By Bernard Hickey
The grand hope of home buyers and Governments alike is that the Unitary Plan notified last week will unleash a boom in housing development to try to swamp the market with supply and suppress prices.
Instead, for now, it has unleashed a boom in ads encouraging buyers to scoop up the just-rezoned land and sit on it as 'land banks.'
Here's an example being advertised this week for a 3.33 ha lifestyle block in Alfriston that is set to be rezoned 'Future Urban' in the Unitary Plan.
"Investors can enjoy rental income whilst land banking or your family can enjoy a relaxed country lifestyle whilst you land bank," the advertisement proclaimed in a listing titled: "Land banking at its Best in Alfriston!"
"Urbanisation is closing in, get ready to tap into Auckland's growth," it concluded.
Another advertisement for an 818 square metre section in Glendene pointed out the section had received resource consent for two houses: "Make this Your Next Project with Land Banking Opportunity," it proclaimed.
On Wednesday there were 1,062 listings on Realestate.co.nz for bare land, including sections and lifestyle blocks, that used the phrase 'land bank' in the advertisement.
This latest frenzy is understandable. It's all about price expectations and holding costs.
Auckland land prices increased eight fold in the 18 years to 2014, making it the best investment choice in the history of New Zealand investment. A block of land bought for NZ$1 million in 1996 would have produced NZ$7 million in tax-free profit over that period, simply for growing grass. There was no stamp duty for buying it and not many ongoing costs for holding it. Auckland's region-wide shift in 2013 from rating a property on land value to rating it on capital values has accidentally worsened the low holding costs problem.
Ultimately, as Building and Housing Minister Nick Smith said this week, the only way to change the land-banking behaviour is to zone so much land for urban development that prices stop rising because of supply shock. He points to the experience in Christchurch where a surge in housing and land supply during the rebuild has stopped prices rising quite so fast, and last year they actually fell a bit.
The trouble is Auckland is different.
Its population is rising at a rate of more than 2% per annum from migration alone and there is already a shortage of 40,000 houses.
There is also plenty of capital surging into Auckland land prices from overseas that has also not been such a factor in Christchurch. Much of this overseas capital also seems happy to sit around for a long period without earning much from rent or development. It's as if it really is a land bank -- a store of value rather than a generator of cash.
The chances of any sort of fall in prices Auckland, let alone a slowdown, seems much more remote, at least in the minds of potential land-bankers. And their expectations are the crucial component in this latest frenzy of land-banking.
The only way to truly change price expectations is a price shock, and the only way to change holding costs is to apply a tax. There are a couple of options, and both have been recommended to the Government at various points in the last eight years. They would both deliver the price shock and increase the holding costs.
The 2009-10 Tax Working Group that proposed a GST-hike -for-income-tax switch also proposed a land tax-for-income-tax switch. John Key rejected the land tax because the 1% tax suggested would have led to an immediate 17% drop in land values. Labour has promised to reconvene the Tax Working Group if leads the Government next year, and has said it would consider such a land tax as part of a wider review of taxing capital. The up-front price shock of a land tax and the ongoing holding costs should scare the living daylights out of land bankers.
Another option is encouraging Councils to levy targeted rates that capture the 'value uplift' from any zoning changes. This is essentially a tax on the capital gains created by a Council redrawing the lines on a map. This idea was proposed last week by the Productivity Commission in its draft report on Better Urban Planning. Council would essentially include an extra rating charge for those areas where the land values had risen sharply because of a public policy decision. It would kill two birds with one stone by encouraging housing development and paying for the infrastructure needed to underpin those new houses.
Both a centrally-levied land tax and targeted rates for zoning or resource consent-related value uplifts would be more than enough to stop the land bankers in their tracks. They are conventional policies used widely and regularly overseas. New Zealand has the lowest tax rates on land in the developed world so we should not be surprised that land bankers abound in Auckland.
Now which politicians will be brave and honest enough to propose either or both types of taxes?
A version of this article also appears in the Herald on Sunday. It is here with permission.
