By Susan St John*
This is the speech I would like Grant Robertson to give in the New Year.
A very happy New Year to all New Zealanders.
We are so lucky to have our freedoms and to be able to enjoy the summer break due to our successful COVID policies. But there are other threatening crises that we must be brave enough to tackle in 2021.
Clearly, one of these is the housing crisis. The way the current market is behaving is the driver of severe and damaging inequality. No one predicted in early 2020 that by the New Year house prices would be escalating in a widespread speculative bubble. As housing continues to be the most profitable way to accrue wealth, we are seeing gross distortions in the allocation of our scarce building resources.
Neither did we foresee that the precarious rental market would leave so many destitute, that so many families would not be able to feed their children after paying extortionist rents, nor that there would be an increasing proportion of society shut out of the opportunity to ever own their own homes. The housing situation is not only bad for low-income New Zealanders, but it is also bad for the higher wealth and income individuals who are pulling ever further away from the rest. No man is an island. Societal cohesion and a sense of community are disintegrating.
Research shows that few landlords are paying their way with the majority returning close to zero or losses after they deduct costs such as interest on loans. If they can’t make a decent return on their rentals, one can only presume they expect the return to come from future capital gains. Savers who are not happy with a low return on deposits are stampeding into property as it is seen as a safe haven for their money. This one-way bet has indeed enriched the lives of many at the expense now of the growing legions of impoverished citizens.
The bright line tests pick up some but not all short-term speculative gains made in this frothy market. These must continue and be tightened. But they will not be enough.
Loan Value ratios (LVRs) are another tool and fortunately some of the banks are already taking responsible action requiring higher deposits for investment properties. It has been suggested that investors might even be required to find at least a 50% deposit. But this tool alone will not be enough.
We could disallow interest costs to be deducted against rental income but this does not touch the heart of the massive accumulated gains made by wealthy property owners.
Building more state housing is of critical importance. But more supply will be slow and not enough to limit the damage of the current unconstrained bidding war.
The Labour government believes that neither a capital gains tax, nor a land tax, nor stamp duty, nor a wealth tax is the answer. But we do think that the income tax base should be widened so that better-off people pay tax on their non-cash housing income.
But we have no desire to affect the vast majority of home-owners nor to penalise good landlords. We need a better system that sends the right signals to investors by levelling the playing field. We seek an end to the holding of houses for capital gain, empty houses, poorly rented houses as landlords wait out or evade the bright-line test. We need to end the practice whereby wealthy home-owners accrue tax free fortunes by investing in ever more elaborate homes using materials that could be diverted to building more state houses and low priced private homes.
If nothing is done and housing ownership rates continue to fall as prices accelerate, then we are headed for a landed gentry class completely at odds with egalitarian ideals held by Labour and one that will further entrench the wealth gap between Māori and Pakeha.
Here is the plan that the Labour government is announcing today.
All the other policies such as brightline tests and LVRs remain and will be strengthened.
In addition, on 1 April 2021, a person will list all their residential real estate holding’s CVs and deduct any registered first mortgages to give their net equity in each property. For the year ended March 2022, their total net equity in all housing outside of a modest family home will be deemed to have earned an annual return that will be included in personal taxable income. New Zealand already does something similar to this in the foreign investment fund (FIF) tax rules that deem an income of 5% on the opening value of investment.
For the majority who own only their own home there will be no extra deemed income as an owner-occupied house will have a per person $1 million net equity exemption (i.e. $2 million for a couple). However, soft loans from mum and dad cannot be used to reduce net equity. Total net equity is treated similarly to having the same sum on deposit at the bank where the interest earned is fully taxable at the marginal tax rate of the individual. The rate of return or deemed rate will be a policy lever and will initially be set at 1%.
While the current CV may underestimate the current house value, it is readily attainable, standardised, and relatively uncontroversial. If sale prices increase, capital gains will accrue and will eventually be reflected in higher CVs.
This approach would save landlords the trouble of filing rental tax returns and the need to pay high-priced accountants to generate tax losses. Murky issues disappear like how airBNB is taxed, or boarders, or what is a capital expenditure and what is repairs and maintenance. Good landlords who were filing rental profits may actually find themselves better off and we are happy that they are rewarded. We need good landlords who are genuinely providing a social service, but just as is done in Berlin, we are also investigating policies that require that rents are reduced over time at least to pre-covid levels.
Those individuals with multiple properties and high-priced owner-occupied homes will pay more income tax as is required to reign in this housing bubble. The impact is progressive. The better-off older age group is more likely to have high net equity in their own homes and if there is no cash flow to pay the tax, it can be set as a debt against the property’s eventual sale or the death of owner. Those with high equity on lower incomes would pay tax at a lower marginal rate. Young people even if in expensive family homes, are more likely to have large mortgages and unlikely to exceed the $1,000,000 net equity exemption.
How would it work in practice? Let’s take the example of Peter and Laura who own a $3 million dollar home and are mortgage-free. They also have a mortgage-free family bach valued a $1.2 million that is rented during part of the year and generates a tax loss. Thus, after the $ 1 million exemption applied to their family home, Peter and Laura each have a net equity of $1.1million that is deemed (at 1%) to earn $11,000. Peter pays tax at 33% or $ 3300, while Laura is on a tax rate of 17.5% and pays $1925. If they also have a $1m net equity in a rental property, they will also each be taxed on their share of the $10,000- imputed income but do not need to also do a tax return for their rental income.
Some may argue that the inability to deduct the costs of maintaining a rental property will be a disincentive for landlords to do essential work, but rental healthy homes regulations will still apply. If landlords who are mainly there for capital gains exit the rental market, house prices may fall making it easier for first home buyers.
If real estate is held by companies or in family trusts or other kinds of trusts even if the property is used as a family home, there would be no exemption and the imputed income would be taxed at the company or trust rate. There is no incentive to reduce net equity by borrowing more as the loan interest still has to be paid.
We are serious about tackling this social disaster and this policy will run alongside a commitment to state house building and an expansion of income-related rents.
The rate applied to net equity will rise to 1.5% in 2022/3 and, depending on the state of the market, then to 2% in 2023/24. This is a fair way of broadening the income tax base without increasing the rate.
Our primary intent is to redirect scarce housing resources to where they are needed the most. But extra revenue gains will be used to target support to those who are struggling, not like National whose tax cuts have favoured the rich.
Legislation will be passed early in 2021.
*Susan St John is an Associate Professor at the University of Auckland Business School.
259 Comments
Go West
.. land of plenty...
https://amp.news.com.au/finance/real-estate/buying/australia-will-pay-f…
She said there was a lot of interest now for “Airbnb-ready apartments” being sold by Juwai.
“They are pre-approved for short-term leasing, start from $303,000 and can deliver yields of 8 per cent,” she said.
Juwai says its Perth office now has more than a dozen overseas buyers who are taking advantage of the rebate, which can only be applied for after construction is completed and the applicant is registered on the title.
... I'd be taking a very broad approach : RMA reform , competition in building materials , infrastructure development via central government , not local councils , reform of councils consenting processes , investigation of Nimbyism effects on developments .... da da daaaa .. .
That’s not broad, that’s a myopic approach focusing only on supply. Building rates simply can’t match the supply of freely available credit that is available for housing. You need to create disincentives that deter people from using that credit to buy more and more houses. If that is not part of the policy then it is doomed to fail.
