The International Monetary Fund (IMF) suggests introducing a stamp duty or more comprehensive capital gains tax would help cool New Zealand’s over-heated property market.
Completing a routine check-up on New Zealand’s economy, the IMF praised the responses of the Government and Reserve Bank (RBNZ) to COVID-19.
Yet it warned: “The rapid rise in house prices raises concerns around affordability and financial vulnerabilities.”
It said a “comprehensive policy response” was required.
On the demand-side, the IMF said: “Introduction of stamp duties or an expansion of capital gains taxation could reduce the attractiveness of residential property investment.
“The authorities should differentiate in these approaches between first home buyers and investors, while continuing to provide selective grant and loan assistance to first-time buyers.”
The on the supply-side, the IMF said: “Achieving long-term housing affordability depends critically on freeing up land supply, improving planning and zoning, and fostering infrastructure investments to enable fast-track housing developments.”
It warned a “pronounced correction” could be triggered by unsustainable house prices relative to incomes, a tightening of credit standards, or a sharp rise in mortgage rates.
The Government is expected to announce policy changes aimed at cooling demand by speculators within the next couple of weeks.
Providing more general feedback, the IMF said: "Decisive and unprecedented fiscal and monetary policy responses cushioned the economic impact and supported a swift recovery of activity to above its pre-crisis level. However, the recovery has been uneven, with some sectors and workers disproportionately affected.
"While no additional stimulus is needed at the current juncture, fiscal and monetary support should not be withdrawn prematurely given the still-uneven recovery and continued high uncertainty. The authorities should stand ready to deploy additional monetary and fiscal stimulus should downside risks materialize."
99 Comments
I honesty cannot think of any reason why he hasn’t made this announcement already. What does COVID have to do with this? What an excuse? Just because there is a virus, the government stops functioning? His excuse is terrible? Is he waiting to list his many houses and take non taxed profit first before making this announcement that might not favour him and his fellow ministers?
Do you hear, Jacinda? Raise the Bright Line Test for property investors from 5 years to 99.
On the demand-side, the IMF said: “Introduction of stamp duties or an expansion of capital gains taxation could reduce the attractiveness of residential property investment. “The authorities should differentiate in these approaches between first home buyers and investors, while continuing to provide selective grant and loan assistance to first-time buyers.”
And while you're at it, abolish the tax credits available to property investors on their loans. As Jenny Ruth says in another forum: 'Some have suggested the government could go further and disallow mortgage interest costs to be tax-deductible. Not bloody likely. I'm betting the government won't touch this idea with a barge pole because that would destroy the economics of property investment and lead to investors fleeing for the exits. That certainly would lead to a sharp fall in house prices, not to mention disruption for tenants. Listen carefully to what both Ardern and Robertson say about house prices, though: they both say they want to see house price increases moderate. They never say they want house prices to fall. Obviously, homeowners vote.'
As Jenny Ruth says in another forum: 'Some have suggested the government could go further and disallow mortgage interest costs to be tax-deductible. Not bloody likely. I'm betting the government won't touch this idea with a barge pole because that would destroy the economics of property investment and lead to investors fleeing for the exits. That certainly would lead to a sharp fall in house prices, not to mention disruption for tenants.
Which is why such a change would be phased in over a longer time period, perhaps 10 years. Problem with phase-ins like that is when the government changes, the new government is often likely to halt or reverse it, like National did when they froze kiwisaver employer contributions at 2% and repealed Labour's tax cuts that would have put the top threshold up to $80,000 and reduced its rate to 37% from 39%.
'Oh no I only made $67k out of capital gains this month rather than $100k, i'll never invest in housing again!' said no investor ever. It's a yield game as long as interest rates are suppressed. CGT will not solve housing, it'll only solve perceived fairness (and only for investors holding beyond the bright-line period of 5 years). Short of making it unattractive for investors (interest rate rises) or harder (crank the LVR, or remove the ability to leverage property to buy more property) the only way out of this hole is fixing supply.
Fritz,
We have CGT-it's called the Brightline test and for a very long time, it has been possible for the Inland Revenue to tax individuals who are deemed to be trading in property for the purposes of capital gain. So, in theory, the government could argue that a fullblown CGT would not be a new tax, merely the extension of an wxisting one.
However, I am will to bet heavily that they will not do so.
Although they already did extend the bright line test last term, extending again would appear to do something but more likely just delay existing investors from selling until the period had passed, with negative implications on buyers and availability.
Each action the Labour government take to try and control the market movement has unintended consequences.
The market is reacting to the incentives the government generate with their interference, but they seem incapable of understanding this.......