125 Comments
Another cuckoo idea from Bernard Hickey who really doesn't have a clue.
Adding taxes, GST, rates or what ever to a parcel of land will only ensure that the owner of that land will find it more and more uneconomical as time passes. Consequently the developer will be forced to build dearer and dearer houses to cover the costs. BH also forgets how long it takes to get the necessary consent, build the infrastructure, find the labour and materials, and actually build and sell ALL the development. BH, like many others simply do not understand that a developers (taxed) profit for years of work and with tens of millions of (mostly) borrowed money, does not get paid out until the very last house sells. Bernard, like a lot of whinging arm chair experts should actually go and talk to actual developers and get the real story and then present the facts and not all the emotive clap trap that he and many others like him spout forth demonstrating their ignorance for the whole world to see.
Isn't the whole point of land-tax to incentivize densification? You have X-acres of land in a central suburb and you pay a flat tax on it. Why pay that flat tax on a single unit, when you can pay it on a medium size 3 storey apartment complex?
Land tax is also usually accompanied by reductions in tax burdens in other areas, such as income tax. An average family in the outer suburbs should have about the same disposable income. Central suburbs are another story though, but wait, maybe that's where we want densification?
BigDaddy shoots and misses again.
"Adding taxes, GST, rates or what ever to a parcel of land will only ensure that the owner of that land will find it more and more uneconomical as time passes."
Ahh, exactly.
You see, the point of this article is that land banking = bad.
Don't confuse land banking and productive development.
Any increase in costs gets passed on Nymad......if you were in business and your product was a widget and the Government decided to raise the GST on your widgets are you telling me that you wouldn't increase the price of your widgets but somehow wear the increased cost?
Glad someone says it like it is. Developers build to make money, that's their job and it's what they do, and they take risks doing it. It's all well and good to have a unitary plan that approves intensification and huge build activity but nobody is going to do the building/developing if there is scaremongering like in this piece. Also right now who is selling the land to the developers at premiums? It's obvious these guys have to write something on a daily basis and so have to get creative. I wonder if they believe what they write themselves when nearly everything predicted turns out completely wrong.
But, how are developers impacted?
This is about land banking, not development.
Even if the developers were subject to a tax, they wouldn't ride it. The elasticity of the house market would imply that the demand side incurred any increases in cost of production. Developers would have little to no real increase in their cost of production. A change in margin, perhaps, but no real loss in total profit.
So....Ahh...Is it not you who is doing scaremongering?
Big Daddy, what about this case that I know about. A Chinese bloke who comes here 3 or 4 times a year. Paid 4.5m for 8 acres in kumeu, buys the same or more in that area at least once on every trip. I personally know one of the people that sold to him.
He doesnt care about any developments on the land, he is just land banking. Invading is probably a better term for that kind of action. Not a resident, no intention of ever moving here. Just screwing those that have a vested interest in NZ.
These sorts of people should be hammered in my opinion. The madness needs to be stopped.
The problem is that the media won't write articles on what is happening because it could be seen as being racist, which their advertisers don't want. But it is happening with investors from all over the world, no matter what race or colour. It is why many countries restrict overseas buyers.
Perhaps Sluggy if the land being invested in is sensitive land or perhaps comes under the significant business assets then it would be the OIO job to have a look at this person and whether they have breached the OIO rules! There is much rumour about the accumulation of assets of time and to my knowledge no one seems to be monitoring this facet.
BigDaddy
Just answer this, why is it we will tax a boy delivering the newspaper and we wont tax the biggest capital gain instrument on the market land banking and property for all to capitilize on? Yes there is small tax disincentives but not at 15-20% rates that countries like Canada have imposed.
We pay taxes on shares,term investments,and many other forms of investments and on property a real pittance-theirs no equity here!.Because our politicians are happily making very big gains from the their property portfolios and god forbid that they put their hands up and say oh we got it wrong.