NZ is not the world in reality.
There is not some immutable law that says NZ house prices should be this high. Basic land economics shows this.
And until the early 1990s, we were emulating the Texas system. Having developed both in NZ and Texas I am well qualified to compare both systems.
And I think it is pretty obvious why certain vested interests don't want to emulate the Texas, Germany, Swiss, or other better systems. The question you could be answering is why you want to keep emulating the present system?
You made comment previously about 'giving up' on finding a solution to the housing crisis, or words to that effect.
I think you are standing so close to the NZ developer tree, that you can't see the world developer forest. I think you need to take a step back to get a better perspective and see the possibilities, which, granted are not the present reality.
Take these holidays to read a bit of Evans, Bertuad, plenty of background stuff on Hugh Ps site.
If there were fewer restrictions to supply, then competition would cause prices to fall, or stall, there would be less opportunity for capital growth and the supply of credit would be put into other investments.
The present policy is to create a problem and then offer a solution to manage the problem (which does not work), whereas the best solution is to destroy the conditions so the problem cannot exist.
If this is the report you are referring to https://www.interest.co.nz/property/103947/auckland-councils-economists…, then you can see in the comments where their non-logic was shot down. It is one of the most biased pieces of writing I have seen in ages.
The cost of infrastructure is mainly a red herring, with it being used by the council as a command and control monopoly. If opened up to some real competition, then prices would not only be delivered in a more timely fashion but also at a reduced price.
But you miss the real point, in that if the land was not restricted in supply then it could be bought at a lot closer to its rural value, so money that would have gone to the land bankers can, in part, go to council to pay for any infrastructure costs.
I read something different because I have the experience to see behind the numbers and reasoning that they put forward.
Their basic conclusion is the existence of the RUB has very little effect, SO it would naturally conclude that the RUB could also be removed and have very little effect. Thus they should have no issue with its removal, and yet they think that it means the status quo should remain.
Phil H comments on that thread summarise everything I haven't.
. .. agreed .... I take to heart the opinions of Hugh Pavletich of Demographia , and Oliver Hartwich ... both of whom argue that as a country we've been underbuilding since the 1970's ... back when the simple handbook of industry building standards was thrown out , and central government took over... it's been a shemozzle ever since . .. LVRs and CGTs are worse than useless ... more government meddling ...
Yes, you have hit the nail on the head.
The tax stick is a poor solution to removing the restrictions to supply and providing the 'carrot' incentive of a true free market, which is what great Govt. policy provides, to allow Adam Smiths' ''invisible hand' to operate.
You do realize that it is precisely the job of most academics in sciences and social sciences to study real world scenarios? By all means disagree, but implying that because someone is an academic their views have no merit is pure ad hominem.
By the way, I hope you're bloody well grateful to the academics who didn't stay out of the conversation regarding real world covid scenarios. If they had 'stayed out' we'd all be a lot worse off in NZ than we are now.
No. That's not a real distinction- it's just one you made up in order to slag off academics. Academics are researchers employed in the academy - I.e. in tertiary education. Plenty of scientists are academics. Including, for example, Professor Michael Baker. I don't think you realize how insulting you are being (both to scientists and academics) by saying that scientists arent really academics.
Academics are degree holding teachers/lecturers in Academia. Baker being one of them. Baker was good fodder for the media but didn't really contribute much other than opinions - mostly ignored. Lecturers need to stay focussed and ensconced in the Lecterns. Scientists provide researched, tested and reviewed solutions based on empirical evidence - not opinions based on personal perception or bias.
Majority of academics study it but not live it or experience it. I believe most academia is a farce now. What we used to have in canoe race was 1 captain and 10 people paddling. Now with academics everywhere. The race would be, 1 captain, 5 managers, 2 human resources, 2 culture advisors. 1 paddler.
Al, that is precisely the problem with this comment's section, everyone thinks they are experts in housing because they live in a house, that's why there is so much bad advice given. For comparison, I love good food and I have been lucky to eat in some top restaurants but I would never dare hopping on a cooking site and telling others how to cook because I know I'm not good the kitchen
No, it's not the same thing. Cooking is a practical skill that some people have, and it's pretty clear what it means to be a good cook. Everyone should be allowed to have an opinion on what policies the government should pursue - that's part of what it means to live in a democracy.
To see your problem, try to answer this question- in your view, what qualifies someone to be allowed to Express an opinion on housing?
.. agree with broadening the tax base ... to give relief to business & wage earners ... been advocating for resources taxes for years ... land ... water .... air .... simple across the board taxes that all users/owners pay ... no exemptions , no accountancy or trusts trickery to evade them ...
FFS, they're not "clever". Residential property investors are simply unskilled leverage jockeys riding the appreciation of a tax favored scarce asset.
Most of them wouldn't survive in the real business world, which is why they're so desperate to cling onto their privileges.
The interest rate is only higher than the tax on individually owned property. St John seems to have missed the point that most professional investors would be in some sort of commercial structure - LLC, Trust or similar. In which case the tax on imputed returns would be significantly higher than the interest on a loan.
"If real estate is held by companies or in family trusts or other kinds of trusts even if the property is used as a family home, there would be no exemption and the imputed income would be taxed at the company or trust rate. "
The thing you quoted only applies to the family home.
Investment properties, whether held in trust or not, must pay that tax. So what you've quoted is irrelevant.
Interest rates are 2.5% for 1 year at present, let's be generous and call it 2%. This imputed rent is 1%, with 33% tax paid on it by most (although some may pay 39%, and others only 19.5% or 30%).
If you have a $1m rental property with mortgage at $800k and the CV is $1m, your equity would be $200k, so you pay 33% of 1% in tax = $660. Your interest rate of 2% on $800k mortgage is $16,000. So your total is $16,660 interest and tax.
If you had no mortgage at all, you'd pay 33% of 1% on the full $1m, which is just $3,300, and the tax on the $800k that was mortgaged is $2,640.
If you think taking out mortgages so you can pay $16,000 in interest instead of $2,640 in tax is a good idea, then investing in property is probably not for you.
I disagree. A portfolio of freehold investment properties (say 3x 1mill) in an LLC set up already pays 28% of profit. If they are all freehold now they get to pay 28% of the "Deemed value". So assuming the structure is set up properly they go from paying no tax to paying 30K in tax. Personally I'd rather pay interest (tax deductible) on an asset as opposed to paying tax for no return
That's true. I got ahead of myself and used your '23/24 figure of deemed value and added some for CG.(7%pa) You would have to admit that after 3yrs of your idea the tax bill wouldn't be far off the 30K. It's a bad idea and just another tax grab that people will spend time and funds finding a way around.
The only way around it is to not have equity in property, aside from your owner occupied residence.
Owning property with a loan on it will see you paying more interest on that loan than you will pay in tax.
Having an equity tax on property that doesn't apply to other investments is a way to encourage other investments, which is what we need in NZ.
If anything, the 1% rate is just too low.
According to St John she had a rising rate of taxation. Granted she didn't mention a ceiling but is it not possible that the tax would at some stage exceed interest? Especially given that interest rates are picked to stay low for some time.
The thing I find concerning is that many business owners live in their company supplied housing (pretty much all Primary Industry owners) which under her scheme would be taxed. Paying rent to the govt for my accommodation whilst also paying for it's maintenance and rates is imv unacceptable. That is however just my individual opinion, but I doubt I'd be alone.
