From 1 April, landlords will be able to write off 80 percent of their mortgage interest, Photo: 123rf
Landlords will again be able to claim tax deductions for interest on residential investment properties from Monday, but experts aren't convinced it will lower rent prices.
A property economist says reducing costs for landlords may increase competition in the housing market.
The deduction scheme was removed by the previous government, and reinstating it was part of the coalition agreement between National and Act.
From 1 April, landlords will be able to write off 80 percent of their mortgage interest, rising to 100 percent from April 2025.
ACT had initially asked for a 60 percent deduction to be backdated for this past financial year, effectively giving landlords a tax refund.
However, ACT backed down on this, with David Seymour saying earlier this month it was "probably not worth the amount of benefit it would have given".
CoreLogic chief property economist Kelvin Davidson said although it would not necessarily decrease rent prices, it might slow their growth.
When interest deductibility was removed, rent prices did not climb at a faster pace, so its reintroduction would not necessarily bring them down.
"Maybe some landlords might pass through cost savings to tenants, but there's just bigger forces at work," he said.
"The research says rents are driven more by supply and demand, and by tenants' wages, than they are landlords' costs."
However, he said it might encourage more investors into the rental market, which would increase the supply of properties up for grabs.
But this, too, came with complications.
"If you have more property investors, then at the margins you might have fewer owner-occupiers. Those people who are renting and might be thinking about buying a property could potentially find themselves with a bit more competition."
He said it would not necessarily shut out first-home buyers specifically, but it would increase the competition across the board.
Property Investors Federation president Sue Harrison said the effect on renters would not be instantaneous.
She said it would be about two years until the benefits of interest deductibility began to trickle down - and whether rent increased, depended on interest rates.
"Once interest rates ease a bit, that's when you'll see some flow-through," she said.
She said landlords had been struggling to pay mortgages and do maintenance.
"The government relies on private people providing housing, and when they make that hard, the housing's not there, so who actually suffers? It's the renters."
She said she knew of landlords who had sold up, saying running a rental property was just too expensive, and vacancy rates were incredibly low.
She was hopeful the rule changes would encourage more people to buy or retain properties, and then rent them out.