By Bernard Hickey
Prime Minister John Key has defended his suggestion of a land tax on non-residents, saying it was not a broken promise because it would not apply to New Zealanders.
Key said he could not rule out such a tax before the next election, but that it was not imminent and would depend on the data collected on the extent of non-resident buying, which is expected to be published in the next two weeks.
"There's no doubt that if you really want to choke off demand, there are lots of ways the Government can do that and by far the strongest way is through a land tax," Key told reporters.
"It wouldn't be a tax on New Zealanders, per se," he said when asked if it was a broken promise.
ACT Leader and Government coalition member David Seymour attacked Key's suggestion as another broken tax promise, while Labour Housing Spokesman Phil Twyford questioned whether it would work to quell rampant house price inflation.
Key repeated comments made over the weekend that a land tax for non-residents was an option, although he described it only as one of the options in a tool box and dependent on what the data due in two weeks would say.
"It's not unique. Victoria has it," Key told reporters yesterday in Auckland.
Victoria announced on Friday it would more than double its stamp duty on non-resident investors to 7% from 3% from July 1. It is a stamp duty rather than an annual land tax.
"There are plenty of countries in the world that do apply a land tax at a higher differential rate or only apply it to non residents," he said.
"Let's have a look at the data and see whether it really stacks up because if the data ultimately shows that the number of buyers who are buying properties, particularly in Auckland, are for the most part New Zealand residents, and a land tax wouldn't apply to them, then there's not much point in putting it on."
'Buy apartments first'
Key said the Government had other options for addressing the demand-side of the housing market, but he cautioned that supply was the best solution and he was wary of affecting first home buyers. He said a broader land tax, which the Tax Working Group recommended as an option in 2010, would not be fair on first home buyers, although he did not explain why.
"If we can fix the issue through supply, and overall I believe we can, then along the way we create a bigger city and a lot of jobs," he said.
He suggested first home buyers in Auckland focus on buying an apartment first.
"If you look at what's been happening in housing, 44% of all new consents in Auckland have been in apartments. It's highly likely for a lot of first home buyers -- young people -- that an apartment will be realistic place that they start. That's equally true in Australia. Most people that live in Australia, that live in the UK, in the United States, their first home is an apartment," Key said.
"They probably enjoy that while they don't have children and then as their needs become greater they transition out to a greater property," he said.
Opposition attacks
Twyford said a land tax on non-residents could push up rents and risked having no effect on prices, given capital gains over the last year of 25%.
"The Government needs to explain why the thousands of dollars overseas-based landlords will be forced to pay in land tax wouldn’t simply be passed on to tenants," he said.
"If the tax is too low, foreign speculators won’t be discouraged and they’ll just treat it as the cost of doing business. If it is ratcheted up as high as 10 per cent -- as the PM has suggested could be an option – then it will be a de facto ban, and in which case why not just adopt Labour’s ban?"
Seymour said the introduction of a land tax would break National's promise not to introduce a new tax for a third time, given the introduction of a travel levy and the two year bright line test for taxing capital gains.
"For the third time now, this promise could be broken, as the Prime Minister ponders a land tax. It’s another example of National campaigning from the Right and governing from the Left," Seymour said.
“The tax would likely include expat Kiwis and could easily be extended by a future government to Kiwis within New Zealand. Homeowners are getting bled dry with rate bills as it is. Whatever happened to ‘your house, your castle’?," he said.
'Restrict buying instead'
Meanwhile, Property Institute CEO Ashley Church said the Government should adopt the Australian policy of limiting foreign buying of existing homes and forcing foreign investors to instead fund the building of new homes.
“Taxing foreign investors might make a few people feel better – but it will do little to slow down house price inflation in the Auckland market," Church said.
“The only way to slow the growth in Auckland house prices is to build more homes as quickly as possible – so rather than penalising those who want to invest in our real estate market, we should be channelling that investment into getting more homes built, more quickly," he said.
67 Comments
i saw when they asked that question about a new tax when he said no more taxes under his government , talk about a deer in the headlights,
as usual though very little being done
what about the demand? cut immigration, change the investor catergory
what about the investors?
I like the idea of blocking foreign ownership, however others on this site have identified that agreements such as the TPPA would not allow it. But I also believe that reciprocity would work to an extent. A Kiwi cannot turn up in China and buy property, so why should Chinese be able to do it here? There are rules all over the world where countries have chosen to protect their own people from the ravages of foreign buyers, just copy them. In the meantime Key is just looking at ways to make money, not actually protect the people he is supposed to represent.
Old Adolf Hitler will be turning in his grave! He would be thinking...."If only I had signed a free trade deal with Poland, waited a few years and then signed one with the Soviet Union. Step by step, the whole World would now be mine!! and I would still have all my tanks and Messerschmitts intact! A gaggle of Free Trade Deals beats the Blitzkrieg hand down."
I am thinking of all the brave men and women, over thousands of years, who have willingly thrown their lives onto the line, in order to protect our sovereignty; The sovereignty we are giving away, as we giggle, yawn and eat another croissant.