FH, no I don't have a mortgage (nor does my company that supplies the house I live in). St John doesn't rule out my company having to pay tax on the deemed return of providing the house, in fact she seems to have implicitly ruled it in. I do own a rural property and the house is included in the "Improvements". Under St John's regime it would need to be separately valued along with the associated curtilage at yet more expense. Her idea has more holes in it than a fishnet.
Presumably if your housing is provided by your employer, they are paying fringe benefit tax of some sort already. Therefore I'd expect SSJ's proposal could be easily excluded in such a case. And the fring benefit tax is likely to be more than the 1% of equity in the house anyway, I think, so if this tax applied instead it would likely be a tax break for your employer.
Her proposal is for the deemed rate of return to raise to 2%. Undoubtedly politicians would raise our lower it on future times, also, which is reasonable to do as circumstances change anyway.
Even if the tax is more than interest, because it is always levied against equity, and banks don't typically do 100% lending any more, whether you have $1m in equity in a single investment property, or $1m in equity in 5 investment properties with $4m in lending, you still pay the same total tax. Taking it loans for more property doesn't let you avoid this tax.
The only real difference is if you take on lending on your real estate and use the money on any other investment - in other words the tax is doing exactly what was intended, getting people to invest capital into something other than real estate.
My house is provided by my company of which I'm the majority shareholder and there's no FBT payable .Even if there was FBT payable it would be in addition to the Equity tax so there definitely wouldn't be a tax break.
As for your position on the equity, the tax would raise in real terms as the value of the property increased regardless of the actual percentage base.
"getting people to invest in something other than real estate" ignores the underlying fact that many people (probably the majority) don't want to start an enterprise nor do they want to invest in shares. Gold isn't that crash hot and I'd say many investors can't even spell Bitcoin and definitely wouldn't understand it. I know what it is and do understand it but I wouldn't touch it with a bargepole - and I have 7 figures invested in shares.
For these people RE is and always will be the go to investment
ignores the underlying fact that many people (probably the majority) don't want to start an enterprise nor do they want to invest in shares
Oh, well I guess that settles it, then. Some people "don't want" to invest in shares, so we'll just have an insane housing market creating homelessness and a huge swathe of poverty and misery instead, just because some people "don't want" to invest in shares.
Lanthanide, I think that's being a bit disingenuous. Are you proposing to regulate where people invest? Money in the share market, unless buying in an IPO, isn't really that productive an investment from an employment point of view - it's merely enriching someone who bought at a lower price and wants to sell (or fund managers if you don't invest directly). Even if there were no housing investors prices would still be rising. Take Lifestyle blocks - hardly an "investment" proposition and the majority are completely unproductive but the prices have been steadily and relentlessly rising due to demand. I'm sorry but your inference that people who are investment risk averse are somehow causing housing inflation is regrettable
Buying shares and having them go up in valve is being a savvy investor. Buying a house and it going up in valve makes you greedy and a low life. Making money out of providing a roof over someone’s head is wrong but making money out of selling food (more important than having a roof over your head) is absolutely fine. The solution to all of this nonsense is to set some rules that encourage the development of sensibly priced houses. The average size of a new build where I live is huge. Looked at building a house a few years ago. 1.18m for 5 bd/ 3 bath 240 sqm house inc land or 950k for a 3 bd/2 bath 140 sqm house on exactly the same site. Could have been 2 x 2-3 bedroom house which could have been sold for $600k buy council rules wouldn’t allow it. The site now has a 5 bedroom house on it. As do the majority of the other sections in the development. Look at what got built in botany... many massive houses.
... rather than a raft of convoluted deemed return rates and taxes to punish those who've made unearned capital gains .... why not simply address the issue : lack of supply .... tease away the impediments and handbrakes on the building construction industry .. . Encourage innovation ... fund infrastructure through bond issuances ....
I apologise Gummy. I did not mean to call you a 'loser'. I think your comments on this article about housing are quite balanced. I was trying to say and should have said more clearly that recent NZ governments should be held accountable for their actions/ lack of action on housing - dating back 20 to 30 years. That obviously includes the John Key led National party government.
. ... all good , Mr B. ... just a misunderstanding .... I blame all governments ( blue & red ) , plus councils .. for a dereliction of duty : our most basic human needs are food & shelter ... yet Clark / Key / Ardern oversaw massive hikes in house prices & thought it was a good thing , a sign of prosperity .... rather than the reality of a dysfunctional construction industry , and rapidly increasing poverty for non-owners ....
And when ministers do be made accountable & are sacked like Phil & Dave, they just rise again zombie apocalypse like.
Could be why the Speaker stays seated & speaking, evidence suggest he'd zommbie back.
- Makes you wonder about ILG though.
This is a brilliant idea:
https://www.rnz.co.nz/news/national/433638/13-percent-rise-in-cost-of-p…
Everyone becomes a activated supporter, or, recognised as mortgage paying motivated high performance team member.
I haven’t made a cent in real terms. I have a house. The fact that someone thinks it is worth more now than when I bought it is not particularly relevant. If I sell it, and buy other house, I still would have any actual money. To decide that I should now pay tax based on the made up value of my house is pretty harsh. Can’t see taxing people resulting in more houses being built.
I haven’t made a cent in real terms. I have a house. The fact that someone thinks it is worth more now than when I bought it is not particularly relevant. If I sell it, and buy other house, I still would have any actual money. To decide that I should now pay tax based on the made up value of my house is pretty harsh. Can’t see taxing people resulting in more houses being built.
10 years ago I took an empty commercial building and inside it I built 2 commercial tenancies (retail and offices) and 3 apartments. It took 2 years (due to Auckland Council) and I made no money doing it. Because it cost more than it was worth in the end.
So I rented them all out and held on to them.
And now I'm deemed to be some sort of evil person living off of the backs of poor people. All sorts of people reckon they should be able to tell me what I can do with the apartments I built with great difficulty. And which of course, wouldn't have existed should I not have built them. When in fact what I did was create 3 affordable housing units.
This lady didn't mention demand at all. What about the circa 70,000 people National and Labour brought in in the last 8-10 years? Hugs and kisses.
What about the Reserve Bank lowering the OCR evert time the economy stumbles? Driving up house prices. No mention of that.
The only solution proffered is to punish the evildoers, the landlords! Burn them! Burn them!
Davo, it's the unfortunate "baked in" envy that NZ wallows in. 40 - 50 years ago farmers were bearing the brunt of it for similar reasons - they had things the rest of the population wanted but couldn't get - new cars, boats and bachs at the seaside. Now it's the landlords turn. It's an unfortunate part of NZs psyche - quite shameful really.. imo
... question : would " greed " exist if we had ample supply of accomodation , such that house prices only inched up a % point or two annually , in line with inflation ... so much so that Kiwis saw houses simply as something to live in , not a speculative investment ... not a get rich scheme ..
Why would you do it, if not to make money out of it? Sorry, but landlording is little short of people farming in this country and it is little short of economic cannibalism.
Things really do have to change, if we are to salvage a decent society out of all of this. Renters under the short tenures this country offers, have no stake in the ground, no real connection with community and get bled dry with rents far, far too high for their earnings, so that landlords have to be propped up with govt welfare.