"The Government is expected to announce policy changes aimed at cooling demand by speculators within the next couple of weeks." Grant said that weeks ago, Jenee. Or at least he said, mid March. Prior to that he put it off "because Covid"
Did the dog eat his homework (again)?
Stamp Duty and/or CGT will just end up being capitalised into the price of property as it comes up for sale. Any additional costs will.
Many buyers are sellers of existing holdings, and in setting their selling price they will include any CGT impost. Likewise, they'll know that they have S/D to pay on the next acquisition and will add that to the sale price of what they currently have.
Only reduction in the ability to pay - a non-capitalisable item - will affect the market price.
If you can't borrow, you can't buy.
It's not that simple. A seller can set their desired selling price, but if buyers aren't prepared to pay that price then it's not going to be the actual selling price. New investors in particular will know that CGT will be eating into their future profits, so they will be mindful of overpaying.
A further complication is the own-home exception. Means that owner-occupiers can essentially undercut investor prices which will help prevent investors from just passing on the CGT.
IMF looking at part of the equation, but not the sum of all the parts involved. If you can leverage the equity then there's no reason to sell, so a stamp duty or CGT wouldn't hit.
That's not to say we shouldn't have stamp duties - we should, and they should scale aggressively when you're buying a 2nd, 3rd or 4th property. But without a cost for holding your 2nd, 3rd, or 4th property then there's no reason to ever sell. Both the transaction and the holding costs need to be considered to be effective.
Don't we have a rental housing shortage? Don't we have 22,500 families on the public housing waitlist? So why would we want to make rental housing "unattractive"? So that every renter ends up homeless? Usually when there is a shortage of something the intelligent and logical answer is make it so you encourage more of that thing, not less. The current Labour party's policies have punished those at the bottom of the housing market, in order to try and turn more of the middle class into homeowners.
Just like the people who don't understand basic economic principles keep calling for rent control. It doesnt work, it reduces the supply of housing further, and pushes up house prices for those well off enough to be able to buy a house, while screwing over those forced to rent. And if you actually needed any proof of that - here is a real world rent control failure.
https://www.economist.com/europe/2021/03/09/after-a-year-berlins-experi…?
"But the problem, entirely foreseeable and foreseen, is that the caps have made the city’s housing shortage much worse: the number of classified ads for rentals has fallen by more than half."
We actually don't have a shortage of properties. Pretty much everyone went to bed somewhere last night.
What we do have is an inequitable distribution of properties. ( We have 3 AirBnB's in the street that are sparsely occupied for instance. They were previously longer term rentals)
Make the LVR 0% on any secondary property, other than sole ownership per person, and those wanting to add to their portfolios will have to stump up the whole purchase price to proceed. I have no problem with that.
But the days of encouraging speculative investment with what is a necessity must be reversed.
Agree at the macro level, but we do have a chronic shortage of affordable rentals for people on low incomes, unless we are OK with thousands of people going to bed every night in motels (millions of Govt dollars we could be spending on infrastructure / houses).
We need to freeze rents for 3 'post-Covid recovery' years, introduce a 1% of land value tax for rental properties that increases by 0.5 percentage point annually, and a capital gains tax of 39% obviously. They could call it an affordable homes levy or something equally catchy.
So to summarise, your proposal is to:
1. Freeze rents, preventing landlords from increasing their rental income
2. Charge a land tax specifically to landlords holding rental properties
3. Charge 39% capital gains tax specifically to landlords who sell rental properties
Sounds like you're basically just dipping into landlords bank accounts at that point.
I know that not all landlords are extracting untaxed profits from the public and private purse. But, any sensible analysis of the NZ housing market would conclude that 35% to 40% of sales to investors is batshit crazy (compare with 15% - 20% in the UK). Hence, if we are going to release housing stock for first time buyers or not-for-profit affordable rental housing then you have to put the squeeze on private landlords. It's not personal.
Yes and you are forgetting that people are being forced into renting by having to compete with property investors. I lost a few auctions against property investors, if I would have won I would have left my rental and moved into the new place as an owner occupier. Someone else would then be able to rent the place we currently in now. The only difference in that scenario is the price would have not been inflated by the investors bids.
IMF's suggestions are for decreasing housing demand while the government are working on housing supply. At the current situation, the housing market is overheat. That creates more demand from existing investors. These investors are going to chuck absolutely whatever they have into houses. It doesn't matter how many houses you build. They will use their existing investment properties as deposit to buy more. There will never be enough supply until the real demand comes down, a hard correction on housing market. Then the financial stability is on the line.
