PHOTO: House prices in New Zealand have been booming thanks to government stimulus, low interest rates and the nation’s COVID-19 response. (ABC: The Business)

New Zealand moved to cool its red-hot housing market on Tuesday by introducing rules designed to make property speculation less appealing and to improve record-low housing affordability, a major issue for the government of Prime Minister Jacinda Ardern.

The new law will limit property investors from deducting mortgage interest from their taxable incomes.

First announced in March, the new rules are to take effect from October 1 and are part of series of real estate measures introduced across the island nation, according to Finance Minister Grant Robinson.

“Tax is neither the cause nor the solution to the housing problem, but it does have an influence, and this is part of the Government’s overall response,” Mr Robertson said in a statement.

Stimulus, low rates, COVID-19 success have impact

Billions of dollars in government stimulus, historically low interest rates and New Zealand’s relative success with COVID-19 have seen house prices soar, as returning Kiwis and investors parked their funds in real estate, pushing house prices up, far ahead of wages growth.

House prices had risen nearly 26 per cent in August, year on year, making housing the least affordable among the Organisation for Economic Co-operation and Development (OECD) nations.

This has had a “punishing impact” on marginalised communities, the country’s Human Rights Commission said in August, as it launched an inquiry into New Zealand’s housing crisis.

In March, the government hit investors with new taxes, and authorities pledged more support for first-home buyers by boosting the supply of affordable homes.

Early indications suggest these measures have helped reduce enthusiasm among investors to buy existing houses, thereby allowing a more level playing field for first home buyers, Mr Robertson said.

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