And the building code.... and the RMA... all adding considerable cost. But apparently it's just the landlords who are the problem.
So are you saying people should be able to build inferior houses? i.e. not meet the building code? And/or are you saying they should be able to skirt the local planning rules?
Or do you really think it's the covenants on the sections that are the problem? Because I can tell you, those are normally the least of the problems faced when trying to build a house.
Yes, absolutely, people should be able to build "inferior" houses, whatever the hell you mean by that. People should be able to build houses that meet their needs, not be subjected to building McMansions when all they needs is a cottage. A cottage does not necessarily mean "inferior" of course.
So you'd allow people to build houses without insulation? Without double glazing? Without many windows? With no fire engineering design? And the other 459 things that need to be complied with?
Or are you just talking about size i.e. smaller but compliant in all respects?
So where do people live when they leave home to go to university? Do you think they should be able to just buy a house? Can’t have flat mates to help pay either as that is just people farming right. Owning a house is not always the best option for people depending on their situation. Especially true if you can’t rent it out if you can’t live in it for a period of time.
It's the same anger, whipped into a frenzy by unaffected interest groups that has exhibited itself for decades. Just out of interest - how many vocal protestors are actually renters?? Answer - NONE. Remember Sue Bradford and her "Unemployed Workers Union" that she rode into Parliament and promptly forgot. Andrew Little and his Union Secretary ticket that he clipped going into Parliament? Most if not all the vitriol is coming from people who are far removed from coal face - St John is a classic example
I'm a landlord too, but not a scummy one. My tenants have been paying the same rent for the last 4 years. They're awesome tenants who treat the house exceptionally well, so I haven't no problem collecting lower than market rent.
I know I'm not a scummy landlord, so I don't get offended by people talking about scummy landlords in a negative light. You sound like you're probably not a scummy one either, so why would it bother you?
Well the changes in legislation for one. I want to be able to remove a tenant if they are unsuitable. I have done this once in 10 years, over the 3 apartments, so once in 30 rental-years in reality. But it was very necessary.
I don't want my tenants undertaking changes to my property (i.e. physically working on my properties) without my permission. I don't want pets - if that every gets changed - and it might well do now that Labour are back in.
You've just described why renting can NEVER provide a home for anyone, in a home you CAN do minor alterations (no-one expects tenants to be able to do major ones) and you CAN own pets. As long as you have someone else dictating how you live, you do not have a home.
You may count yourself as a "good" landlord, but really, under the circumstances that exist in this country re our tenancy laws, landlording is not a good thing.
What do you call minor alterations? Having a pet cause damage to your own house and having to pay to repair it is one thing but having your pet damage someone else’s house without having to pay for it is wrong. People like to cherry pick rules from other places. Some countries run rentals more like our commercial leases. Saying that you can modify houses here because it is permitted somewhere else isn’t apples and apples. Can’t imagine too many renters here being keen to having to install a kitchen.
Well doubly good then right? A tenant is not victimised by having to live in a rental and a would-be landlord is punished. All in one fell swoop.
Of course there's one less housing unit available meaning someone living in their car or the government (i.e. the taxpayer) putting them up in a motel or what have you.
But that's ok right? Because a private landlord is not benefitting in any way. This is what your policy is trying to achieve right?
it’s a business isn’t it; you have gotta expect to have crappy customers, theft, damage, etc every so often, and you have to expect regulation (especially when the industry has been taking the piss so long), and you have to expect health and safety standards like not making people live in mould ridden freezers (again especially when the piss has been taken for so long).
Landlords like to be a hard done by mum and dad investors when it suits but a business when it comes to writing off taxes.
That is why anyone providing accommodation needs to make a profit to account for the issues you raise. As soon as anyone does they are counted as evil. As for the new regulations, I have only ever lived in one house that complies. None of the houses had issues like being mould ridden etc. The houses that don’t comply and cost too much to modify will be sold to first home buyers. It will do nothing to help anyone. The house is either fit to live in or it isn’t. Doesn’t matter if you own or rent.
Part of the problem is the attitude that all landlords are slumlords with 20+ properties or rich speculators gambling on residential real estate. There is no acknowledgment that many landlords are accidental landlords with only 1 investment, many are decent and charge less than market rent when they find good families to rent their properties, and lastly many rich speculators don’t waste their time in residential real estate at all. Unfortunately, all landlords have become an easy target to scapegoat for a hard problem.
There is a big difference between "biggest percentage" and "most vocal". Given our clickbait style media reporting nowadays the most vocal get the headlines. Doesn't make them the biggest percentage by a long shot. Anger and Angst sell Advertising - pure and simple
The stats clearly show nearly all landlords own 1 or 2 rental properties. A few own 5. Very very few own more than that.
It's a bit like the salaries continuum. Nearly everyone earns a modest amount, a few earn a lot and very very few earn a ton of money.
The way the media portrays things, the equivalent would be saying every office worker is a millionaire with a mansion, a fleet of cars, servants and overseas holidays to exotic locations every few weeks.
For people to own one or two rentals still means that for every landlord there needs to be a couple of families without an actual home, even at that rate it is not sustainable, unless it is only a tiny (and I mean tiny) number of people with a few rental properties, it really has to cease to be the method of choice for saving for a retirement, as it relies on denying others.
I personally dont think the government should be in the business of owning homes, they have done a typically bad job of it to date.
There are some economic textbook examples near us in a reasonably central Auckland location: terrible unmaintained state houses on massive sections (finally the government pulling their finger out and increasing density but way too late), private houses have mostly been subdivided but were not allowed to go very dense until now due to excessive council regulation. A proper free market would work much better IMO.
You are right in that they shouldn't be in business of owning homes. But IMO they should be in the business of building them, for FHBs to then buy them. The government has the buying power, and can eliminate the high material costs and land costs in NZ by regulation. The government can declare a housing emergency, and do things under emergency power. Our economy and banking system is at stake IMO as a result of this problem. The kiwibuild approach they took was a complete and utter failure on epic proportions. IMO if it wasn't for Covid, Labour likely wouldn't have got voted back in, as that should have been enough to get them out. But as both National and Labour have no solutions, well rather they don't want to put their voters offside with tough decisions, then the housing crisis will only get worse.
Davo. I presume that you are making postive taxable rental income? As a good landlord you should have nothing to fear and your taxable income of 1% of your net equity could mean you are actually better off and as well save you a lot of accounting fees. The point is not to discourage genuine rental investors
So are you now saying that the IRD wipes income tax on profit and replaces it with a nett equity tax? Seriously!!. To do that the Gov would need to create a whole new classification of Business entities - Residential Accommodation Suppliers. Unless you expect all Businesses to get captured in your 1% equity scheme. The IR system is not set up to differentiate between Business types currently - something you should be well aware of.
I find it truly amazing that you espouse a scheme such as you propose without actually investigating the mechanics behind such a suggestion and the ramifications thereof.
Hmmm. Yes I do make a positive taxable rental income. I might be better off under your suggested scheme, depending on what rate is used. 1% easily becomes 2% then 3% or what have you. Taxes only ever seem to go up.
So does making a positive taxable rental income make me a good landlord? I'm not sure that follows. I guess one could have positive cashflow but cold mouldy houses.
When you say genuine rental investors, you mean those looking for income as opposed to capital gains? It's the latter you're trying to discourage right?
