Housing: Government to double bright-line test and end interest writeoff in war on property speculation, will spend $3.8b on new supply

The Government will double the bright-line test on residential property and spend billions attempting to accelerate housing supply in a huge package of policies aimed at increasing housing affordability.
The bright-line test an effective capital gains tax on investment property will be extended from five to 10 years, meaning profits from the sale of property could be hit with a tax of up to 39 per cent.

It is likely to be extremely controversial as Finance Minister Grant Robertson directly committed to not extending the bright-line test prior to the election.

The old five-year rule will stay in place for any new builds.


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The package will also see $3.8b put into a Housing Acceleration Fund aimed at enabling thousands of new homes by footing the bill for pipes and new roads to support housing development almost two times what was set aside for the failed KiwiBuild scheme.

The income caps for the Governments First Home Grants and First Home Loans will also be raised, allowing more potential first home buyers to access Government help with mortgages.

Robert Kitchin/Stuff
Prime Minister Jacinda Ardern said the package did not have any silver bullets but would help affordability.

Kainga Ora will be allowed to borrow $2b to build more affordable and state housing.

Prime Minister Jacinda Ardern announced the policy on Tuesday morning after mounting pressure to addressing runaway house price growth in the last 12 months.

This is a package of both urgent and long-term measures that will increase housing supply, relieve pressure on the market and make it easier for first-home buyers, Ardern said.

The housing crisis is a problem decades in the making that will take time to turn around, but these measures will make a difference.

INVESTORS TARGETED

Investors are also being targeted with the removal of interest deductibility for residential investment from October 1. At first this would only apply to property purchased after 27 March in four days time - before ratcheting in to apply to all residential property by 2025, although new builds may be excluded.

This means any investor settling on a property after Saturday will not be able to write off their interest costs against the tax on their rental income.

The Government say this will level the playing field for first home buyers competing with investors to buy property.

Robertson said the Government needed to take steps to curb rampant speculation and linked the bright line test to the National Party, who first introduced it with a two-year rule in 2015.

Extending Nationals bright-line test and removing interest deduction loopholes for investors will dampen speculative demand and tilt the balance towards first home buyers, Robertson said.

House price increases of the magnitude we have seen in recent months are not only harmful to affordability, they also present a risk to economic stability. Our plan also encourages investment in new builds. To support our goal of increasing supply, we will keep the bright-line test for new build investment properties at the current five years.

This will give Kiwis a better chance at purchasing their first family home. I want to stress that the bright-line test does not and will not apply to the family home.

The bright line test currently applies income tax rates to profits from houses sold within five years of being purchased, if they are not the main home people are living in.

The tax is paid at people's income tax rate potentially up to 39 per cent on some or all of the profit.

Revenue Minister David Parker said the Government was considering ending interest-only loans and the Reserve Bank were looking at brharapg in to debt-to-income caps for mortgage lending.

As house prices have skyrocketed up 20 per cent in the last year investors have taken an increasing share of the pie, mortgage figures from the Reserve Bank Show. In November and December of 2020 investors borrowed roughly double what first home buyers did.

FIRST HOME BUYER GRANTS EXTENDED

The income caps for the Governments First Home Buyer Grant and First Home Loan will move from $85,000 to $95,000 for single buyers and from $130,000 to $150,000 for two or more buyers.

The property price caps would also raise to $700,000 in Auckland, $650,000 in Wellington and Queenstown, $600,000 in Nelson, Tauranga, Hamilton, and Napier, $550,000 in Christchurch and Dunedin, and $500,000 in the rest of New Zealand.

Housing Minister Megan Wood said these changes will take effect from April 1.

This package of measures will help first home buyers into the market and boost activity and create jobs in the construction sector, as we recover from the impacts of COVID-19, Woods said.

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