Labour has promised to leave residential landlords’ mortgage-interest deductions in place if it forms the next government, drawing a positive response from property investors. The decision removes one proposed source of uncertainty for landlords, but its effects on rents, house prices and first-home buyers remain open to examination
Report by eLocal
Labour leader Chris Hipkins has confirmed that his party will not reverse the current mortgage-interest deductibility rules for residential landlords if elected, despite its previous criticism of the policy as a tax benefit for property investors.
The announcement, reported by RNZ political reporter Giles Dexter, was welcomed by the New Zealand Property Investors Federation, which had argued that removing deductions again would increase costs for landlords and create pressure on rental households.
Hipkins said Labour would instead pursue its proposed capital gains tax. He also said he did not want to give landlords another reason to raise rents while tenants were already struggling with living costs.
The decision creates a clearer distinction between two tax questions that are often discussed together: whether interest paid to finance a rental property should be deductible against taxable rental income, and whether gains made when an investment property is sold should be taxed.
Those taxes apply at different stages of property ownership and can affect investment decisions in different ways. Keeping interest deductions does not settle the debate over a capital gains tax, nor does it establish how either policy would affect the supply and affordability of housing.
What Labour Has Promised
Labour’s undertaking concerns the existing rules for deducting interest on borrowing used for residential rental properties. It is not a promise to exempt landlords from income tax or to allow them to deduct the principal portion of mortgage repayments.
Under current Inland Revenue rules, eligible residential property owners have been able to claim 100 percent of qualifying interest incurred from 1 April 2025. The previous restrictions were progressively reversed, with an 80 percent deduction applying from 1 April 2024 to 31 March 2025.
The deductions remain subject to the ordinary tax rules, including the requirement that the borrowing relate to earning taxable income. Private borrowing and mortgage principal are not deductible rental expenses.
Labour’s announcement means that, if it forms a government and implements this promise, it would retain those existing settings rather than reintroduce the restrictions imposed by the previous Labour government.
That is a change from the uncertainty facing investors who had expected Labour to reconsider interest deductibility alongside its capital gains tax proposal. It is not a change to the deductions landlords can currently claim.
Why Interest Deductibility Became a Political Issue
The previous Labour government introduced restrictions on residential property interest deductions in 2021 as part of a package intended to address housing affordability and reduce incentives for investors to compete with first-home buyers for existing homes.
The restrictions treated qualifying residential investment borrowing differently from many other forms of borrowing used to earn taxable income. Their effect varied according to when a property was acquired, when borrowing occurred and whether an exemption applied, including for certain new builds.
The National-led government reversed the restrictions after the 2023 election. Deductions were restored to 80 percent for the 2024–25 tax year and to 100 percent from 1 April 2025.
The fiscal consequences are substantial. Budget 2024 documents estimated the restoration would reduce government revenue by approximately $2.9 billion across the forecast years shown in the relevant costing. That figure is a forecast of forgone tax revenue, not a direct payment of that amount to landlords, and it does not measure the policy’s eventual effects on rents or housing supply.
The underlying policy disagreement is whether ordinary deductibility rules should apply to rental-property borrowing in the same way as other income-producing investments, or whether residential housing warrants different treatment because of its importance to households and the potential effects of investor demand on prices.
Both questions are relevant. A consistent tax treatment of financing costs can affect investment decisions and cash flow, while the allocation of capital between existing housing, new construction and other productive activity can affect the wider economy.
Investors Welcome Greater Certainty
Matt Ball, advocacy manager for the New Zealand Property Investors Federation, told RNZ that Labour’s decision would give landlords greater confidence and reduce concern about another change in tax treatment.
Ball argued that restricting interest deductions would increase landlords’ costs, potentially prompting them to raise rents, reduce maintenance or investment, or sell properties. He said tenants could ultimately be affected by those responses.
That describes the federation’s assessment of the risks. It does not establish that every landlord could raise rent by the amount of an additional tax cost, or that retaining deductions will cause rents to fall.
A landlord’s ability to increase rent depends partly on what tenants can pay, the availability of competing properties and conditions in the local rental market. Some owners may absorb higher costs through lower returns; others may reduce expenditure, restructure borrowing or sell. The outcome can differ between highly indebted investors and landlords with little or no mortgage debt.
A sale also does not necessarily remove a dwelling from the housing stock. If a tenant-occupied property is purchased by another landlord, it can remain a rental. If it is purchased by an owner-occupier, the rental stock falls by one dwelling, but an owner-occupied home is also created. The net effect on rental demand depends on the buyer’s previous housing circumstances.
Those distinctions matter when assessing claims that a tax change will automatically increase rents or reduce the number of homes available to New Zealanders.