And in that comment lies the crux of the matter.
The problem isn't economic, financial or social, it's political.
Both major sides of politics agree that something needs to be done. John Key told us so (so has Judith Collins), as has Jacinda Ardern, yet neither had the courage to follow through on their 'promises'. For only one reason - the political risk of being the one to enact change.
I am, and it is to see housing being seen and treated for what it is supposed to be, HOMES for people, not a never losing casino for a few. I will battle a govt of ANY colour on this, if they are not putting things into place to see this once again be how we see houses.
The really interesting thing (as I see it) is that the politicians know it's risky due to their knowledge of the electorates likely reaction. If the electorate truly wanted change then the Green's proposal (the "Wealth Tax") would have gained more traction. That it didn't, should send a signal to anyone wanting to listen that Joe and Jane voter don't want a bar of such taxes.
Well this is an accountants dream, so complex, and if the deemed return of 5% is the total income to be taxed what if you have a yield above that? Even if this is a drip feed of tax on the capital appreciation this is a cashflow problem only, possibly solved by increasing rents.
When the property is sold how is the gain/loss treated for tax then.
The only solution is fewer buyers ie control population/immigration and build more houses. The first is also important to our carbon reduction goals and the second requires changes to Council land zoning. Neither are addressed by this proposal.
Seems relatively simple - look up the rateable value of your properties, look up the balance of your mortgages, subtract one from the other. 1% of the difference goes to income and is taxed accordingly. Sounds easier than what I have to do as a landlord at the moment - I certainly wouldn't trouble an accountant for it.
I do have a problem with the proposal though - the deemed return should be 5% as per overseas shares. This would mean tax paid of up to ~2% of the value of the equity if on the new higher tax rate. That would be sufficient to actually change the market.
Fully agree that lower immigration and more houses would help too, and there is no reason not to tackle those at the same time.
If NZ wanted to make a simple tax change that would tax land bankers and decrease the marginal cost of new builds then the government would change the local government legislation so that councils rates could only be based on land values (unimproved values) not the value of land + capital (improved value).
Why in the middle of a housing crisis are we taxing improvements - new buildings that could be greatly needed new homes?
Councils already have the land valuation methods. It would be a simple enough switch.
It would be especially beneficial in city centres, where it is appropriate to build up for commercial as well as residential reasons, the current way local governments source its tax revenue is having perverse effects - like encouraging gravel car parking craters in Christchurch.
https://brendon-harre.medium.com/saving-christchurchs-cbd-dc0ea72d27e
God help us.. that's even worse than Rates. Now the Land Tax will go to CG to waste! Freak that!!
If there was a cost/benefit analysis done on all expenditure by LG (infrastructure excluded) by a central third party I'd happily pay a bit more in rates. At the moment the rates take is just a slush fund for pet projects whilst the infrastructure slowly decays
Rates in most towns are based on CV and not land value. So are essentially a form of wealth tax, because it isn't proportional to the services a property actually uses. A very unfair system IMO. Councils that rate on LV is more fair IMO. I remember when my council tried to bring in rating on CV instead of LV, their justification was that they are doing it because other councils did it. All the people protesting were those owners with more expensive properties. A form of poll tax, based on each person living in a house IMO is probably more fair. But a land tax IMO is needed, and rate people more if they own an undeveloped residential section that they are just sitting on.
It would be far easier IMO just to apply a CGT to all property sales. Even the family home. People then are only paying a % of the profit they made. The less profit they make, the less tax they pay. But if we aren't happy, NZ is going to end up with a huge number of new taxes in the future to pay for the neglect of our infrastructure and not increasing it to cope with the mass immigration that has occurred over the last decade. I wouldn't be surprised if we also get inheritance tax coming in
"Limited impact" can mean many things. In any case, here's some economists saying introducing a CGT would be quite effective in reducing house prices: https://www.westpac.co.nz/rednews/property/capital-gains-tax-would-redu…
A nice article Susan who appeals to fairness and equality and will therefore rightly gain significant support. Good on you for attempting to provide a blueprint for how your idea could, in your opinion, work. In my opinion, this article screams "I'm a University professor with lots of great theoretical ideas but I have never actually run a business myself". You cannot solve the housing issue by taxing (especially unearned income), the only way it will be done successfully and achieve more fairness and equality is the way Keith Woodford describes it:
https://www.interest.co.nz/opinion/108516/reducing-house-price-inflatio…
Agreed Yvil - more whiteboard theories from a cloistered, well payed academic. Interesting and thought provoking but ultimately unworkable, unrealistic twaddle
Kind of concerning she's a lecturer at AU School of Business though.
I forgot to add that in addition to her assumedly generous salary (this from the University that paid 5Mil for it's vice chancellors residence) she no doubt also has generous Super policy and severance arrangements. Hardly in need of providing for her retirement by other means.
Hook Personal attacks and inuendoes and assumptions about my personal circumstances have nothing to do with solving this tragic issue. Academic arguments have long underpinned tax debates including the very extensive reforms to the tax system under Roger Douglas- using the principle of taxing income from all sources- wide base low rate. Hardly ' unrealistic twaddle'. The reforms were never completed as Labour abandoned its comprehensive capital gains tax under David Cagill in 1990 just prior to the election. I think it is clear after 30 years that the time for debating capital gains tax is past- we need some urgent measures to level the playing field to be implemented right now. The imputed income on net equity is worth consideration and instead of your snide remarks, please explain the ways that it might not work so eveyone can see if they are signficant and how they might be addressed.
SSJ You mentioned the ethnic divide between Maori and Pakeha, I have been saying for a while more should be done by iwi as some have vast land-holdings while their members live in perennial poverty generation after generation. What good does it do these folk when tainui for example create commercial developments but their 70000 members live in rentals.
Mr Coleman's post at the bottom of the page says it far more eloquently than I could. The unrealistic twaddle was aimed at your article specifically due to your assertion that taxing something will reduce either it's price or demand. Davo's theory that your idea would have the reverse effect to what you're proposing is also salient. The fact you've removed Profit as taxable portion and replaced it with "deemed value" also ignores the outgoings in relation to repairs (which anecdotally can be significant and all too common) and maintenance plus compliance costs, all of which are rising.
If you think these taxes wouldn't be passed on in the form of rent increases then you are well out of touch with reality. If you are encouraging "bad" CG seeking landlords to exit that only serves to reduce the available stock thereby driving further rent increases. I've seen the results of the last big move against Landlords in my own small town - a reduction by 90% of available rentals and a more than tripling in rent
"I've seen the results of the last big move against Landlords in my own small town - a reduction by 90% of available rentals and a more than tripling in rent"
Is it a 90 percent fall of those normally available for this time of year or 90 percent less overall. I would think a bit of both. 1. Tenants don't move around as much and 2. The costs to upgrade are prohibitive like 10 to 15k to do it properly. So that takes properties off the rental market and brings in the unintended consequences of the policy of higher rents. What was intended to massively benefit tenants in fact has minimal health benefits but results in an unwelcome jump in costs
FH it is a 90%+ fall in overall availability and has been like this for at least the last 5 yrs. Where there used to be multiple columns of rentals available in the classifieds now there is maybe 1/2 a dozen ads. The same reduction is evident via RE Agents and managers. It started when the depreciation scheme was changed and has only accelerated since.
