Private property issue #106 - Should Christopher Luxon lower his rent?

Should Christopher Luxon lower his rent?

The government has just changed the tax rules. So, property investors will pay less tax.

Some journalists frame this as a “reward” or “tax break” for property investors.

On Q+A, the prime minister was asked:

Jack Tame: “Are you going to lower your rent on the properties you rent out?”

Luxon: “Um, it’s not about me, Jack.”

Jack Tame: “No, but you’ve said that your settings are going to lead to lower rents”.

Luxon: “What I’m saying to you is we’re going to be putting downward pressure on rent.”

Jack Tame: “.... so will you be lowering yours?”

Luxon: “It’s not about me, Jack. I don’t know, I haven’t thought that through…”

So, should the prime minister lower his rent? Let’s talk about the morals and the numbers.

Property investors increased rents by 20% since the rules came in

Some investors say they didn’t increase their rent when the harsher tax rules came in.

So, if investors didn’t raise rents when the rules came in … they shouldn't lower their rent when the rules change back. Right?

Makes sense. But rents have gone up. The median rent is up 20% since the rules came in (March 2021).

That's about $100 a week. The median Kiwi now pays $600 a week in rent (up from $500).

To fully recoup the tax, investors would need to raise their rents by 25% by 2025.

So you’d be forgiven for thinking that property investors did pass on the tax.

But that’s not the whole picture.

Property investors also faced extra costs

Taxes aren’t the only added cost forced on investors.

Some interest rates have tripled since Labour brought in interest deductibility.

And investors couldn’t pass on all those costs.

An investor who was almost cashflow neutral in 2021 might now have to top it up by $400 a week.

This investor would have had to increase the rent by 148% to stay in the same place.

But rents only went up 20%.

So, like in this example, many property investors took those losses on the chin.

Once you factor it all in, National’s tax changes don’t help investors get further ahead.

It just means that investors are slightly less behind.

So when the rules change, our bank accounts aren’t suddenly flush with cash that can be passed on to tenants. It means we dip less into our own pockets.

One investor told me, "I’ll go from losing money plus having a tax bill to losing money without a tax bill.”

So, should Christopher Luxon (and other property investors) lower their rent?

No. Not in my opinion.

But what do you think? Hit reply and let me know your thoughts.

Genuinely interested to hear what you think.