Hipkins Points to Interest Rates and Household Incomes
Hipkins told RNZ that interest rates and people’s capacity to pay, including wage and salary growth, were major influences on rents. He said Labour did not want to create an additional reason for landlords to increase charges.
Interest rates affect the financing costs of landlords with mortgages, but they also affect homebuyers, developers and the wider economy. Household incomes constrain what tenants can afford, while the number, location and suitability of available rental properties influence competition between households seeking accommodation.
Retaining interest deductibility may improve the after-tax cash flow of eligible landlords compared with a system that disallows those costs. Whether that benefit is passed on to tenants depends on rental-market conditions and the decisions of individual property owners.
For tenants, the relevant measures will be actual rent movements, the availability and condition of rental homes, and the share of household income required to secure suitable accommodation.
The announcement itself does not provide evidence that any of those measures will improve.
A Capital Gains Tax Raises a Different Set of Questions
Labour has linked its decision to retain interest deductions with its proposal for a capital gains tax. Interest deductibility concerns the taxation of rental income during ownership; a capital gains tax concerns the treatment of qualifying gains when an asset is sold.
The interaction between the two can affect an investor’s expected return, but the size and direction of that effect depend on the detailed design of the capital gains tax, including its scope, exemptions, commencement date, treatment of losses and whether it applies to gains accrued before the new rules begin.
Those details also matter to homeowners and first-home buyers. A tax on gains from selling investment property could alter the relative attraction of property investment, but it would not directly increase the number of dwellings available or remove constraints on land development and construction.
Similarly, preserving interest deductions may support the cash flow of indebted rental-property owners, but it does not distinguish between borrowing to purchase an existing home and borrowing that finances additional housing supply.
The effect of Labour’s combined tax approach cannot be established from the interest-deductibility announcement alone.
What Does the Policy Mean for First-Home Buyers?
For first-home buyers, the central issue is whether tax settings change their ability to compete for suitable homes at prices they can afford.
Interest deductibility lowers the after-tax cost of qualifying borrowing for residential investors. That can influence the amount some investors are willing to pay for a property, particularly when they expect rental income and future capital gains to contribute to their return.
But house prices are also shaped by credit conditions, household incomes, construction costs, population changes, the supply of developable land and the number of homes built in locations where people want to live.
A policy that improves the financial position of existing landlords does not necessarily increase new housing supply. Equally, a policy that reduces investor demand for existing homes does not guarantee lower purchase prices if other constraints remain.
A meaningful assessment would distinguish investment in newly constructed dwellings from transactions that transfer ownership of homes already built. It would also examine whether any change in investor activity affects rents, first-home buyer purchases and the pace of construction.
Without that evidence, claims that retaining or removing interest deductions will solve housing affordability overstate what a single tax setting can achieve.
Will This in Fact Make New Zealand Stronger?
Will this in fact make New Zealand stronger? The answer depends on whether stable tax settings support a housing market that provides secure, affordable homes while directing sufficient investment towards building additional dwellings and other productive activity.
For tenants, a stronger outcome would mean rental costs that remain manageable relative to income, well-maintained properties and a reliable supply of suitable homes. For first-home buyers, it would mean a realistic opportunity to purchase without taking on debt that leaves little capacity to absorb interest-rate or income shocks.
For rental-property owners, predictable tax rules can assist long-term financial planning. That benefit is relevant to the maintenance and provision of rental accommodation, but it must be considered alongside the fiscal cost of deductions and their effects on investment incentives.
For taxpayers more broadly, the revenue forgone through deductions has an opportunity cost. Public funds not collected through one tax setting cannot be used for other purposes without raising revenue elsewhere, reducing expenditure or increasing borrowing.
A complete evaluation would therefore compare outcomes rather than treating either investor confidence or government revenue as the sole measure of success. It would examine rents, first-home ownership, new housing completions, property maintenance, household debt and the distribution of tax benefits across different types of owners.
Labour’s promise reduces uncertainty about one existing tax rule. Whether its wider housing and tax programme produces stronger outcomes for New Zealand households will depend on the details of its capital gains tax proposal, the response of the housing market and the supply of additional homes.
What Remains Unresolved
Labour’s announcement establishes that it intends to retain the current residential landlord interest-deductibility settings if elected. It does not alter the law today, quantify the effect of the promise on rents or establish the net impact of Labour’s proposed capital gains tax.
The Property Investors Federation regards the decision as welcome stability for landlords and tenants. Hipkins has framed it as a way to avoid adding to rental pressures while Labour pursues a different tax policy.
The outcomes for households will need to be judged against evidence after any policy changes are implemented, rather than inferred from the relief expressed by investors or the claims made during an election campaign.
For New Zealanders seeking a home to rent or buy, the central question remains whether the combined settings will improve affordability and increase the supply of housing where it is needed.
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