Whilst Keith’s idea of reducing QE and inflation targeting would certainly help there is not one stop gap measure. House price inflation was high during the early 2000,s when interest rates were approaching 8% so other policies including taxing capital gain is required. Previous articles have highlighted the discrepancy between the level of taxation that property is subject to relative to other taxation sources and this needs to be addressed. If you don’t agree it would influence demand then at least it would be fairer and more equitable as you state is a pre-requisite for new policy. As for your snide comments about the author, was there really any need? Your comments/ideas often read “I’m an arrogant twat with no social conscience” but I don’t broadcast that over all your published work.
but it wotn happen -- you cant be elected on a capital gains tax platform --- homeowners will never believe that it wont be extended to the family home - the 90000+ mum and dad landlords with one rental - worked two hard
and paid tax on teh income they used to buy their rental -- the 15000+ landlords with 2-5 properties are the same --
There are far simpler solutions - but this and the previous government just wont enact them
DONT lend the banks $13 billion to keep interests rates so low
Dont allow 70,000 people to arrive every year ( before covid Labour were just as bad and plan to increase rapidly)
\
DONT piss off developers and landlord - ie the people who invest to actually build houses
DONT allow fletchers a FFFFing monopoly making building materials twice the price they should be
DONT allow councils to delay and screw around consenting processes to make life impossible for developers
then see what needs to happen with taxiation !
Agree there is a big problem which is driving societal disconnect further and further appart. Global bank policy of printing to save debt based asset prices at all cost is driving it. Answer has to be a flat land tax, with ability up or down the rate to promote/disincent based on policy objectives. Anything else is lawyers and accountant paradise.
Simple. Unavoidable. Regular. Inevitable.
The government have made it quite clear they won't be taxing houses, this is a sacred cow in New Zealand politics. It's a complete waste of time to even contemplate what could be done because it will not happen this term.
The current Government will trot out the same patter as the prior National Government for the next few years. They'll speak to a "Capitalist Realism", expressly that there is no alternative to a neo-liberal capitalist ideology they set forwards. It's very safe, requires no leadership or risk to do and is a well proven approach in New Zealand. I think it'll probably work from an electoral perspective as well.
Still don't understand why so many voters, now complaining, let themselves be duped by her. How could people not see her promises were totally unachievable? It's fun to believe in the tooth fairy and Santa, but she's meant to be a leader. She needs to grow a pair, eat a concrete sandwich, harden up and start kicking heads.
Really hoping she gets held to account from this point forward although not holding my breath.
Media haven't helped at all, not doing their job either and totally given her a free pass fawning all over her.
... agreed ... I went with ACT & with Matt Doocey ..
But the fact is , the Gnats collapsed into a sad farce after Todd Mullet's insane ousting of Soyman Bridges ... so close to the election ... what a twat that Mullet is ... what're voters meant to make of that coup ...
Prime Minister Ardern is an expert communicator, not a leader or reformer and nor has Jacinda claimed to be. At best she believes in incremental progress, even if glacial, instead of step reform because she fears failure so relies on consensus. There isn't yet a clear consensus on housing, in fact societies views are rapidly bifricating. Yet the Prime Minister has so far been able to straddle that casm using current events (Australian refugees, Domestic terrorism, Natural disasters, Global pandemics etc.) Prime Minister Jacinda Ardern does not aspire to be a revolutionary politician but more of a journeyman.
You are correct Squishy. Jacinda will never do anything to reduce the price of housing in New Zealand. She loves power like all politicians. She will avoid rocking the boat at all costs as being in opposition is not the done thing. She is all talk and no do. Very disappointing really. She totally used Covid as her agenda during the election and avoided such issues as housing and poverty.
The mainstream media also avoided the housing monster in the room. National were so weak as they didn't take advantage of the Kiwibuild broken promises. Labour used the word 'reset to essentially break their election promises. Maybe they can do a tax 'reset that can get around their promises not to bring in any new taxes. But the solution for the housing crisis is an adequate supply of New houses being built for the number of people wanting a house.
I'm not sure I'd be comfortable saying that. Prime Minister Ardern has shown that politicians can divorce the appearance of being progressive and virtuous from a policy basis. The Prime Minister thrives on chaotic events and placed herself at the centre of attention as they occurred. At this point party and policy are actually dangerous to her credibility. What she needs is about one or two compelling crises per year that allow her to steer clear of the administrative practicalities of government.
Yes but only crises from external threats like Covid and Climate Change, JA does not seem to have the ability to either be proactive to prevent internal crises from forming or positively reactive to actual internal crises.
I now wonder and worry if she (they) are secretly hoping for a continual external crisis as this is playing to her strengths and takes the focus off our internal crisis.
I agree with some of this although think the figures are a bit off. Eg 1 million net equity for a single person but 2 million for a couple seems a bit unfair for a single person, considering the price difference of the house that both could live isn't likely to be double.
But working out net equity is extremely difficult because many people use their house as a bank and borrow money against it for other things. So what would stop people doing that to reduce their net equity.
Why would they pay higher interest?
I would definately borrow against our modest house which is sitting on valuable land to reduce it's equity. And I would use that money for, duh duh dah, property.
Your idea is squeezing people into property speculation who don't already do it.
Agreed about it being unfair to singles. The cost of housing is essentially the same for a single person as it is for a couple. Failing to account for this financially punished people for being single, and its already a lot tougher financially to be single than it is to be part of a couple.
The current price surge is driven by the record low interest rates and FOMO. Also the fact that savers who had savings in the bank have now been effectively forced to either buy a house or invest in something higher risk, otherwise their money will diminish in value due to the record low interest rates and inflation. Also according to the finance minister tonight on one news, it is from all the NZers returning to NZ buying up houses. Although I thought that had been found not to be correct.
.
NZ has a huge problem here that no politican wants to touch
paashaas... even a complete idiot knows that if we reduced immigration to a sensible level (5K PA max) for a few years it would go a long way to solving the housing problem. But the powers that be and most of the general public insist on an environment of global inclusivity and a total open door policy which has the perverse effect of excluding our vulnerable Kiwis from being included in a fair and functioning society where most can afford their own home in their own place of birth.
We can change the RMA and build as many new homes as we like but until we make a conscious effort to put our own people first we will be forever fighting the tide of under supply. We have made a grave mistake with our immigration settings and now is the time to fight for much needed and positive change. We owe it to our struggling Kiwis to take care of them.
We have a huge skill/workforce shortage mainly contributed by underemployment and an outdated education system, and the immediate gap needs to be filled by immigrants. This pandemic has exposed it. No politician has the courage to admit it is a systematic problem, and it will take some time (10 to 15 years) to solve.
The spike in house price inflation has only gotten really bad post covid. Also can't foreign buyers still buy some types of property in nz, such as some new builds? Also there are often ways around these things. But I think it has been proven that previously foreign buyers were part of the cause of previous price rises. But now there are also other affects like the record low interest rates, which means anyone with savings in the bank has little choice but to buy property, or find other higher risk investments. Even the reserve bank some time ago said that people need to look at higher interest places to invest their money if they weren't happy with essentially no interest after inflation. So savers money in the bank is losing value
Susan St John, it's good of you to answer questions here.
To be honest I didn't read your article properly and assumed you were talking about a tax in addition to the current tax on the profit from rents.