Bernard does not want house prices to go down he wants them to go up.......it's the old opposites attract trick.........If he told his readers prices would actually increase under his proposal they wouldn't follow his articles!!!
BH sells stories for a living........he needs readers/followers and detractors for an air of controversy..........advertisers don't want to waste money if there is no following.......they want to know the number of readers/followers..........Imagine if BH wrote an article on how you can't get cheaper/affordable homes by removing the many indirect costs associated with building houses.........BH makes out he doesn't know that when costing out projects 2 + 2 = 4.....he also makes out that he doesn't understand 4 - 2 = 2 !!! If one thinks about BH tax and the children's poem Baa Baa Black Sheep.......and NZ has more land than people so BH would like to tax the land in a similar way to King Edward 1 AKA Edward The Longshanks........
http://hubpages.com/family/The-Really-Meaning-of-Baa-Baa-Black-Sheep
Anyone who promotes taxes should be requested to attend court for promoting breaches in The Peoples Rights!!
Good point , that slogan goes both ways eh?
BH, out again with another outdated TAX idea more inflammation and stirring the pot ... I said earlier that he is running out of any creative ideas ... just posting something that the Lefties would cheers about...
Land Banking has been there since this country was established ... and is he serious that ANY gov would do that? even his Labour mates who said "they will have a look at it" ?
patching the eyes and the ears will not solve the issue - BH needs to be more creative in replicating a new Robin Hood .... keep trying .we are really being entertained with this nonsense
So the ones being "pushed off" enjoying the capital gains but not happy being taxed on it? I had a friend who has a chunk of land in South Akl and is complaining about the rates going up 50% in the last 9 years he has owned the property and is crying he now cant afford it blah blah yet he is very happy that the capital value is gone up almost 40x yes 40times!!! because residential properties have gotten closer and closer to his land. Cant have it both ways unfortunately.
Actually they can bring in rules to cover people who have owned land for generations, and don't want to develop it in the future. But the thing is that will these land owners want to waive away their rights to make huge profits in the future by selling off and chopping up their land? Because they can't have it both ways.
because we all benefit from what the tax dollar has built or provided. You can't live life without making use of shared facilities, so it is only fair everybody who earns money gets taxed on it.
.
Unless you can think of another way to provide for schools, hospitals, roads, ambulances, etc etc etc - the list is exhaustive.
That is just you pushing shared facilities upon me.......which means your life is subsidised........What's wrong with standing on your own two feet and meeting your own costs? As has been stated on here before most lower and low to middle income people in NZ get their taxes back in all those carrots for votes!!
Sorry, Bernard but just one arrow and one target will not cure the problem in Auckland.
Add another two targets with the right arrows and the problem will be solved.
Firstly tax the foreign owners directly. Honk Kong, Singapore and now Vancouver at 15% tax could be covered by 20% here plus for those already in the market a tax of 5% a year until they reach 20% total - unless they choose to sell out in the meantime.
Then that undesirable benefit to investors over owner occupiers needs a tax to squeeze them from multiple rentiers right down to the mum and dad rentals. The country nees investment in productive assets not seeking of capital gains.
Well taxing Foreign Buyers certainly has had a HUGE impact on Vancouver! That's what we really need to cool our housing market and make it more affordable to New Zealand citizens.
Foreign buyers tax sending Vancouver house hunters to Toronto
http://bc.ctvnews.ca/foreign-buyers-tax-sending-vancouver-house-hunters…
According to this article, Vancouvers property sales have dropped by 82 per cent! Since their introduction of the new Foreign Buyer tax.
http://vancouversun.com/news/local-news/too-soon-to-judge-tax-on-foreig…
How much more evidence do we need that this is the way to go! Of course the Real Estate Agents will protest.
Yes well all know that it's actually 40%+ of sales going to Foreign Buyers for Auckland.
I like how the Canadian B.C political parties are looking to setup measures to regulate the housing market, including taxing property transactions for offshore investors who represent themselves on land titles as “students” or “housewives” and likely pay little or no income tax in B.C. The NDP would also set up a money laundering and tax evasion unit, which they believes would generate revenue through seizing real estate assets related to crime, and collecting back taxes.