We have a shortage of land zoned for development. Think about it this way this website reports that agricultural land trades at $25,868 per HA. 1 HA is 2.471 acres so the price per agricultural land is $10,468 per acre. You probably want a quarter acre section to build on which is about $2617 per quarter acre section. Now what seperates agricultural land from developable land? Regulation.
Unlike many Western European countries New Zealand has a tiny population, land is plentiful and cheap. The entire property market in New Zealand is a massive bet against zoning laws ever being rationalised. I've lived in a number of countries and New Zealand has by far the worst zoning laws for restricting development but I wouldn't say that the cities as beautiful at all either. The system is a shambles.
Hi Jenee,
So many ways for government to tackle the demand specially speculative demand but though they (Jacinda Arden) may show concern (crocodile tears) in reality have no intend.
National was better as they never shed crocodile tears and were open about the fact that housing crisis is a Good crisis unlike Jacinda Arden, who too admits that housing crisis is a Good crisis but does not admit - she is a hypocrite and this crisis has exposed her.
[Completely unnecessary and offensive comparison. Removed. Keep the conversation on the issues. This personality-based slagging isn't needed to make your point. Final warning. Ed]
Stamp duty should be on second property otherwise will hurt FHB more but yes extreme measure require and the PM must realise that in NZ, have to act and act soon without giving window of opportunity like introduction of LVR from March as a result speculators went on rampage in February to beat the deadline.
They've double/tripled down on 'no new taxes' so won't see stamp duty even though it's a logical next phase on non primary resident homes (hard also to police this, a lot of people would suddenly have change of circumstances that mean the unintentionally end up renting their primary residence)
Just exempt first home buyers.
Current owner occupiers don't need a handout, they have the capital when it comes to a sale to pay for stamp duty on their next abode. Will lead to a far more cautious and safer housing market than the rampant buy without thinking cause even if it's a shithole will be worth more next month mentality.
Scraping interest only loans first low hanging fruit they will pick.
Likely extend brightline is second move.
Scraping interest only loans won't change much as banks assess servicing ability on principle and interest at higher interest rates anyway - it will net a little more tax as investors can't set it up so just owner occupied is paid off leaving deductible interest on IPs to be maximized.
Brightline extension will make things worse. Low listings at present are due to many investors worried about selling within 5 years and getting caught. Extending this will be a mistake but one they'll probably walk straight into
Its the Brightline extension from 2 to 5 years that has caused the listing drought. Houses purchased in 2018 and 2019 would have now been back on the market, but instead the Labour Govt removed 2 years worth of stock. There is another 3 years to go. Only then will stock start to hit the market again. Except that the Govt will extend the Brightline again, so ooops, now we will have a permanent supply shortage as people sit on empty or partly occupied homes because they don't want to incur tax.
"While no additional stimulus is needed at the current juncture, fiscal and monetary support should not be withdrawn prematurely given the still-uneven recovery and continued high uncertainty. The authorities should stand ready to deploy additional monetary and fiscal stimulus should downside risks materialize."
When, if ever, will downside risks evaporate in response to stimulus, which apparently has to be applied in-perpetuity elsewhere?
#ECB leaves rates unch at record lows. Deposit Facility Rate at -0.5%, Main Refinancing Rate at 0. ECB affirms size of Pandemic Purchase Program at €1.85tn. BUT ECB says PEPP purchase over next quarter significantly faster."Link
They essentially killed kiwibuild, which could have allowed first home buyers to buy new cheaper homes. Kiwibuild was so flawed, and basically has thousands of FHBs fighting for only a few house, because it is not attractive to developers. Why would developers want to build kiwibuild homes, when they can make far more money by building normal homes?. That could have then allowed investors to buy the rubbishy cheap old run down rentals that first home buyers would normally buy. Instead first home buyers are in competition with investors, so FHBs are having to buy more expensive existing houses, and get into huge debt, and the lack of supply is just pushing them higher and higher.
You got it backwards. Developers loved Kiwibuild because the Govt guaranteed to buy the house if they didnt sell. So what developers did was jack up the prices of the Kiwibuild houses above the market price of non-Kiwibuild houses, and when nobody bought them, they sold them to the Govt for that inflated price. It was a rort. And the Govt ended up owning millions of dollars of houses they will lose money on (and maybe that explains why the Govt is so keen for house prices to rise?).
It takes a certain degree of smarts to see this. Many voters cant connect the dots. In the office I ask the renters who are labour voters how they feel about 30% plus price rises in Auck housing under the current Government. Is it offset by hugs and kindness? Milked all the way to the cow shed....
Isn't the IMF the team name in Mission Impossible? Lets hope their message doesn't self-destruct in 5 seconds....
Interrogate numbers long enough and they'll tell you whatever you want....
