Beyond a political tug-of-war for NZ’s property and construction sector

Budget 2024 is a positive step in the right direction for the property sector with the announcement of several new infrastructure projects that will no doubt fuel the construction industry. There was also consistent messaging in the lead up to 30 May with no surprises during the Finance Minister’s announcement.  We need more of this - more transparency to ensure this significant part of our economy can move forward with confidence rather than becoming part of a political tug-of-war.

Irrespective of what industry you operate in, the one common factor that everyone can agree on is that uncertainty is the enemy of confidence and investment.

The size of the property sector has meant it has been an easy target over the years with different Governments raising significant revenue by playing with the tax settings. Although you can understand the why, the incessant politicisation of property regulation and taxation has left many within the sector feeling battered and bruised. For years, the industry has found itself at the mercy of shifting political winds, with each change bringing a fresh wave of uncertainty. The litany of recent changes serves as poignant examples of the challenges facing the industry:

• Interest non-deductibility for residential property investments and subsequent phasing back in
• Extension and retrenchment of the brightline test for residential properties
• Removal, reintroduction and removal again of commercial depreciation
• Build to rent settings
• GST changes for properties rented through an online marketplace

Constant changes increase the complexity of investment in these asset classes, increase the costs to comply and increases the likelihood of getting it wrong.  Changes to the regulatory and tax environment also directly impact key decision-making processes within businesses. Each new policy adjustment or tax reform introduces a set of variables stakeholders must navigate. 

The heart of the issue lies in the relationship between regulatory stability and investment confidence. Investment in property, like all forms of investment, thrives on predictability. Investors need to gauge the future landscape with some degree of certainty to commit capital. When the rules of the game are in constant flux, the risk profile of investments escalates, leading to a cautious approach to (and likely contraction) in investment activity. This hesitancy can ripple through the economy, affecting construction, employment, and ancillary services tied to the real estate sector.

Moving forward: A call for stability

The call from within the property industry is clear: a plea for regulatory and tax stability. Regulatory and tax reforms are essential tools in addressing economic and social issues, but the frequent and sometimes abrupt changes experienced by the property sector highlight the detrimental effects of this type of volatility.

For the health of the industry and the broader economy, there is a pressing need for a more stable and predictable policy environment. Achieving this will require political will and a commitment to engaging with the industry as a partner rather than a political pawn. Only then can the sector regain the confidence necessary to drive forward investment and growth.