthy homes” standards, which was something he “supported”.

The new owner phrased his comment as if he had a choice, Mr Butler said.

In fact, rental property owners have no choice. They either comply with the standards that were imposed by regulation and include penalties of up to $200,000 for non-compliance, or sell, he said.

The out-going tenant did not say whether or not her flat was cold and damp, as the Minister alleged all rental properties were. Her only objection was the rent hike, Mr Butler said.

The property looks like a 1970s construction which may already comply with the 1978 insulation standard which achieves the greatest heat-loss prevention, he said.

The main justification for Mr Twyford’s standards was to prevent the hospitalisation each year of 6000 children for housing-sensitive illnesses.

As a one-bedroom flat, the flat under discussion would be unsuitable for children; this illustrates the short-sightedness of setting requirements for 588,700 properties for the supposed benefit of 6000, Mr Butler said.

Mr Twyford has created a new housing crisis and now both owners and tenants are paying the price, Mr Butler said.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

See CHB 86-year-old moves out https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12238724

Build-to-rent another expense for taxpayers

If Housing Minister Phil Twyford could do a few basic calculations, he would know that the “build-to-rent” proposal he is looking at would require substantial Government financial support and guarantees to get off the ground, Tenancies War spokesman Mike Butler said today.

Mr Twyford on Wednesday proposed encouraging more build-to-rent developments, involving Crown land, to be run as private rentals, and to serve as high-quality longer-term rental stock.

He has acknowledged the need for more rental property but apparently does not want the Mum-and-Dad taxpayers who own most of New Zealand’s 588,700 rental properties to do it, Mr Butler said.

Smaller rental property owners are adding more stock by way of infill housing but the high cost of land makes larger developments unviable, he said.

For instance, total annual upper-quartile rent on a 600-square-metre development of six two-bedroom flats in Hastings would be $109,200, according to market rent data lodged with Tenancy Services.

The cost to build at a national average of $2000 per square metre would be $1.2-million. The cost of land may be $700,000 for 1000 square metres.

Interest payments on a $1.2-million loan at 5 percent are $60,000 a year, which leaves $35,397 to pay for land, as well as fees and permits, administration costs, ground work, a BRANZ levy, and development contributions, as well as annual running costs of $8654 for rates and $5149 for insurance, plus repairs, plus costs of changing any tenancy.

This is all before any payments towards reducing the substantial debt without any margin for an increase in interest rates.

In other words, Mr Twyford’s proposal is not viable without substantial top-ups with taxpayer money, Mr Butler said.

Expensive rental property standards, tinkering with tenancy law, ring-fencing of rental property losses, and the end of letting fees have reduced rental property supply and hiked rents, he said.

Mr Twyford’s government has damaged a rental property system that operates largely without cost to the government and with a benefit to the government of tax revenue, Mr Butler said.

Irrationally, Mr Twyford appears to want to replace that low-cost fully functioning model with a high-cost new model that relies on financial support for the government, Mr Butler said.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

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