Also there are probably much better options to allow us to build more property and damp down Non-Resident Investors and that is to do what the Ozzy's have done and only allow Non-resident property buyers to invest in 'New building projects' and not in existing builds or completed new builds.
The reason for not allowing them to purchase new completed property builds is due to the common practice of leaving properties empty (Ghost houses) so they can restrict availability and push for price increases.
At least this would put their money in to helping NZ build new homes, rather than continuing to making us tenants in our own land.
Sorry, that is just simply wrong. There is huge evidence to back up the big impact of lack of supply, and the primary reason for that - onerous planning regulation and process. Both the LEFT and the right accept that, here and overseas (eg. read what Nobel prize winner Dr Paul Krugman, famously centre-left, from the USA has to say. One of Obama's key economic advisors also had a major go at the supply issue recently too)
Supply (or the lack of it) is a major factor. It's what makes investment more attractive in the first place. Scarcity...
Yes, demand is important too. But I would say supply is more important.
The quantity of supply is small by comparison. The Govt does not build houses for sale anyway.
There are 1.4 billion Chinese and 1.2 billion Indians, millions of Brits, SAs, & Germans etc many of whom are desperate to live in NZ or to buy houses in a safe distant democracy.
How many houses do you think would balance supply and demand? 50k? 100k? That would still be a drop in the global bucket.
Yes, but why is investment so popular? Capital gain, NOT yield. Capital gain is promoted by lack of supply.
But let's see what the data shows in a couple of weeks. If more than 10-15% of Auckland purchases are from foreign investors, then I'd agree that's an issue and needs to be dealt to. If it's only 5%, or 7-8% then I don't think it's really an issue.
You've got a point IF Auckland's market is flooded by foreign investment. I am not convinced we will see that.
But let's see. I don't care either way, my hunch may be wrong. If it is significant, let's deal to it.
Well, if you search far and wide you will see there is an awful lot of credible academic literature supporting supply side influences. I go with the credible data/ research, every time, over lazy anecdotes and speculation..
Insatiable demand' - again, let's see if your theory has legs once we see the data. 5-8% foreign purchases would not indicate a huge torrent of foreign investment having a big influence. 15-20% plus would. So let's see. I, for one at least, keep an open mind and will go where the data leads....
These suggest many factors driving prices, not just 'supply':
http://www.tandfonline.com/doi/abs/10.1080/02673037.2010.511161
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1751404
Australia & NZ probably have a 10-fold whammy going on with immigration, foreign buying, international student boom, local investors, unintentional landlords, construction costs high, building supply duopoly making it uneconomic to build low/,pmedium cost houses, strong desire to own by non-owners, no capital gains tax, global flight from terrorism & similar issues, Auckland being one of several very desirable cities, etc.
The 'data' may not show a high % of purely nonresident buyers owners as many will be buying via resident relatives etc.
So how do you suggest we stop buying through 'resident relatives'??? That sounds incredibly fraught / unrealistic.
Once the Unitary Plan is through that should make a difference. Suddenly large swathes of Auckland will be feasible for redevelopment. And I personally know 2-3 entities that are looking at modular / prefab to cash in, so the building costs factor will be partly dealt to
So you think we can out build demand? I'm sure you're aware of the latest immigration figures. Sure, supply is part of the equation but if you have massive demand there's no way supply can solve the problem alone. The easiest solution would be to reduce demand with some sensible policies as well as address supply. These policies would be physically easier than having to pay for more houses and the required infrastructure.
Could you please post some studies supporting the supply-side argument? I'm genuinely interested in reading this research,.
Sure, I still say demand side measures are important. But supply side is more important.
I agree we should reduce immigration, for example.
Literature? Try Glaeser (Harvard), Gyourko (Wharton), or google 'Paul Krugman housing planning'.
Also try 'OECD Sanchez housing'.
Also, this from Obama's economic advisor:
https://m.whitehouse.gov/sites/default/files/page/files/20151120_barrie…
This from the UK is also very good (done by the London School of Economics for the UK govt):
https://www.gov.uk/government/uploads/system/uploads/attachment_data/fi…
And there are many more. But I'll let you find the truth yourself - enjoy and good night.
Cheers, I'll have a read.
Don't get me wrong, I'm not saying supply isn't important. I am just annoyed that our retarded government is focusing 'solely' on supply and completely ignoring the demand side of the equation. If they were serious about addressing this they'd be tackling both with vigour.
If there's a lot of ghost houses in a market surely at some point a correction will occur. The real problem is the cheap foreign borrowing costs that can allow such massive market distortions to happen. What is a house for if no one will live in it? Has it become a tradeable financial instrument? It's all becoming a bit bizarre.
what happens when the advantaged try to defend the indefensible
aussie PM could lose the election on this one issue, spending billions each year on Neg gearing
http://www.dailytelegraph.com.au/news/national/federal-election/budget2…
The answer is simple ,,... a land tax for ALL residential properties in the Auckland area, with the ONLY exemption, is that a property is the PRIME place of residence. This tax could then be used for the IRD to follow up each and every "exemption", that would undoubtedly be applied for by all the greedy "TAXPAYER FUNDED" LANDLORD BENEFICIARIES out there, that own more than one property.