Suppose everybody has an opinion on how we should run our country... even the impossible mission force
Was suppose to announce in February but used the excuse - panademic and had delayed till mid March and now another couple of weeks.
Intent is missing by government.
"The Government is expected to announce policy changes aimed at cooling demand by speculators within the next couple of weeks."
Our housing crisis was made worse the minute the RBNZ dropped interest rates to all time lows and stood back and watched investors snapping up properties. I remember Mr Orr saying that TD holders would put their money elsewhere, i.e. the stock/bond market - is he really that stupid?
Spot on - it's just too obvious?
The same approach is also the answer to negative equity if house prices fall. Govt buy land and lease it back at discounted rate to the home owner whilst they live in the house. All money received for land must be used to pay down mortgage.
The IMF is not right.
Most of the capital gains have been made. We are near a top with near bottom in interest rates.
Also its not housing that is increasing in price it is the land.
A land tax would address the issue more directly and better drive efficient land use in the future.
True. But we do perhaps need to change the tax system to better balance it better, to account for how homes are now considered to be part of peoples investment portfolio. They did this by increasing GST about a decade ago. Previously someones house was just a place to live, and not an investment. But that has now changed, especially since the government has said that most people expect their house to go up in value. This means that it is now an investment. Whether that is land tax etc. Although people are already paying a form of land tax in their rates.
Correction on the horizon
IMF warns of 'pronounced correction' in NZ's housing market
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Some further solutions that really aren't that radical:
Increase the OCR - there is evidence that going below 2% fails to be stimulators anyway. Stop using CPI as the measure of inflation when it fails to account for housing in a meaningful way.
Remove the unfair "internal models" the big four can use
Increase the risk weighting applied to residential mortgages from 25% to 50% (or more) and lower business interest rates so we see capital flowing to ACTUALLY productive parts of the economy
Charge property investors at business interest rates
Slowly remove the accommodation supplement over the next 5 years so landlords can't guarantee an additional $100 of rent per tenant as a price floor
Limit the maximum number of properties a person can hold
Implement a land tax and offset this against the bottom tax bracket
Implement a 1% RV tax for vacant homes and have heavy fines for non-compliance
Introduce DTI to the RBNZ toolkit
Stop allowing leverage off unrealized equity from increasing housing values
There are so many workable solutions its no longer excusable there is no action.
Until we take some steps addressing the unaffordability of housing in this country we will only see increasing inequality and poverty, declining productivity, dealing birthrate, increasing crime and increasing mental health issues.
I would love to see this country return to its deeper values of fairness and community.
Why JA won-- She promised to make housing affordable.
What she has delivered-- Opposite to what she said.
What action she has taken-- None
In whole process she always thinks she is saving the economy by not taking action, but forgets that she is baffling the voters who gave her the mandate. One more thing, she forgot that she can (at least try) fulfill the need of needy (FHB's) but never did; the greed of the speculators/investors (they want the whole world in their pocket).
She proved she is real politician (thick-skinned and manipulative). Kudos to her but her decision will impact next generation adversely.
Don't know why she has changed the way people think about her in last 6 months, can't even tolerate to see her face on TV. Better she stay on Facebook and BS in front of camera where no one asks her real question.
Because people are now realising that there is no substance to Jacinda, she's all talk (what can one expect from a Communications Studies graduate) and no substance (possessing no real world job experience or background in business/economics). You can only bluff your way in front of a camera for so long - sooner or later you have to start walking the talk, and she can't.
Old snake face Christine Lagarde, she should be in jail, she was found guilty after all~!! Though I tend to agree with the IMF's comments.. it's a Trevor Mallard situation where the leader's criminality/corruption drains credibility from the institution.
The IMF are terrible in general, especially the economic harm they've caused to citizens of developing nations.
Wrong tree again!
Capital gain taxes and land taxes won't work. Our mates across the ditch has some of the steepest taxes on both but it didn't stop Sydney from breaking a new record with a median house price of AUD 1.06M.
http://a.msn.com/00/en-us/BB1esDTZ?ocid=se
It's just a money grab and ENVY tax.
Actually, look at the chart in the link you posted. It is from the original CoreLogic report. What it shows is that Sydney prices are back to the equivalent levels of 2017. That is completely different to the Auckland house price which is +22% higher over that same time. You have to concede that perhaps their CGT is part (most?) of the reason it is so much less in Sydney.
It may be an effective revenue raiser in Australia, but it may also be the reason their prices are not rising anywhere near as fast as here. CGTs might work just as well here. There are issues with CGT's I agree, so I also think land taxes might well work even better. Certainly they would encourage "asset rich, cash poor" boomers to downsize and bring so many more listings on to the market.