A very good point.
All the National rhetoric up to this point has been centric on this fact (foreign investment is benign). To go and apply taxation on such a thing at this point would be an absolute admission of deceit and/or incompetence.
Unfortunately for everyone else it means that in order for the National party to save face a year out from an election, we have to suffer the mess that they have created.
Well National are going to be even more red in the face when it becomes so unbelievably obvious that foreign buyers are a major reason why NZ's and in particular Auckland's housing market is so massively over inflated.
Some how I don't think that National are going to get away come next election, with supporting the huge amount of money laundering that's going on and that's currently being squirrelled away in to property. EVERYONE is talking about it!
And if you haven't figured it out ye about how it works then here's a nice recent BBC article that will explain it all for you.
BBC article: 'Gangster grannies' and China's shadow banking world
http://www.bbc.com/news/business-37114643
Quote from article:-
Moody's Investors Service says that the shadow banking system continues to expand rapidly, with assets held by these less regulated banks totalling some 78% of China's GDP.
Looking at the data, there has been an unmistakable drop in average selling price of houses in the Vancouver region over the last 2 months. Sure, it could be a transitory thing. However, I doubt it as long as cheaper substitutes are available - See Toronto as one example.
82% ?? and you think that we are that naive to believe such rubbish???...lol
"Too soon to judge tax on foreigners, B.C. says as house sales stall "
Is that what happened in Melbourne and Sydney too?
http://www.bloomberg.com/news/articles/2016-06-14/sydney-introduces-hom… ....
Wait and see the result people instead of knee Jerk reactions - the World is experimenting ...its not over yet -
Taxation or rather lack of Tax in NZ is the moot cause of problem. NZ is one country which has no tax not only for the locals but for anyone in the world can come and exploit to its advantage and some people from country like China which is not a democratic country are eager to send their money overseas and are doing it in bulk also has a Herd Mentality and any chinese will vouch for it in private.
World over government has realized and are acting - recent example is Sydney and Vancouver but here our government is still in denial. So the blame lies not with supply or demand but with National Government for thrir denial and inaction.
Auckland land prices increased eight fold in the 18 years to 2014, making it the best investment choice in the history of New Zealand investment. A block of land bought for NZ$1 million in 1996 would have produced NZ$7 million in tax-free profit over that period, simply for growing grass.
Hardly an investment, more like a state sponsored, industrial sized property bubble guaranteed to devalue the medium of saving and payment. Who in their right mind would allow others to consume their time and skills within the community in exchange for freely fabricated credit masquerading as money, conjured up by the local banking cartel?
As long as one is doing as per law and trying to maximise their return on investment - do not see anything wrong. If the faults lies it is with government as Reena says for it us up to them to have laws, taxes in place. Government inaction is to be blamed and one of the reason is that policy makers by themselves like many media people are rich and have vested interest and any policy put in place will harm their interest personally and who cares about the future of the country.
In any other country media would have ripped the government apart for their arrogant denial and lies.
Whether a foreign tax would solve things (it would be an improvement I am sure) it would certainly bring some much needed revenue to NZ where our govt debt has ballooned from $10 billion to over $100 billion under the astute management of John Key and his team. Yes there was a GFC but those tax rate deductions they bribed us with are looking a bit silly now.
Watch out for another one going into the election. Foolish kiwis if we can't see it for what it is.
To expect more from business is asking too much.
http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11701…
Government is not doing their role and blaiming everyone. Only if the politician were held personally liable in between and not just election.
Have not seen such strong negative reaction that I see today of any PM like John Key.
Whatever data or survey may say now but one thing is clear that he will not only be thrown out but will be with record margain unless national changes its leader befoe NZ does.
Oh, that's the answer! A land tax! Hooray for Henry George. Actually there is possibly some merit in taxing land value rather than capital value. It is supposed to encourage the best use of land, which is presumably usually a good thing. Careful what you wish for though, Nelson levies rates on land value and my rates tripled in 8 years, despite the capital value staying the same. All goes to frightfully good causes of course, presumably someone at the council benefits.
