23 Mar 2021

Housing Minister discusses new rules to cool housing market

From Checkpoint, 5:11 pm on 23 March 2021

Housing Minister Megan Woods says providing an increase in supply of properties will help mitigate the risks of homeowners pushing up rents.

The government this morning outlined a package to help first-home buyers, which included various measures like increasing the caps for financial support and extending the bright-line test to 10 years.

The plan also includes a $3.8 billion fund to accelerate housing supply in the short to medium term.

Woods told Checkpoint that the fruits of investing in infrastructure and land would be seen "pretty much immediately".

However, she could not say how much cheaper a house would be for first-home buyers as a result of the package, saying it depended on the kind of property and the region. 

"That will depend. We have to go through a contestable process with a number of councils.

"Some of these will be studio apartments, some of these will be that foot on the ladder for people to get into the housing market."

She said the lift to the income cap and house price cap for a First Home Grant was based on the median of the lower quartile of house prices in any given region, as shown in CoreLogic's 2021 March data.

Existing houses have different cap than new builds.

Ramping up supply along with the financial measures was crucial to avoid fuelling higher prices in the market, she said.

"There's several ways in which we'll do that, some of the supply we'll be able to do on land which we already own, we'll actually be able to increase the intensification we're doing and that work is under way.

"So we'll actually be able to bring in supply quite quickly there. These first-home products are available to a number of people ... but it is still too small a group of people to cause hyperinflation."

The government is pushing its bright-line legislation through Parliament under urgency tonight, with criticism from the other parties

The National Party's Judith Collins accused the government of breaking its promise, and turning the Bright-line test into a "full-scale capital gains tax", while also saying the changes to first home grants and loans did not go far enough. 

ACT leader David Seymour said the bright-line test had made no difference, and was a capital gains tax by stealth. 

Greens co-leader Marama Davidson said there should be no limits on the bright line, calling for capital gains on secondary properties to be taxed no matter how long the property had been owned. 

Consequences on rental properties

In the announcement this morning, the prime minister said 40 percent of properties purchased in the last quarter of 2020 were by investors.

As well as increasing the bright-line test - which sees investment properties sold within a set time taxed on the capital gains - to 10 years, the government will remove the ability for property investors to offset their interest expenses against their rental income when calculating tax.

Woods said this was intentionally carved out in a way to help boost new supply, which would alleviate the risk of rent hikes.

She said the biggest driver of rent increases was when there was less supply than demand, but this measure should send a strong signal to investors that they should be part of the solution.

"This is the first time in a generation that we're seeing a package that is about bringing on supply and consciously looking on the supply of affordable rental properties - we have left it to the market, it hasn't delivered that - this package is doing this and it is addressing those fundamentals which are leading to an increase in rent."

The Treasury recommended increasing the bright-line test to 20 years, saying 10 years would be same as status quo. Woods said they were looking for a balanced approach.

"As a Cabinet, we looked at it as a package, [rather than] just single measures."

She said it would be impossible to give an exact figure on how much tax would be collected as a result.

"Bright-line isn't a category of tax, bright-line is just income tax ... so it is not recorded as a separate category, it's just recorded as part of income tax take.

"What I can tell you is I'm confident that Inland Revenue has the systems and processes to ensure a high level of compliance, but we also continue to engage and monitor what happens there."