Massive Tax Incentives Announced For Property Investors - If They Choose

LM b W

Laine Moger

Journalist and Property Educator for 6 Years

Thousands of Kiwi families are still currently living in motels, waiting on a seemingly endless list for public housing.

In an unusual move the government is now reaching out to private property investors to help solve this national crisis.

Long-time labelled as profiteering landlords, private property investors are set to receive a tax incentive if they help the government solve this social housing crisis.

In this article we go through the new tax deductibility laws and the tax incentives for those who chose to rent to a social housing provider. We’ll also go through what you need to think about if you’re considering renting to the public housing sector.

Important to note – we’ve had investors who are wary of renting to public housing. Some worry that if they rent to Kainga Ora/Housing NZ their property will be rented by gang members and drug addicts. While there naturally is some crossover, it is important to park our stereotypes to one side and weigh the facts accurately.

Tax Incentives

What Are The Tax Incentives To Rent Through “Public Housing”?

The new interest deductibility law, announced in late September, stated that if a property investor rents their house through public housing they’ll have access to special tax incentives.

This news has turned heads in property circles.

So what are the incentives? The government is changing how property investors’ tax is calculated. Before the changes came in, calculating your investment property’s taxable profit would include your interest costs as a taxable expense {link}.

This is no longer the case. Interest cost is now left out of the equation. So, you’re property looks more profitable (to the IRD) and you pay more tax.

But any investor who rents to public housing can still calculate their tax under the old rules. So they will pay significantly less tax.

For example, an investor with a $700,000 mortgage could save up to $7,000 a year if renting through the public housing system.

That’s why many investors are now considering a move to rent their properties through Kainga Ora (formerly Housing New Zealand) or through a registered housing provider.

However, while investors are desperate to find a way to get around this hefty new tax, many might pause at the thought of renting their investment to social housing. Stereotypes abound at the thought.

Is it a good idea?

How Does It Work?

Let’s Break Down What Exactly Public Housing is. Who Will You Rent To?

It is important to know that not all social housing is provided by Kainga Ora. While you might think they're the same thing – they’re actually different.

“Public housing” can be broken into two groups.

There is ‘state housing’, which is organised through Kainga Ora.

Then, there is community housing, which is provided by Registered Community Housing Providers.

While Kainga Ora may be better known, property investors can qualify for the tax exemption by using either organisation.

The names of Community Housing Providers are already well known to you. They include the Salvation Army and Auckland City Mission, as well as other, lesser-known housing providers, like Link People.

Community Housing Providers

Where Are The Community Housing Providers?

There are currently 62 registered community housing providers around the country: 30 in Auckland, 10 in Wellington, 4 in Christchurch and 1 in Hamilton.

Check the Registered Community Housing Register for the latest list. Here are the providers who are listed at the time of writing –


What Are The Pros To Renting My Investment Property To Public Housing?

It’s not just tax incentives that cause property investors to consider switching to public housing.

Community Housing Providers often don’t charge property management fees. This means an additional 8-12% savings on the rent percentage they would usually pay to a property management company.

Not only that, Community Housing Providers will often pay the property investor rent, even if the house is empty.

For context, investors usually budget for 4-6% of the year where their property is empty and receives no rent (i.e. vacancy).

It’s also important to remember that you don’t get less rent if tenanting your property through social housing providers.

Community Housing Providers pay you the same amount of money you would get if renting on the private market.

These factors combined are tipping the scales in favour of social housing – especially if investors’ property isn’t covered under the New Build exemption.


What Are The Drawbacks To Renting My Property Through A Social Housing Provider?

Property investors are more than likely going to be aware of the drawbacks associated with renting through a Community Housing Provider.

First, you don’t have a choice over who your tenant is compared to renting privately.

Secondly, some tenants are naturally going to have a range of social issues or problems. This could negatively impact your property if the tenants are disrespectful or aggressive.

This fact alone might be enough to scare some investors off. For others – especially investors with smaller portfolios – the financial incentives may be enough to make the switch.

While social housing providers pay you the market rent today, you do have to be wary if signing on for a long-term commitment.

For instance, some investors have signed 10-year contracts with Housing NZ in the past. And while the rent was at the market level at the start of the contract, sometimes the ability to increase the rent was stymied by the contract.

In practice this means rents in the broader market went up more quickly than the public housing contract allowed.

So, while investors might not have started earning less rent than they could have received in the private market, they gradually earned less over time.

This depends on the contract you sign. If it’s shorter term and not locked in, you might be OK. If it’s longer term, then make sure you go through it with a fine-tooth comb.


Whichever way you decide, it’s also important to note the legislation has not yet been passed through parliament and is not yet law. The rules could yet change through the select committee process.


What Sort Of Housing Is Required? It’s Not A Free-For-All.

While we understand that community housing providers are crying out for properties … it’s not as straightforward as: “Here, use this house of mine”.

Community Housing Providers won’t just take any property an investor wants to offer them.

The houses have to make sense for the people who are in need of property right now.

And this can be influenced by which city the property is in, how many bedrooms it has, or the type of access.

For example, of the 24,474 people currently on the social housing register, 49.2% require a 1-bedroom property. 31.2% require a 2-bedroom property and just 13.8% need a 3-bedroom property.

Similarly, the demand for social housing changes depending on location. There are currently just over 5 social houses needed per 1,000 people in Auckland.

But in Waimate, in South Canterbury, there are only 12 houses needed in total. That’s 1.54 houses required per 1,000 people.

What does this mean?

It means if you have a 1 or 2-bedroom property located in Auckland, you have a better chance of renting through a Community Housing Provider, compared with if you have a 4-bedroom property in Waimate – where no 4 or 5 bedroom properties are required.

Even so, not every 1-bedroom property will be appropriate for every tenant.

Some tenants have specific needs, for instance wheelchair access. This might make it harder to rent a property with stairs to a Community Housing Provider compared with a property that doesn’t.

If you’re a property investor who is considering renting through social housing, you can find the full list of properties required through the social housing register.

Use the data to see whether the property you have is needed in the community where it’s based.

You can also find a registered Community Housing Provider in your area through the Community Housing Regulatory Authority register. Get in touch and see what sort of properties their tenants need right now. They’ll be grateful for your call.

What About The Government?

Do We Really Need Landlords? Why Can’t The Government Provide Rentals?

One good thing about this change – other than the fact that investors have an option to decrease the tax they pay – is that it recognises property investors can be part of the solution.

The government has struggled to build and find all the properties needed to house our country’s most vulnerable.

Incentivising and calling investors to be part of the solution has multiple benefits as it solves a social problem by using private capital.


Final Thoughts...

While there are clear financial incentives to now rent to social housing, the decision on whether to do it or not is often emotional.

Some investors wouldn’t touch social housing with a bargepole. They worry about the quality of tenant and the potential impact on their property.

But on the other hand, here at Opes Partners, we often get texts and emails from investors who happily rent to a Community Housing Provider.

These investors not only enjoy the financial incentive, but also feel like they’re doing a good thing for those who might otherwise struggle to find good accommodation.

Here at Opes, as long as it doesn’t stress you out, we’re open to it. This may be a way to keep your existing properties that you might otherwise be forced to sell. Just keep an eye on the contract to make sure you’re able to increase rents to the market rate.

LM b W

Laine Moger

Laine Moger has been a journalist and reporter for the last 6 years. She previously worked for Stuff, The North Shore Times and Radio NZ. She has a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism.