Tax Policy Lessons & The First-Home Buyer Takeover | NZ Property Insights Ep 15

In this episode of NZ Property Insights, Paul and Debbie Roberts unpack the critical structural changes transforming the New Zealand real estate landscape. We analyze the long-term fallout of the interest deductibility policy, evaluate how changing mortgage dynamics are fueling a massive first-home buyer renaissance, and look at the compliance adjustments simplifying transaction pipelines for everyday trusts. 

• The Deductibility Reversal: An analytical look back at the three-year tax experiment that significantly reduced long-term rental supply, effectively taxed property business owners on unmade profits, and inadvertently drove national median market rents up to $600 per week. 
• The First-Home Buyer Renaissance: How a prolonged flat growth environment has hollowed out market competition, allowing first-home buyers to capture a massive 27.5% market share while securing superior property quality for their money. 
• AML Reform Common Sense: Breaking down Associate Minister of Justice Nicole McKee’s risk-based adjustments that successfully scale back enhanced due diligence costs and friction for simple family trusts. 

If you want to understand how to leverage these shifting tax landscapes, assess your borrowing capacity accurately, or build a resilient multi-income strategy, join us for our next free, live online educational event:

👉 Register for "How to Succeed with Property Investing" 

Transcript

NZ Property Insights — Episode 15 Transcript

Paul Roberts: Welcome back to New Zealand Property Insights. I'm Paul Roberts. 

Debbie Roberts: And I'm Debbie Roberts. We're the owners of Property Apprentice, and as always, we're here to help you navigate the New Zealand property market with facts, not just headlines. 

Paul Roberts: Today, we're looking back to look forward. We're diving into the great interest deductibility experiment—a three-year policy shift that had massive consequences for the rental market before being quietly reversed. 

Debbie Roberts: It's a vital lesson in how policy affects people, not just numbers. But it's not all history today. We're also looking at the current first-home buyer renaissance. First-home buyers are now accounting for over 27% of all sales and are currently getting significantly more house for their money. 

Paul Roberts: And for our third segment, we're talking about the new AML reforms. Finally, some common sense is coming into the property transaction process, especially for those of you who are using family trusts. 

Debbie Roberts: It's an episode about learning from the past and capitalizing on the present. So let's dive in. 

Starting off with the interest deductibility experiment: a costly lesson. We will look at the policy that reshaped the rental landscape in New Zealand. Back in 2021, the previous government removed interest deductibility for residential investors. As we look at the results here in 2026, the data shows that the experts were right to be worried. 

Paul Roberts: Exactly. The Inland Revenue Department had warned the policy wouldn't improve affordability, but would instead push rents higher. Sure enough, those warnings played out across the country. 

The facts are that the policy removed the ability for residential investors to deduct mortgage interest as a tax expense, which is a core corporate benefit. That's why you run companies. It effectively taxed all mum-and-dad investors on profits that they hadn't made. It essentially worked as if the rental properties were mortgage-free, which for a lot of people, they're not. 

When mortgage rates climbed from 2% to over 6%, the policy became catastrophic for investors with mortgages, as their largest expense in owning the rental property was no longer recognized in the tax system. 

Debbie Roberts: Consequently, national average rents hit record highs of $600 a week, with Wellington reaching $695 and Auckland's CBD sitting at $620 a week. Overall, it was approximately a 20% increase in market rent in less than three years. 

Inland Revenue's initial assessment proved completely correct. The move reduced long-term rental supply and failed to meaningfully improve housing affordability for buyers. In fact, arguably, it actually made it harder for first-time buyers who were renting to save for their house deposit because rents were increasing so rapidly. 

As new builds were excluded from this rule change, it also pushed investors into the new-build market, putting them in direct competition with first-time buyers. First-time buyers could have bought new builds with a lower deposit due to the deposit exemptions from the Reserve Bank—those pesky LVR rules. 

Paul Roberts: Following the election in 2023, the current government acknowledged that punishing investors had squeezed tenants, and they restored full interest deductibility as of April 1, 2025. 

The lesson from this experiment is that making rental properties structurally unviable for private investors primarily harms tenants through increased costs and reduced choice. So, what does this sort of mean? Well, this segment really highlights the unintended consequences of using property as a political football. When you treat investors like a problem rather than the provider of essential housing, the person who actually pays the bill is the tenant. 

Debbie Roberts: It's so true. Seeing average rents hit $600 a week was a direct result of landlords being forced to pass on those massive tax costs whenever possible just to help pay the tax bills, combined with the forces of supply versus demand. When there's a limited supply of rental properties and high demand from tenants, market rents increase. It wasn't about greed. It was about survival for many mum-and-dad owners who were being taxed on money that they'd never actually made. 

Paul Roberts: And for those looking at the Australian market right now where this exact debate is happening, our experience is a clear warning. You can't tax your way to a healthy housing market. You have to build your way there. 

Debbie Roberts: Exactly. Now that the policy has been reversed, we're seeing more stability returning to the rental pool. It's a reminder that strategy, not just responding to the latest tax tweak, is what builds long-term wealth. Also, it should be a solid reminder to both sides of the government that supply and demand is what causes house prices and rents to go up or down. 

The reason house prices have been so stable over the past few years is due to the number of new builds that hit the market. Look at how many first-time buyers have been able to purchase their home because of that. 

Paul Roberts: Yeah. In some areas, we've even seen reductions in market rent due to the sheer number of rental properties available. Supply and demand is doing its job—basic economics, really. 

Let's have a look at our next segment: the first-home buyer takeover. While the property market has been nice and stable with little or no capital growth, it has put off some investors who might have forgotten that property investing is a long-term strategy, not a short-term quick fix. Meanwhile, first-home buyers have absolutely been charging ahead. Fresh data shows that they have been taking advantage of a hollowed-out market to secure exactly what they want. 

Debbie Roberts: It's an incredible shift. First-home buyers bought nearly 25,000 homes across the country in the 12 months leading up to the end of quarter one, 2026. That's the highest volume we've seen since the peak of the 2021 boom. 

Let's look at some of the facts. First-home buyers currently make up 27.5% of all property purchases, with some regions, like Wellington for example, seeing first-home buyers accounting for 37% of activity. Mortgage costs have also dropped significantly. In most regions, excluding Auckland, minimum payments are $820 a month lower than they were in 2024. 

Paul Roberts: In Auckland, the drop has been even more dramatic, with payments roughly $1,100 per month lower than two years ago. The median price paid by first-home buyers is currently $720,000, which is only $20,000 shy of the peak of 2022, suggesting buyers are choosing higher-quality homes rather than just cheaper ones. 

Debbie Roberts: Over half of all first-home buyer loans are being done with less than a 20% deposit, and the average Loan-to-Value Ratio (LVR) has risen to 81%. 

Paul Roberts: The average age of the first-home buyer has dipped slightly to 35, down from 36 in 2024. 

That $1,100 a month saving in Auckland is life-changing for a young family. It is no wonder they are flooding back into the market. They aren't just buying starter flats anymore; they're buying in that middle 40% of the market. 

Debbie Roberts: And that's the "bang for buck" that we've been talking about. Because they have the pick of the bunch, they're becoming more active across the entire value spectrum, not just at the bottom. 

Paul Roberts: Notice that LVR figure—81%. Banks are clearly more comfortable lending to this group even with smaller deposits. It's a sign of a healthy, functioning market when the people who want to live in the homes are the ones winning at auctions. 

Debbie Roberts: My big tip for home buyers as well as investors: look at the opportunities that this market stability provides. You've got the leverage to negotiate terms that suit you. This is a buyer's market for home buyers and investors alike. You don't even have to compete with each other. We can happily coexist in the current market because there are plenty of opportunities to go around. But it does mean that you can lock in your purchase price and interest rates before they get any higher, so get amongst it. 

Paul Roberts: And we definitely don't want to go back to having restrictions and more taxes, which are just going to make it more costly for every single New Zealander, regardless of whether you're saving for a deposit... 

Debbie Roberts: Exactly, or whether you're still a tenant. 

Paul Roberts: Yeah. 

Debbie Roberts: Okay, so let's have a look at the next segment: AML reforms, cutting the red tape. We finally have some good news for anyone who has ever felt like they were being interrogated just to buy a house. New Anti-Money Laundering, or AML reforms, are coming into effect, and they are designed to be smarter and more proportionate. 

Paul Roberts: REINZ has been pushing for this for a long time. The goal is to keep the strong protections we need against financial crime, but stop the unnecessary friction for standard residential deals, especially for things like family trusts. 

The government is shifting towards a risk-based framework that reduces red tape for low-risk transactions. A major win is the relaxation of Enhanced Due Diligence requirements for simple family trusts, which are commonly used by everyday Kiwis for property ownership. 

Debbie Roberts: Associate Minister of Justice Nicole McKee confirmed the changes are aimed at being more proportionate and focused on genuine risks rather than just ticking boxes for regular buyers. The property sector is now categorized as lower risk, meaning real estate businesses will shoulder a smaller portion of the anti-money laundering levy compared to the banking sector, which will pay roughly 85% of the total. 

Paul Roberts: REINZ General Counsel Melisa Beight noted that these changes strike a clean balance between maintaining safeguards and reducing the compliance costs that often lead to transaction delays. 

Anyone who has a family trust knows the drama of AML compliance. It can feel like you're being treated like a drug cartel just for moving your family home into a trust. This risk-based shift is a massive win for simple common sense. 

Debbie Roberts: It really is. Melisa Beight was right—this is about striking a proper balance. We need the protections for anti-money laundering, but we don't need to spend big money and a truckload of hours on low-risk family transactions. It should speed up the entire buying process for people in that situation. 

Paul Roberts: And the fact that banks are now taking 85% of the levy cost reflects where the actual volume of transactions sits. It means real estate agencies can keep their overheads down, which is good for everyone. 

Debbie Roberts: The red tape is finally being trimmed. 

Paul Roberts: So that wraps up Episode 15. We've looked at the hard lessons of messing with tax policy—a lesson that our neighbors in Australia and the UK are learning the very hard way instead of taking notes on what we went through in New Zealand. We've also covered the exciting rise of first-home buyers and the long-awaited trimming of the AML red tape. 

Debbie Roberts: Yeah. It's a shame that Australia and the UK didn't learn from our mistakes, because we've already been down that road and seen exactly what happens. They're going to have to learn that the hard way. 

But it is a market of nuance right now in New Zealand. While the headlines might say things are slow, the reality for buyers and compliant investors is full of opportunity, and this window of opportunity won't be around forever. 

Paul Roberts: So if you want to learn how to navigate the current property market, join us for our next free event online, "How to Succeed with Property Investing". 

Debbie Roberts: It's 100% free, purely educational, and we'll talk about all of the different property strategies our clients are using right now. You can find the link in our show notes or visit propertyapprentice.co.nz to register. 

Paul Roberts: Thanks for joining us. Stay informed, stay strategic, and we'll see you next time. 

Debbie Roberts: Happy investing!