Our take on the latest Economic and fiscal update (Tue 23 Mar 2021)
$3.8b Housing Acceleration Fund announced
Bright line test extended to 10 years
Interest deductibility removed from housing investment
The key numbers...
- The government has announced a housing package that targets both demand and supply-side elements of the housing market, including infrastructure spending, regulatory changes, and tax changes.
- A $3.8b Housing Acceleration Fund will be establishing to increase the amount of “build-ready” land available, with the contestable grant funding available to help local councils, iwi, and private developers get construction moving quicker. Kāinga Ora will also be allowed to borrow an additional $2b for housing developments.
- Tax changes will see the bright-line test for taxing capital gains on investment property extended to 10 years, with an exemption from this extension for new builds. Interest deductibility for housing will be removed immediately for new investors and phased out over the next four years for existing investors.
- Changes to the First Home Grant scheme will see both house price and income caps raised to better reflect both higher house prices generally and the difficulty of saving a deposit at current income thresholds.
Runaway house prices prompt action
Annual % change, REINZ House Price Index
...and our reaction
- Today’s housing announcement is a good start to addressing the housing crisis. There’s still a lot more to do in the housing space, but the increased infrastructure funding shows the government is listening when it comes to addressing supply-side housing issues.
- The Housing Acceleration Fund starts to address concerns across New Zealand that the cost of infrastructure for housing developments has been difficult to fund, leaving land unconnected, and slowing down the ability to build. The government’s focus on unlocking “build-ready” land will help progress be made in this area.
- Changes to the bright-line test and removing interest deductibility will make investors reassess their thinking, with the intention of limiting investment activity. These restrictions on investors, coupled with the support for first home buyers, will screw the scrum away from investors and towards those purchasing their first home.
- Fixing the current housing crisis isn’t going to be fast, and there are risks that some of today’s changes have unintended consequences. But the risk of not doing anything outweighs the risks from today’s changes.
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