New Zealand’s government announced a suite of new measures to tackle the rampant property market by increasing the supply of houses and removing tax incentives for speculators.

A NZ$3.8 billion (US$2.7 billion) fund will be established to unlock more land for housing development and the government will make first home grants available to more people, Prime Minister Jacinda Ardern said Tuesday in Wellington. The government will also extend the period in which profits on the sale of investment property are taxed to 10 years from five, and phase out the ability of investors to claim mortgage interest as a tax-deductible expense.

“The housing crisis is a problem decades in the making that will take time to turn around, but these measures will make a difference,” Ardern said. “There is no silver bullet, but combined all of these measures will start to make a difference.”

House prices surged 21.5 per cent in the year through February, according to the Real Estate Institute, fueled by record-low interest rates and constrained supply. The government is under pressure to act as more and more first-time buyers and people on lower incomes are priced out of the market, raising concerns about growing societal inequality.

Last month, Finance Minister Grant Robertson announced changes that he said will require the central bank to pay more attention to the property market when setting monetary and financial policy.

Robertson said today that New Zealand’s housing market has become the least affordable in the OECD and investors now make up the biggest share of buyers.

Extending the so-called “bright-line” test -- effectively a capital gains tax on investment property sales -- to 10 years and removing interest deduction loopholes for investors “will dampen speculative demand and tilt the balance towards first home buyers,” Robertson said. “It’s essential the government takes steps to curb rampant speculation.”

The new bright-line test will apply to properties bought after March 27. The time horizon for new builds will remain at five years to encourage supply.

From Oct. 1, investors won’t be able to deduct mortgage interest as an expense on properties acquired after March 27. For properties purchased before that date, mortgage interest deductibility will be phased out over the coming four years so that it can’t be claimed at all by the 2025-26 tax year.