Prices are not rising as fast because Australia has been, and is on a building spree. If anything the Sydney market is considered over supplied with housing. Its nothing to do with taxes.
https://www.afr.com/property/residential/oversupply-and-weak-demand-to-…
KW.. of course tax has to have some kind of effect although it may be very small. Just like with stocks, people with real expertise understand that you can never accurately apportion the degree of effect of various things on the direction of house prices or stocks. There are so many factors that impact price that it is far too difficult to accurately quantify it. This century, much has been written about it in relation to stocks, not so much in regard to housing but it is the same principle. This is why so many of the best investment companies now put large amounts of money into ETFs rather than playing the market. It is their indirect admission that they are unable to beat the market through accurate quantification.
However, were you silly enough to listen to economists and hedgehog property experts you would hear all types of detailed and dubious quantification. In terms of any type of investment, IMO the smartest answers are usually I am not sure and it depends.
Hi David, Don't you feel no action from government is taking thing things too far as they feel invenciable - No one can touch them attitute.
Think Jacinda Arden downfall has started. Trying to get national supporters and taking Labour's supporters from granted. She is loosing both.
CK.. exactly, just try it. We have a lot to gain and very little (or nothing ) to lose. We should now be doing absolutely everything (within reason) that even might help to fix the housing crisis. Brainstorm possible solutions and just implement almost all of them for 2 years and evaluate.
You can tell your dealing with a narcissist when the envy card gets played on this. And as I’ve said in the past I’ve noticed a high correlation between personality types that get into property investment and narcissistic personality disorder. It must be the self-cantered point of view, sense of entitlement and lack of empathy as well as control over others that attracts them to it.
https://www.psychologytoday.com/nz/blog/compassion-matters/201411/are-y…
IO... maybe a lot of them become narcissists after they experience the power of money and having power over how and where others live. As a landlord I was cognizant of this power over others, and frankly uncomfortable and almost embarrassed by it. My remedy was to trust tenants enough to inspect properties once a year, never complain about small amounts of damage (from picture hanging etc) and to never increase rent on an existing tenant, some of whom remained tenants for many years. It was my way of showing appreciation and the effective rent discount was their share of the huge profits they were helping me to make (through ridiculously high and untaxed capital gains and insanely investor friendly tax breaks).
However, when reading many of the comments on this site and article after article in places like One Roof about how to maximize rent, protect your property from the big bad tenant etc I feel the average property investor has become a cold, unkind and uncaring soul. How many investors today can honestly say that they view their tenants as a type of customer who they rely on in order to run their own smooth and profitable operation? And how does the average landlord today actually show their appreciation with anything more than a box of chocolates at Xmas and the odd thank you (if the tenant is lucky)? Yes, investors are running a business but that is little excuse for losing their sense of humanity.
Housing issues seem to be far more damaging to NZ as a whole than cov19 ever was, in hindsight.
Vaccine is being rolled out, yet housing market cures are still being considered?! Some may see it differently.
I read the IMF report released last June/July on general cov19 fiscal response scenarios where moral hazard was discussed, around winners and losers due to cov19 defense policies. They called it moral hazard (apparently the ends justify their means?) and said governments all have the same issue not to step too far past it, lest the losers find out and act in rebellion. However in a NZ not affected by cov19 much but yet housing is the new death threat for more (especially younger?)
,Then it appears to me that the moral hazard has been well overstepped by financial controllers - and now we have lovely news articles like this to read.
I have heard from a lot of NZ locals saying due to this, the social contract has now been broken.
As you all know few things cannot be undone no matter how hard you try. But here Labour even don't want to try, so forget house prices will come down (now it's next to impossible) as some of you already said too big to fail.
What ever will happen in coming months it may reduce house prices about 2% to 5% but that will be recovered soon (be assured). This Govt. is a joke & JA is chucklehead smiles at people misery. The only business left in NZ is buying houses which is totally sponsored by our Govt.
Because that's been so successful in Australia?
Reading regular IMF reports is like reading a Labour Party manifesto.
I note again the negative description speculators that media keep parroting, when mostly it is investors, and Ma & Pa buyers being talked about. (although Labours policies have just about managed to exclude Ma & Pa investors now)
Jacinda, what is money?
Thanks Jacinda, Grant, and Adrian for continuing to destroy the purchasing power of the kiwi dollar... I could never have increased my wealth so quickly without your help.
Instead of introducing a new tax, a stamp duty or other ideas, STOP debasing the remaining value of our fiat currency and anchor it to something real. You are creating the inequality. Inflation... Velocity... We aren't seen nothing yet... Thanks again, Jacinda.
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