I rather like Brian Fallows opinion piece in the herald (paywalled)
There is a tedious tendency to dismiss demand-side measures, which dominated this week's announcements, as irrelevant when "The Problem" is lack of supply. As if we were only allowed one problem and one solution.
Clearly the physical imbalance between the supply of, and demand for, housing is now extreme. It has been years in the making and will take years, and a raft of policy changes, to resolve.
In the meantime, upward pressure on prices and rents will persist. The question is how high those prices go before they burn off or frustrate that excess demand.
In a seller's market, how much the marginal buyer is able and willing to pay sets the price. At what point does the second highest bidder in an auction drop out?
So measures to curb that in the case of investors, who don't need to be in the market, are highly relevant.
The principled case for at least limiting deductibility of interest would be that you should only allow a deduction for costs incurred in earning income that is taxable.
Rents are taxable income; in general, capital gains are not. (Set aside the bright line test for a moment.) Typically these days, it is the capital gain that is the larger part of the expected return for someone buying an investment property.
For the tax system to treat that investor, who may well have engaged the services of a property manager to deal with the tenants, the same as someone building up a business to provide a livelihood for himself and other people is artificial.
The capital gain pocketed by an investor who sells is purely inflation. One who sells today a property bought five years ago — assuming its value rose in line with the national rate — would be looking at a 50 per cent profit at least, and mostly likely much more if amplified by leverage (a startlingly high share of which is in the form of interest-only loans).
But it is not like a proper business where a capital gain might represent the fruits of shrewd use of retained earnings resulting in an increase in the goods or services the business provides. The landlord is not likely to be housing 50 per cent more people in his rental property.
That invites the response that by extending the bright line test for when the profit on the sale of a property (other than the family home) is taxable income, from the National Government's original two years to five years and now to 10, the Labour Government has implemented the de facto equivalent of a capital gains tax on rental properties. To deny that is specious semantics.