But if it's just the imputed tax on the equity in properties, then for someone in my position, with 3 rental properties returning positive cashflow (due to small mortgage), it seems I will be better off. I will pay less tax on the rentals. And even when I add in the tax on the value of my half of our house, I'm still better off. This is using the rate of 1%. But if it goes to 2% then I'm way worse off.
So, in terms of investing, this will be even better for highly geared investors. Is this right? The smaller your equity in a rental property, the less tax you pay? Won't this make it attractive to residential investors to go out and take on bigger mortgages i.e. purchase more properties?
To be really aggressive about reducing tax, I wonder if it would pay to sell your house and rent it back and use the capital to go out and buy a bunch more rentals. I think it would come down to the rent vs mortgage costs.
Also, I don't understand the third to last paragraph:
The rate applied to net equity will rise to 1.5% in 2022/3 and, depending on the state of the market, then to 2% in 2023/24. This is a fair way of broadening the income tax base without increasing the rate.
You say the rate will go up, but then the rate is not being increased..?
Thank you Davo for engaging with me in the debate. The disincentive to over gear is that the mortgage interest is no longer deductible. Why reduce net equity that will be taxed at 1% when the new loan costs 3+ % to service and cannot be deducted? I dont think your 'aggresive about reducing tax' suggestion works either.
As far as that last pargraph goes it was to offer some lateral thinking-- there is no need to be tied to a riskfree rate method that sets the rate say equal to bank interest. The rate can be struck each year starting at 1% and signaling it could go higher if needed. Maybe there could be a band 1-3% or one that is linked in some way as a percentage of market interest. So it might be 1% for one-two years and then edge up to 1.5% or more depending on how it is working-- it could even reduce if cirucmstances require it- say a housing slump. And sorry, the last sentence is a little confusing. It should read "This is a fair way of broadening the income tax base without increasing the income tax rate.
A massive mess would result. Imagine a business (airports are a classic example) which has very extensive property holdings, but which holdings are incidental to/supportive of their main business raison d'être. Some of these properties would be termed 'residential' under any reasonable definition. So that segment of the accounts would have to be isolated, direct costs accounted, reasonable share of corporate overheads allocated, separate valuations made, and returns rendered, quite independently of the main corporate accounts for taxation purposes.
Immensely complicated, a goldmine for accountants, lawyers, consultants, valuers et al.
SSJ's core assumption is that 'residential' usages can be easily and thus cheaply unpicked from entities which have an inherently diverse, mixed asset portfolio. But this just ain't the case......
Waymad. A massive mess for similar reasons would result from a comprehensive capital gains tax or a comprehensive net wealth tax. Yet these have been seriously contemplated I cant see that the example you gave is insurmountable. There will always be issues of boundaries-- but it should be straighforwad for the bulk of high worth real estate owners. If there are disputes for the few there could be a disputes resolution process. The tail shouldnt wag the dog.
Hello Susan
Since you have been advocating this idea for a while, perhaps it is time to take the next step and construct a model that tries to work out the general equilibrium effects of the proposal. As you know, creating or removing a tax creates ripple effects throughout the economy, and in order to understand the effects of the tax policy you really have to have a good idea where the final incidence falls. This is well known: most renters have an intuitive understanding that if city council increases rates, the landlord may send the money to the council but he or she is likely to put rents up so some of the incidence of the tax is on the renter and not the landlord. More subtly, if the profitability to the landlord decreases, they may bid less for rental properties, and the price of property may fall; in this case the incidence is partly on the owner of the property when the rates are changed. Without a systemic way of tracking all these ripple effects - i.e. a model - it is very difficult to calculate out the effects of a tax change. This is why tax authorities and academics in most countries use general equilibrium models to try and work out the consequences of new taxes.
I tend to agree with you that taxing income from property less than income from other assets creates incentives that artificially increase land prices. This is standard tax theory. New Zealand tax officials ignored this theory in 1988/1999 when they changed the taxation of retirement savings from the internationally standard approach, without simultaneously changing the taxing of owner-occupied housing or introducing a capital gains tax. Unfortunately they never attempted to model the effects of their decisions, and I guess have been surprised after the fact that housing prices increased so fast, although in the manner that all theory suggests. They ignored the ripple effects and as a result created a society that has considerable intergenerational wealth inequality (and considerable income inequality as well). No other OECD countries have been tempted to follow the Douglas approach that you seem to support. You seem to want to correct some of the oversights of the tax reforms undertaken 30 years ago by taxing the imputed rent of owner-occupied housing, but it is not clear why you want a $1million/ $2million per couple exemption. For most people in the country, this will still mean housing is a tax advantaged asset class relative to other investments; standard theory says this will still lead to artificially high house prices, and incentives to purchase larger-houses than otherwise . This is where a model would be really useful: what effects might this proposal have given this level of exemption and the very high level of taxes on capital income that are already imposed in New Zealand? New Zealand already has a tax system that is radically different from the tax systems of most OECD countries, countries that have higher income and are often much more progressive than NZ. NZ has a history of tax reforms different from most OECD countries, reforms that have little basis in standard international tax theory. This is why NZ has some of the lowest taxes on labour incomes in the OECD, and some of the highest taxes on capital incomes (except housing incomes) in the OECD - a combination that does not yet seem to have generated the high income economy its proponents advocated. The reforms to the taxation of retirement saving in NZ are simply one example and not the most important example of NZ tax changes made without proper analysis - something we should learn from as a country before attempting to make other ad hoc tax changes.
By the way, the slogan "broad base, low rate" is just that - a slogan. It is time we got rid of it. There is no theoretical justification for it (indeed, the optimal tax theory associated with Diamond and Mirrlees, both Noble prize winners, explicitly overturn it.) Most countries other than New Zealand are far too sensible to adopt it as a basis for policy. If you look at most high income countries with progressive tax systems, they tax capital income at lower rates than labour income, because they are scared that if they tax business income at very high rates it will lead to less investment and ower wages (a position supported by theoretical considerations and empirical evidence). As you know, they also get around the problem of taxing the imputed income from owner-occupied housing at lower rates than other income by taxing both on a consumption tax basis. This is an alternative approach to the one you suggest, one that is already done in most OECD countries so it has the advantage of being tried and practical. Since many of these countries have much more progressive tax systems than NZ, it seems odd to suggest that it should not be done in NZ because it lacks progressivity: it can be done in a progressive manner as many many countries have demonstrated.
So there is the challenge: how about some general equilibrium modelling of the proposal, rather than suggestions to create a tax system for NZ that is increasingly different from the tax systems adopted by more successful, higher income, and more progressive countries elsewhere in the world. New Zealand academics and tax officials seem to delight in being different; it would be good if they could be different in ways that are likely to generate better outcomes.
Andrew
Thanks Andrew. I support the idea that more work needs to be done on tax changes-- that is why we had a $2 million tax working group. Unfortunately they did not adequately assess the RFRM approach leaving its support to a minority report. There are many issues that need careful thought-in purist terns there should be no exmemption for the family home you raise another one that others are also concerned about-- the use of the individual not the marital unit that appears to penalise the single status. Remember though the imputed rental would affect only high worth couples whose net equity exceeds $2 million. Concerns about the widow left on her own with little personal income might be mitigated by a transition period of say 2-5 years after the death of her partner. After that if she did have net equity of $1 m after the exemption, her increase in taxable income would be $10,000, taxed at 17.5% = $1750. She might chose to offset this with a flatmate. If you start having a blanket rule for a higher exemption per person for married than singles you run into all the definitional problems of who is single and who is married. I do note that for NZS the rate for living alone is much higher than for a married person.
