ACT has pledged to remove the residential rental loss ring-fencing rule, a change that would cut property investors’ tax bills by about $300 million a year. The tax-neutrality case has some merit. But Seymour has sold this as a housing policy, and a housing policy has to produce houses. On the current design, that is a bet, not a mechanism.
What ACT is actually offering
Under ring-fencing, an investor earning $100,000 in wages who loses $10,000 on a rental pays tax on the full $100,000. The loss is carried forward and can only be used against future rental profits. ACT would let that investor deduct the loss immediately and pay tax on $90,000.
ACT leader David Seymour has pre-empted the “tax cuts for landlords” line, arguing that “there’s no such thing as a tax on landlords that renters can safely ignore” and that ring-fencing forces landlords to wait for relief until a property turns profitable, “when cashflow relief is needed least.” He also argues that sole traders and commercial property investors can already offset losses against other income, so residential investors should get the same treatment.
Seymour also concedes the point that matters most. In his words, “the only way to secure more affordable housing for renters is to build more homes”. That is the right test. A blanket removal does not obviously pass it.
The last piece of the pre-2019 settings
This is the latest swing in six years of whiplash. Labour introduced ring-fencing in 2019 to level the field with owner-occupiers, who get no deduction for the cost of owning their own home. In 2021 it went further and phased out interest deductibility. Officials’ 2021 regulatory impact statement noted that residential property was already tax-favoured, because capital gains are largely untaxed and owner-occupiers pay no tax on imputed rent.
The coalition then restored interest deductibility. In 2023 the CTU’s then-policy director Craig Renney estimated that would cost $3 billion over four years. Labour, which forecast the reinstatement at $2.8 billion over four years, has now promised to leave it alone. Ring-fencing is the last pre-2019 setting still to unwind.
Consistency cuts both ways
The sole trader comparison is weaker than it sounds. A café that loses money is usually failing. A geared rental that runs at a loss is often working exactly as planned, with the investor accepting cash losses now in exchange for a largely untaxed capital gain later. Letting those losses reduce wage income makes that strategy cheaper. That is not neutrality. It is a subsidy for leverage, and centre-right voters who want a level playing field should say so.
Supply is moving without the subsidy
The building data does not suggest ring-fencing is choking construction. New dwelling consents rose 16% to 39,087 in the year to April 2026, with Canterbury up 29% and Auckland up 21%. The value of building work rose 5.2% to $8.2 billion in the June 2026 quarter, with residential volumes up 4.8%. All of that happened with ring-fencing in place.
Even the friendliest observers are cautious about tax changes as a driver of activity. Cotality chief economist Kelvin Davidson says the certainty from Labour’s deductibility U-turn helps, but he is “cautious about whether it will drive marked new activity”. He points to a shaky economy, subdued rents, higher interest rates and rising council rates. Mortgage rates, migration and build costs move this market. Marginal landlord tax settings mostly move investor returns.
Target the money at new builds
There is a better version of this policy available. ACT could allow immediate loss offsets only for qualifying new rental builds, perhaps for the first five income years, and keep ring-fencing on existing stock. That rewards investors who add homes rather than those bidding against first-home buyers for the same weatherboard villa.
ACT should also show who gets the $300 million. Inland Revenue already holds data on taxpayers declaring rental losses by entity type, covering individuals, trusts and companies. If the benefit flows mainly to heavily geared portfolio investors, voters deserve to know.
Labour’s alternative has its own soft spot. In 2025, University of Auckland economist Ryan Greenaway-McGrevy said of its capital gains tax that “if house prices don’t go up, then we won’t have any capital gains taxes at all” to fund the promised GP visits. Both flagship policies rest on assumptions that economists doubt.
What happens next
If ACT carries this into coalition talks, the price of support should be a supply test written into the law. Tie the concession to new homes, publish who benefits, and review rental additions after three years. Without those conditions, $300 million a year is a cashflow gift to leveraged investors described as help for renters. With them, it could become a credible housing supply policy.
Sources
- NZ Herald: Act pledges to remove loss ring-fencing rule to reduce residential property investors’ tax bills by $300m a year (2026-10-13)
- Regulation.govt.nz: Limiting interest deductibility on residential investment property – Regulatory Impact Assessment (2021-09-08)
- RNZ: Landlord tax breaks will blow out by $1b – CTU (2023-11-29)
- RNZ: Property investors relieved at Labour’s landlord tax deduction promise (2026-09-22)
- Stats NZ: Building consents issued April 2026 (2026-06-03)
- Stats NZ: Value of building work put in place June 2026 quarter (2026-09-04)
- OneRoof: Labour’s tax U-turn – Investors get clarity, but don’t expect a buying frenzy (2026-09-28)
- Inland Revenue: Rental information for the 2023-24 tax year (2025-09-04)
- RNZ: What doctors, landlords and economists make of Labour’s tax plan (2025-10-29)
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