Friday 12th of March 2010

It was pleasing to see the NZ Property Investors Federation come out and put the issue of rent rises on the agenda this week.

For those who missed it NZPIF vice president Andrew King calculates that if the government goes ahead with changes to depreciation rules for residential property investment then rents are likely to rise.

He says landlords would lose on average $1750 a year if they lost the tax deduction and this amounted to $34 a week, which would be passed on to tenants.

There is no doubt that any changes to investment rules will impact on the economics of property investment.

After all it is an economic equation which needs to balance up. There is little point in making an investment if the returns are not there. You need to remember that most investors are after cash flow and income; they are not speculators chasing quick capital gains.

Rents are one of the key inputs into this equation and another, from a cash flow perspective, are depreciation claims.

It seems absolutely logical that if you change the rules around depreciation it will have an impact on rents.

So Prime Minister John Key sounds like he has had some dud advice when he told TVNZ that the advice he has received is that proposed changes will have little impact on rents. (We’re looking to find this piece of advice at the moment).

Likewise arguments that tenants set rent is only part of the picture.

What hasn't been touched on is that if other changes are made to penalise Kiwis who choose to prepare for their retirement by investing in property then there is absolutely no doubt rents will rise.