Will Labour cancel ‘tax breaks for landlords’? Here’s what it could mean for rents and house prices

Monday, 29 June 2026

It has become a bit of an elephant in the room with the election just over four months away. Will Labour change the interest deductibility rules, or what’s known on the political left as ‘tax breaks for landlords’, back to the way they had it when previously in government?

That prospect is massively feared by many investors. One landlord with four 2 and 3-bedroom homes across regional towns in New Zealand told us he would be “screwed” if it came in, with his portfolio at the moment “the tiniest numbers above breaking even.”

“Everyone thinks we are rich scum. But I’m barely hanging on to these properties. What’s going to happen to my tenants if I’m pushed over the edge and forced to sell? They can’t afford to buy a house.”

He says if full interest deductibility were removed again, his position would tip into negative equity, and he may be forced to sell at least one property.

There are different views on whether that’s a good or bad thing. We’ll come back to all that.

What is interest deductibility anyway?

When landlords have a mortgage on a rental, they can subtract the interest they pay the bank from their rental income before working out their tax bill. This is called full interest deductibility.

If a landlord gets $40,000 in rent and pays $20,000 in mortgage interest, then under full deductibility they’re taxed on the remaining $20,000 profit (before other expenses).

With no interest deductibility, they’d be taxed on the full $40,000 in rent.

In the higher‑tax scenario, housing is treated more as a place to live, with rules aimed at levelling the field between investors and first‑home buyers.

In the lower‑tax scenario, rentals are treated more like any other business, taxed on profit, which levels the field between property investors and other businesses.

There are plenty of quirks, but at its core it mainly comes down to how you see property: as a business or investment, or as a place to live where first‑home buyers should be prioritised.

What happened last time Labour was in power?

Labour began phasing out interest deductibility in late 2021 for existing rentals, while exempting new builds to encourage more homes.

Inland Revenue estimated the change would affect about 250,000 people who own or invest in rental property, roughly 5% of New Zealanders.

After winning the 2023 election, the National‑led government reversed course and has now restored full deductibility, so landlords can again write off all their mortgage interest against rental income.

In early 2024, Treasury and Inland Revenue estimated this would mean collecting about $2.9 billion less in tax over roughly five years to 2028 than if Labour’s rules had stayed in place.

A big call on what will happen next

The Property Investors Federation believes Labour may take a middle path, and allow landlords to deduct interest on only half their mortgage costs.

Spokesperson Matt Ball has taken a clue from comments from recently retired Labour politician David Parker: “We probably should have stopped at 50%,” he is quoted as saying.

Labour leader Chris Hipkins has left the door open, and a Labour spokesperson told us; “Labour hasn’t decided on interest deductibility and will release further information when the party releases its fiscal plan.”

Infometrics chief forecaster and director Gareth Kiernan believes Labour changing the rules back is “very much on the table.”

“Sure, house prices are not rocketing up, but housing affordability still isn't great from a historical point of view… you know, that does suggest to me that there is room for them to still do it.”

So what happens to house prices if Labour changes it back?

There were economic forecasts of house price drops when Labour introduced the policy last time around, but there is no analysis measuring what actually happened once it was partly implemented.

Labour’s policy got most of the way through its planned phase‑out, but the final step in 2025 was stopped before it kicked in.

Kiernan believes prices would come down slightly over time if Labour changes it back.

“My sense would be that the adjustment does start to come through a bit more on the property price side of things, it will happen over time.”

“If there is that wedge again between new builds and existing homes then potentially one of the effects is that you do get a bit more residential building happening than might otherwise be the case.”

The Property Investors Federation’s Matt Ball believes the outcome depends how investors react.

“If a large number of rental owners sell, it is going to drive down property prices. And that is going to affect owner occupiers too.”

Max Rashbrooke, senior research fellow in the School of Government at Victoria University of Wellington and economic inequality author, believes prices may come down slightly, but says the broader balance matters more.

“In my view, we do need landlords, because we do need rental properties. Not everyone wants to own their own home, however, there are a lot of people renting who would like to own their own home and we do put too much of our productive capital into housing.”

“I think what most political parties now are trying to get towards is a situation where landlords are renting places of high quality, and there are probably slightly fewer landlords and slightly more homeowners.”

Would rents go up if Labour changes the rules?

Matt Ball believes landlords would have to raise rents in response.

“For every dollar that you lose under the interest deductibility scheme, you have to put up rent by $1.50 because you lose 33 percent in tax.”

Tax rates for landlords do vary because they’re based on your overall income, but 33% would be typical.

“It is aimed at landlords,” says Ball. “But it kind of misses them because landlords are not going to stand still for it. It will hit renters, either through higher rent or tenants having to move house.”

Renters United president Luke Somervell says there is “no evidence” rents would rise.

He argues supply and demand drives rent.

“Landlords will simply charge as much as people are willing and able to pay.”

Economist Gareth Kiernan says he does not expect a major impact on rents.

“My view is, if there is a legislative change that does not change my ability as the investor to put the rent up, I do not necessarily see there being a big adjustment in rents.”

Rashbrooke also rejects the idea that tax changes directly drive rents.

“National has said, well, look, since we restored interest deductibility, rent increases have slowed, or indeed gone into reverse, but the fact is that rents are going down because the economy is tanking, people can’t afford to pay higher rents, and lots of people have left the country. So I don’t buy that argument.”

So will they do it?

The big question is the political sell.

The Labour party has committed to bringing in a 28% capital gains tax on profits from selling commercial and residential investment property, excluding the family home.

The party risks reinforcing a perception it is ‘too harsh on landlords’ or a ‘double whammy’ framing.

On the other hand, property investors are probably less likely to vote Labour anyway.

Reassuring renters against the ‘rents-will-rise’ arguments will likely be a bigger priority.

It will also massively depend on what tax revenue raised would be used for - and would that start to win them more votes?

The property market is flat at the moment, which may make it a tougher time to introduce changes, but homes are still relatively unaffordable compared to people’s incomes. Recent Stuff analysis showed the average earner buying the average home today would need to spend 40% of their income on mortgage payments, above what’s internationally considered affordable, and in some regions it’s over 50%.

Given everything they’d have to balance, the halfway point at 50% interest deductibility on existing rental properties actually seems quite likely.