The removal of mortgage interest as a tax deductible expense for property investors with older existing property is already starting to affect rental property.

Property Investors Federation executive committee member Tim Horsbrugh told parliament’s Finance and Expenditure Committee at the end of last year that although the government’s objective of removing interest deductibility was to improve affordability for first home buyers by knocking back investor demand for existing housing, this has not happened.

“Instead, the shortage of rental property has been made worse, leading to higher levels of homelessness, reduced availability of rental property and higher rents.”

He said by allowing large build-to-rent developers, investors and operators to claim mortgage interest as a deductible expense if they allow tenancies of 10 years flies in the face of private investors being able to do the same through a plan the federation has already put to the government and other political parties.

The plan to fix the rental crisis includes a new long-term tenancy option in addition to the existing periodic and fixed-term options. This option would then be more widely available to tenants wanting security of tenure. The new tenancy would be for a minimum of three years, allowing the tenant to decorate the property as of right and creating gardens as long as the property is returned to its original state when the tenant leaves. There will be no obligation for the landlords to provide floor coverings, curtains, light fittings or appliances, including stoves. In return for a long-term tenancy, landlords can charge a bond of 12 weeks and tenants must pay all insurance premiums, rates and the costs (both fixed and variable) of services to the property including water).

The suggested terms of the new tenancy option are:
• tenancy term negotiable between the parties, but must be for a minimum of three years
• tenants may give three months’ notice to end the tenancy
• landlords can only end the tenancy for tenant default for rent arrears, damage to the property, illegal activity, antisocial behaviour, property uninhabitable or subject to mortgagee sale. (Landlords cannot end the tenancy to move into or sell the property with a requirement for the tenant to vacate)
• if ending a tenancy for antisocial behaviour or disturbing neighbours, landlords must issue a warning notice describing the antisocial behaviour/ neighbour disturbance (without having to name affected neighbours), making it clear they will end the tenancy if the behaviour/disturbance continues. If the behaviour/disturbance continues, landlords can issue a 90-day notice to end the tenancy
• tenants can decorate the property as of right, but must return it to exactly the same state it was provided in, with no allowance for wear-and-tear unless otherwise agreed to by the landlord
• if practical, tenants can make gardens as of right, but must return it to the state it was provided in at the end of the tenancy, unless agreed to by the landlord
• landlords can charge a bond equivalent to up to 12 weeks rent
• no obligation for the landlord to provide floor coverings, curtains, light fittings or appliances, including stoves. Walls to be painted white at the start of the tenancy
• tenants are responsible for paying all insurance premiums, rates, and the costs (both fixed and variable) of services to the property (including water)
• tenants can only assign their lease with the landlords’ consent or on application to the Tenancy Tribunal on grounds of hardship. Hardship provisions also apply to the landlord. Landlords can prohibit tenants subletting the property.

This option will appeal to tenants who want a rental that is more like their own property while providing compensation to landlord’s for giving up their ability to
terminate the tenancy.