Timely rental tax change may help not harm

Will rents go up if the Government moves against property investors? Unlikely, suggests Peter Lyons, who nonetheless counsels against sudden or radical change.

I was watching the evening news the other night.

The first item showed how shoddy economic arguments can be used to suit vested interests.

The article featured landlords concerned about possible tax changes.

Landlords are worried about not being able to claim for depreciation on buildings and losing the ability to offset losses on rentals against other sources of income.

The Property Investors' Association claims that such changes will cost the average landlord approximately $1700 a year per rental.

It claims landlords will then pass this extra cost to their tenants.

Really? This suggests that landlords have a very benevolent streak.

They haven't charged higher rents because they have had a tax break and want their tenants to enjoy the advantage of cheaper rents as a result.

This doesn't make sense.

Surely, the majority of landlords want the highest possible returns from their property.

They are charging the maximum possible rent that the market allows.

Rents are set by supply and demand in the market for accommodation.

If the Government changes the tax rules on rentals, this does not mean the number of houses and apartments in New Zealand is suddenly going to shrink.

Rents may rise but only as far as the market will permit.

What is more likely to happen is that some landlords decide to sell.

This may make housing more affordable for first-home buyers.

This is unlikely to happen overnight but if government policy can demolish the obsession with capital gains driven by tax breaks this would be a good thing for our country.

New Zealand is at a crossroads. Our economy is very finely balanced.

For most of the first decade of the 2000s we experienced a debt-fuelled housing boom. This drove our economy.

As property owners felt wealthier, they borrowed and spent more leading to full employment.

This created the illusion of increased wealth - allowing people to continue to borrow and spend.

The tidal effect of easy credit on an economy is almost hallucinogenic.