New Zealand Abolished Negative Gearing - Here’s What Happened Next
- Property Planning Australia
- 7 days ago
- 4 min read
Updated: 5 hours ago
This article was originally published in March 2021 following New Zealand’s announcement to remove negative gearing for residential investment properties. It has been updated in May 2026 to reflect significant policy changes that have occurred since, changes that are increasingly relevant to Australian property investors.
In March 2021, the Ardern-led New Zealand government made headlines when it announced the removal of negative gearing for residential investment properties. At the time, it felt like a significant policy shift, a policy experiment that we were watching closely. What followed was a restriction on investor tax deductions in mid-2021, and then, perhaps surprisingly, a reversal in 2025. The full story of what New Zealand tried, what it cost, and why it ultimately wound back those changes is one that Australian property investors will be very interested in right now.
The context behind the decision
The swift decision was made following extensive political pressure after NZ property prices had grown more than 20% in the preceding year. Leading up to this decision, the NZ government took another step in the fight against the record gains in property values by imposing a world first policy determination that the NZ Reserve Bank must include stabilisation of the property market in its decision-making remit.
These two reformist policies followed macro prudential regulation limiting LVR’s for investment property to 70%, to be further lowered to 60% from 1st May 2021.
These massive policy adjustments followed the failure of the Ardern government to maintain housing affordability. An election promise made leading into the first term of government.
What it meant for markets
These revolutionary type NZ decisions forced the Australian and NZ dollars and 10-year bond yields lower, which both governments and local reserve banks will not be unhappy about as this is positive for our international trade. International markets can group the Antipodean nations together, thus a NZ government decision has impacted the Aussie dollar and bond yields.
What about Australia?
At home, the ALP had confirmed that negative gearing reform was still on its agenda.
NZ and Australia have a history of setting legal and policy precedents that the rest of the world follows. For example, NZ were the first to mandate the Reserve Bank have a target for inflation. Subsequently, all western democracies followed.
What happened next: New Zealand’s evolving policy
New Zealand’s approach to investor taxation didn’t stop at the March 2021 announcement. What followed was a series of further restrictions and ultimately, a significant reversal. Here’s how the policy evolved.
2019: Loss ring-fencing introduced
Two years before the March 2021 announcement, New Zealand had already begun tightening the rules for residential property investors. In 2019, the government introduced loss ring-fencing, which prevented investors from using losses on a residential investment property to offset their salary, wage, or business income. Instead, those losses were carried forward and could only be applied against future eligible residential property income. Classic negative gearing (as Australians understand it) was effectively restricted from this point.
2021: Mortgage interest deductibility removed
The March 2021 announcement removed negative gearing for residential investment properties by eliminating mortgage interest deductibility. Mortgage interest remained a real cash cost for investors, but under the new rules, it could no longer be claimed as a tax deduction against rental income, meaning properties that would previously have generated a deductible loss could no longer do so.
The rules applied as follows:
For properties acquired on or after 27 March 2021, investors generally could not deduct mortgage interest from rental income from 1 October 2021.
For properties acquired before 27 March 2021, the ability to deduct interest was gradually phased down over four years.
2025: Interest deductibility restored
In a significant reversal, 100% mortgage interest deductibility was restored from 1 April 2025. However, it is important to note that rental losses for the most part, remain ring-fenced. Meaning the 2019 restrictions on offsetting property losses against other income are still in place.
The government’s reasoning for restoring interest deductibility was instructive: removing it had placed increased pressure on landlords, reduced investor participation, constrained rental supply, and risked pushing rents higher. In other words, the policy had consequences that ran counter to the government’s broader housing objectives.
What does this mean for Australian investors?
It comes as no surprise that the New Zealand experience is being watched closely in Australia right now. The 2026 Federal Budget, handed down on Tuesday 12th May, proposed some of the biggest changes to property taxation in a generation, including changes to negative gearing that have sent many investors back to the drawing board. Since the announcement, the conversations we've been having with clients make clear that this is front of mind for many investors (and if you've found your way back to this article in the last week, you're certainly not alone).
New Zealand’s experiment offers a valuable case study. The removal of interest deductibility and the ring-fencing of losses did not resolve the underlying housing affordability challenges the government was trying to address. What it did do was reduce investor participation, tighten rental supply, and ultimately prompt a policy reversal within a few years.
For Australian property investors, the key takeaway is not to assume that policy settings are permanent — in either direction. If you have questions about how potential changes to negative gearing could affect your property or mortgage strategy, we’d encourage you to get in touch.
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Disclaimer - General information only. This blog discusses policy changes as currently understood and is not financial, tax or legal advice. Legislation and policy may be subject to further change. Please seek licensed financial and tax advice before acting on any of the information in this article.
