Private rental housing studied

Press, 18 May 1984, Page 4

Private rental housing studied

By

OLIVER RIDDELL

in Wellington

The need to create a climate in which private sector investment in rental housing can be increased is the chief conclusion of a report from the National Housing Commission.

“Incentives for Greater Private Sector Involvement in Rental Housing” was prepared for the Commission by the Christchurch firm of consultants Brown, Copeland and Company, Ltd. The study set out to examine and report on the costs and benefits of alternative incentive schemes designed to encourage greater private sector involvement in rental housing.

Data from the 1981 Census showed that New Zealand’s private rental sector represented about 16 per cent of the total housing stock.

This proportion was significantly lower than the 1976 Census figures (about 7000 housing units down), and representatives of landlords’ associations and the -irteal

Estate Institute believed that the decline in the size of the private rental sector was continuing.

The report said that most rental accommodation was probably held by landlords with small holdings of fewer than five flats.

Private sector employerprovided rental accommodation was about 11 per cent of the private rental sector (or about 2 per cent of the total housing market).

The rent freeze and the Government’s latest proposals for limiting rent increases when the freeze was lifted, were both regarded by landlords as significant disincentives to involvement in the private rental sector. Similarly, a number of provisions'in the Rent Appeal Act and the Property Law Amendment Act were regarded as “significant disincentives.” particularly over bonds. The introduction of an insurance market for bonds might overcome some of these problems, the report said. Reduction in the level of

subsidies on central and local government rental housing and home ownership by the Government would be an incentive to the private sector rental market.

Relaxing site requirement by-laws would reduce the costs of building new flats in the main metropolitan areas and would encourage the private sector to provide new rental housing. The availability of longterm finance, even at commercial rates of interest, would be an incentive to the private sector rental market. the report said. So would relaxing the Housing Corporation and Post Office Savings Bank lending restrictions on two (or more) flat properties. Allowing tenancy agreements that require tenants to be responsible for rates, insurance and maintenance costs would help private sector landlords. Provisions on the recapture of interest deductions and the limitations of loss offset, a contained in 1982 amene’ients to the Income

Tax Act, 1976, were “significant disincentives” to the private sector rental market, the report said. Also, the possible disallowance of rental losses in some instances had created a climate of uncertainty among potential investors.

Relief for investors in private sector rental accommodation from the provisions of this legislation would provide a stimulus to the private sector rental market.

“Land tax changes are unlikely to have much impact on the private sector rental market.” the report said.

Increases in allowable depreciation rates on rental properties, and tax rebates on exemptions for rental income, could be introduced to increase investment in rental housing. "Landlords would generally prefer the removal of housing market distortions rather than the introduction of new distortions by way of measures of help to' private sector landlords." the report said.

“But in the short term there may be a number of difficulties preventing the removal of distortions." Incentives that could be introduced at little or no cost to the Government and tenants were:

6 Establishing an insurance market for bonds;

• Allowing two (or more) flat properties to qualify for Housing Corporation or Post Office Savings Bank finance; • Allowing new-style tenancy agreements that require tenants to be responsible for rates, insurance and maintenance costs.

"Raising allowable depreciation rates on rental properties would probably be the most effective of the tax-related incentives,” the report said. “This should be coupled with other changes to existing tax law and policy to reduce the disincentives for investment.”

It was also time for a review of the objectives and effectiveness of the Government’s housing policies.