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UPDATE 3-New Zealand crash taxes for investors to cool home market

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* Interest deduction was removed for prospective investors

* The bright test for taxation doubled in 10 years

* $ 2.7 billion fund to speed up home supply (Adds comment from opposition party leader)

WELINGTON, March 23 (Reuters) – New Zealand on Tuesday unveiled a series of measures to cool its hotspot market, investing investors in new taxes and promising to boost supply as housing affordability plummeted. low sometimes.

Prime Minister Jacinda Ardern also pledged more support for first-time homebuyers and warned of the next steps to come, with the country’s central bank currently reviewing proposed limits for some types of lending.

The need for further action is clear, Ardern told a news conference. The last thing our economy needs right now is a dangerous housing bubble. But a number of indicators point to this danger.

New Zealand’s success in fighting coronavirus spurred an already hot property market as Kiwis and returning investors parked their funds in real estate, raising house prices 23% in just 12 months, well ahead of wage increases .

Billions of dollars in government incentives and historically low interest rates have further fueled the market, making it less affordable among the 36 rich nations of the Organization for Economic Co-operation and Development (OECD).

Investors are now the largest property buyers in the country of 5 million people, with 40% of sales in the last quarter of 2020 being made to multiple property owners. Last year, 15,000 people bought homes that already owned 5 or more properties.

However, the strong market has also made any changes to politically sensitive housing policy.

In a long-awaited announcement, Ardern doubled the so-called bright line test – the time it takes investors to hold a property to avoid paying tax – to 10 years.

The new measures will also prevent investors from offsetting interest on loans as an expense versus their rental income.

National Opposition Party leader Judith Collins criticized the move, saying more taxes on landlords would only push rents higher and make homes more unaffordable for first-time homebuyers.

The policy was another KiwiBuild, Collins said, referring to a previous project by Ardern to build 100,000 affordable homes that was demolished in 2019.

Fewer houses are built, rents rise, more money and another name, that, she said.

Political courage

Economists and analysts said it was too early to determine what impact the measures would have on the market.

Bold, said ANZ Bank chief economist Sharon Zollner.

There are many people who love their property dearly, and for them basically a tax increase. So raising taxes always requires political courage.

Zollner said some investors may decide to evict the property.

This will have an impact on property demand from here, if nothing else, because the outlook for house price inflation is now downward and the risk of house price falling is increased, she said.

The New Zealand dollar fell 0.3% on Tuesday, to $ 0.7136, and bond yields fell.

Ardern also said the government will accelerate the pace and scale of housing construction with a new NZ $ 3.8 billion ($ 2.73 billion) fund and announced more support for first-time home buyers.

Income limits for receiving financial assistance for housing will be raised to NZ $ 95,000 from NZ 85,000 for single buyers, and to NZ 150,000 from NZ 130,000 for two or more buyers from 1 April.

Restrictions on loans only to speculators’ interests and a proposal on debt-to-income ratios are still being considered, and the Reserve Bank will report back in May.

It’s a good start. Will not arrange overnight accommodation, no policy would have. But it shows the government is listening, said Brad Olsen, a senior economist at Wellington Infometrics-based economic consulting firm.

But the proof is always in the pudding. Will these measures be executed well? The government has always had problems with this.

$ 1 = 39 1.3943 New Zealand Reporting by Praveen Menon; Editing by Steve Orlofsky and Richard Pullin

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