If the property was empty a Land Tax would still have to be paid, while any rented property a land tax would have to be paid - no further questions needed.
Once this tax income was up and running, it could be used to improve and grow the extra transport and services needed in Auckland, while dampening the demand for 2nd and subsequent properties and give an advantage to those who just want one house to live in - not 35 !! - a "win-win" in todays parlance......thoughts ?
The ducks are lining up here. Mass immigration, a lack of integration, the whole NZ way of life and egalitarian philosophy under threat. The housing shambles has been created by appalling mismanagement at a national and to lesser extent local level. And the financials are truly terrifying. Sad thing is, there will be many youngsters who will be hurt by the inevitable correction. Nero has fiddled while Rome burns, I think. Greed and a lust for power will destroy the country and values so many of us love.
In case you didn't know
infrastructure issues outweigh supply issues
Last year, Treasury found 24 Auckland special housing areas with a capacity for 7500 dwellings had been declined because of "a lack of available local infrastructure."
http://www.nbr.co.nz/article/treasury-eyes-asset-buy-back-scheme-get-au…
Actually in a deflationary spiral
http://www.smh.com.au/business/the-economy/australia-sees-deflation-for…
Clever strategy by the JK. Feigning concern, he appears to be considering action, but in reality he wont do anything. Trust structures mean that it’s nigh on impossible to distinguish a foreign vs a New Zealand owned property. The only way to do it would be a hefty tax on non owner-occupied houses, but that would bring about dramatic shifts in property values across the country hurting mainly Auckland rentvesters who've already been screwed by the government and the Chinese.
I don't like the idea that the best way out of this is to build as much as possible as quickly as possible. There are countless lovely, desirable places in the world which could be ruined by runaway or poorly considered development. Hypothetically one could build a bunch of Stalinist looking apartment blocks in Remuera which would accommodate a lot of people, but along the way you made Remuera a lot less attractive than it was in the first place.
'Agree' - please elaborate.
It's a myth that Auckland needs a whole lot of high rise. Plenty of density can be achieved over 2/3 storeys. That delivers better affordability too. 2/3 storeys is really low impact, provided you maintain some rules around shading etc.
Sure, protect really important heritage areas, but there are large swathes of suburbia that are just run of the mill.
Yeah?, here's a better one. NO non residents able to purchase jack boo in this country! Not our homes, our farms, our land, our water rights, our forests......NOTHING!
They want a piece? then come and invest your time and life at our invitation only, become an official resident, pay our taxes and maybe.....maybe we will let you stay. you are welcome on OUR terms.
Ohh, and the $10 million waltz in needs to end also
You bring up a good point. I would go all US in that regard, in so much as reinforcing our rights as a sovereign nation to make our own rules and regulations, but of course politely and without the threatening fascist police state exceptionalism they express. :-) I can say these things Fritz cause my partner is American. She loves me regardless
Fairly short sighted view there Justice, so let's say your idea is approved an then every other country approves it, then what are we, we are then totally landlocked in the south Pacific cut off from the rest of the world unable to purchase property overseas, is that what you want?
Hmmm....with our 2 frigates and 4 Hercules, let's go exert our pan Asia Pacific sphere of influence, oh yeah,that's right, one marine brigade could take us out, but don't worry as the kiwis are such nice guys the Chinese won't invade to make golf course, come on, think about for just one minute
Hmmm....we don't have sovereignty over the pan Asia Pacific region but surely we have every right to exert sovereignty over our own lands. Something we do in fact do and something other countries generally respect. It is when countries fail to exert sovereignty properly that they are in danger of being invaded. Like when we once thought about invading Fiji.
A land tax on foreigners would be xenophobic and disgusting
Foreigners, you know citizens of other countries, people who could buy everything in NZ and make your children serfs. We are not talking about the Patels who own the dairy down the road. It amazes me that people think after thousands of years of human struggle and conquest that these drives no longer exist, that they suddenly evaporated. Europe is being invaded as I write and its welfare largess looted.
Gang of migrants demanding ‘respect’ smash way into Paris school and refuse to leave
SMH at your lightweight comments Steven. More foreigners:
And yes I would characterize myself as a Daily Mail reader and also a Trump supporter. I thought everyone knew that?
I find it interesting that as an expat Kiwi with investments in NZ I cannot fart without getting Fatca (The US 'Foreign Account Tax Compliant Act') and NZ IRD involved with analyzing the makeup of the gaseous contents and yet there is no portion of the government that has a record of who buys what with regard to real estate and other foreign investments? These statistics should be at their fingertips. Is it just a stall tactic or are all the NZ statisticians on holiday?
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