The amount of time for which investment properties must be held before their owners can avoid capital gains tax is being extending from two years to five  – despite that it could be bad news for renters.

Revenue Minister Stuart Nash said reducing speculative demand would help to improve affordability for owner-occupiers.

But in an impact assessment, Inland Revenue and Treasury officials warned there was a risk of “lock-in” as a result of the change, which could reduce the number of dwellings for sale.

“If the fall in the number of dwellings for sale exceeds the reduced demand from speculators and investors then this could lead to increased competition for the housing stock available for purchase for a period of time.”

They said there was a risk that rents could rise if the law change reduced the number of investors buying and renting out property.

“A higher level of home-ownership among former renters is unlikely to completely offset the pressure on rental prices. This is because owner-occupied homes typically have a lower occupancy rate than rental homes, so the reduction in the supply of rental housing (caused by some investors exiting the market) will probably outweigh the reduction in demand for rentals (as some renters purchase homes).”

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