Susan... another nice half article. Did you get tired and bored after penning the supply side of things and just decide to not bother with the other half of the issue ie DEMAND. Why oh why do almost every one of these articles simply try to pretend that constantly and systematically adding massive housing demand to the equation is a major part of the problem and these articles remain incomplete without its' inclusion?
Karl. Did you read the article? I wasnt writing about the supply side and certainly not wanting to expand the demand side. The article does not pretend to cover the full gambit of policies. It specifically addresses the under taxation of net equity in housing. It is a vital part of an overall solution. The point is that we have an overinvestment in the wrong types of housing because there is no level playing field. You cant do everything in 900 words.
From C.S. Lewis's essay anthology "God in the Dock" (1948):
Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth.
It won't happen. COVID was the oppurtunity to let it fall and it didnt happen.The powers that be could have blamed the virus and got away almost politically scott free. But it didnt happen and more bubble blowing was enacted through the provision of endless money at the expense of future taxpayers(ie renters.. not landlords, who would appear to have a tax free status). So the true colours were shown. The pollies see it as their own personal golden goose. Without a politician rising from somwhere who is prepared to take this on, this is our lot.Jacinda doesn't care, her nest is feathered at the un... So this will become a society of the haves and then crumble. The young will leave to avoid becoming the financial cannon fodder of the landed gentry. There will be no teachers, firemen, police and nurses who will have left to find somewhere more equitable The landed gentry will open up the immigration flood gates to bring in another set of rent slaves.. who will eventually stop coming because.. the country offers no future.
jim, the only untaxed gain is capital appreciation - just like the local stock market. Rent returns and dividends are still taxed so Landlords aren't enjoying tax free status per se, any more than stock investors are. Most of the teeth-gnasher's and sackcloth wearers actually need to accept that it is the behaviour of the buyers (often pre approved FOMO FHBs) driving the market higher. A professional investor is looking for yield so won't be engaging in price setting behaviour and will have a predetermined cut-off point, they are looking for value add opportunities. Admittedly there will be first time investors ignoring the basics but there is little research on that.
I do agree with you about Ardern's future plans - Aunty Helen will pull some strings
Hook, I respectfully disagree. This argument is contrite, and so lacking in observation of the real world that it can only be made by a property investor. I do invest in property, but I hope I retain my objectivity. I invest because the field is tilted so heavily towards the investor that I have to. An investor can keep buying property every couple of years purely through equity release on an existing portfolio. They do not need to sell property to fund another purchase so are missed even by the crude bright line test. With every purchase they compete with FHBs who are paying tax on very cent of their earnings saved. Once a FHB has bought,, having paid too much through competing with the untaxed investor, their taxed income pays the mortgage. For an investor a renter pays the mortgage, and that income is not taxed other than that amount that exceeds the expenses of the property INCLUDING the mortgage.
Then to rub salt in the wounds, when covid hit the government draws down on future tax income... and bails out business.. and property investors, through lowering interest rates(or stealing savings as it is otherwise known) And please I know the reserve bank lowered the rates but they can only do so once treasury has created the excess lending to facilitate lower interest rates. So indirectly it is government action.
I was amused by his assertion that he had no choice to invest in housing due to the leverage ability and tax treatment and somehow that was the Govts fault.
The ole "he made me do it" clause.
He almost sounds apologetic. He does however shed light on an important factor - once there is sufficient equity built (which isn't taking very long atm) there is really no stopping investors from increasing their holdings. I've said it before - if Banks demanded the same type of deposit from investors as they do from owner-occupiers (cash) there would be an immediate dampening effect.
Yes and that's the problem. Once more and more people start participating in the property investment then the demand creeps up and equity growth increases in pace (self feeding loop). Until yield is non-existent, and realising any "perceived" capital gains by selling becomes difficult if prices have been bidded out of reach from what standard owner occupiers can afford to pay.
Slightly off tangent but related... this is a potential and very real problem the brits are going to face. If they want to leave the hell hole the uk has descended into and will descend further into after 1 Jan... who will buy their homes so they can leave and say... move to nz? Exact same problem faced my lovely neighbors upon leaving south Africa... once the inevitable decision was made they found their property wasn't worth much as any other suitable buyer also had the same idea and was leaving. Further, friends of theirs had invested heavily in property before leaving south Africa and eventually after a long time sold all 3 investment properties at a massive loss before leaving sa. They carried the debt with them. A sage example of how housing can become a huge illiquid beast.
If you plan to exit housing and crystallize those gains it pays to think who your future buyer is. Why lenders are obsessed with the exit for any security property.
I believe that is your assertion( with a fair degree of spin). It is an investment.. driven by flawed tax policy that I believe will have me profit, again.... You also seem to somehow believe the government is not responsible for tax policy.. Have you ever stopped for one moment to think .. am I objective, where does this gravy train end. Because they all end.
Excellent explanation, Jim. You have indeed retained your objectivity and I don't begrudge anyone who does invest in property for exactly these reasons.
What concerns me most is the outpaced rise of rental accommodation in comparison to incomes. Hence why I see #rentconrolnow as needed. Not to bring down the price of property, just to put a lid on the inflationary effect that higher house prices have on rents, particularly for those in the lower quartile income bracket.
Dale Smith and GBH are right. Susan your ideas won't work to get lower housing costs. It's purely a land supply issue - and mostly in Auckland fringe areas. Brutal anti-sprawl policies pushed by left leaning politicians and planners are the cause. Nothing else matters much - maybe a bit less building regulation which plays into material supply cartels - but that is nothing like the land cost problem.
Also building more state houses is a lousy idea - it's proven to be socially disastrous. Getting people into their own home is a much better answer - and NZ has plenty of land and it can be cheap - so why not?
A couple of relevant things
1. Infrastructure is a red herring - NZ has plenty of roads on the fringes of the cities and a good power network. There are great wastewater plants available now for any size of development. The idea that housing must wait until a inefficient monopoly wastewater operator like Watercare can get around to servicing an area is ridiculous.
2. Intensification policies on their own don't work to reduce prices. High density housing is twice the cost to build and the cost of homes in the "upzoned" area rise to reflect the development potential - so the existing homeowner captures the scarcity value as profit. The Auckland Unitary Plan has shown this graphically.
3. US studies show for each two upper quartile McMansions that are built one lower quartile affordable house becomes available to the market as buyers move up the chain. So building deliberate building of affordable housing is not always needed. It's purely allowing any housing to be built.
If a house isn't rising in value (in fact they should drop 50%) - all the elaborate tax ideas are irrelevant. Spend a bit of time on Zillow and look at what a less constrained market can give you even in the pricey areas of the US like California. (average section price under a new build in CA is NZ$130K)
The reason I own real estate in a family trust is because of the stupidity of the property relationships act of 1976. If these Susan St John policies came into effect, then I'd have to take even more countermeasures to protect my wealth. Why not make other forms of wealth tax deductible to incentivise the purchasing of something other than property. More carrot less stick, less unintended consequences.
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