'There is already a shortage of 40000 houses' in Auckland. What nonsense, there is overpriced housing in Auckland.,There is a belief by many that there is a shortage creating a market ripe for speculation driven by interests that benefit from the continuous propagation of information that have turned a population into a herd of lemmings.
Easy.
The rest of NZ puts about 2.5 people in each dwelling but Auckland puts 3. Do the math and you come out at about 70,000 or more dwellings needed today to get Auckland's occupancy down to 2.5.
40,000 is way too conservative.
And this little bit of math is one reason why cutting immigration would only have limited effect on house prices in Auckland. Auckland has to build about 6,000 dwellings a year just to house its new babies. Last year the city managed a paltry 9,651 which meant only 3,651 dwellings were built to knock over that deficit of 70,000 as well as house the newcomers. NCEA1 Economics.
Easy, actually( just so you know) New Zealand ex Auckland , (2013) , persons per dwelling is 2.36. However Age structure /demographics in Auckland are markedly different to rest New Zealand. For a start 26 percent of homes ex Auckland are single person , Auckland 17.5 percent. , this skews the persons per dwelling stats, in favour of fewer people per dwelling sharply. Aucklands population is significantly younger than New Zealand ex Auckland, young people do not in general form households household formation is at decade lows,, Babies most definitely do not buy homes and the decline in births shows that the need to form new households has reduced since the 1970s. Auckland has more detached two story dwellings than the rest of New Zealand , larger homes more people, per home. Since 2001 there has been a continuous increase in 4 and 5 bedroom dwellings in Auckland, more bedrooms , more people per dwelling.You make no mention of internal migration,which generally shows outward flows from Auckland There is no golden rule that 2.5, 3.0 or 4.0 people per dwelling is the appropriate number yet by using a certain number apparently it gives credibility to an argument for a housing shortage and loved by those using econ 101. I could use math 404 or sociology 101 to argue against econ 101, for instance, if I argued that 3.2 people per dwelling is an ideal number for Auckland , I have removed a 40000 shortfall in dwellings. If I said 3.4 people per dwelling then we have a surplus of 30000.If I used BS I could also argue that putting parts of people per dwelling is nonsensical
Auckland Council thought about 30,000 short in 2012 and the situation has got worse since then. 40,000 is a safe estimate. BNZ's Tony Alexander favoured the higher number as do I. You can bring in all sorts of snippets about population composition but none of it changes the fact that tens of thousands of Aucklanders are homeless, live in containers or garages, or live two families in one three bedroom home and so on. The occupancy rate in areas of Auckland like Otara are closer to 4 than 3. That means for every single person living in a unit in that area there is also a house with 7 people in it. Those overcrowded conditions are associated with poor outcomes for health, education and ultimately employment. We taxpayers pick up the tab for all those problems. It would be way cheaper just to build some more houses.
Occupancy is very unevenly allocated. So yes there may be "more" 4-5 br houses being built today but the chances are very good that only modest sized families are living in them and they make no difference to the slum conditions in other parts of the city.
Have a fossick around on the Statistics NZ web site there is a more comprehensive report on overcrowding in Auckland houses. A bit dated from memory (about 2009) but you can rest assured that things are worse not better than when they compiled the report. They get down to the nitty gritty of conditions like teenage siblings of both sexes having to share one bedroom etc. Lots of actual information there.
Wrong , Auckland council and Tony Alexanders numbers in 2012 were based on projected population growth in Auckland primarily using Stats NZ estimates. Stats estimates were drawn off the 2006 census period. The 2013 census period was not only over a longer seven year period , but showed Aucklands population growth was actually only half that expected. Stats NZ not only revised down its estimates, but made a mockery of every (bank) economists housing shortage meme on a population basis. Aucklands population was estimated to have reached 1.5 million in June 2012, when after revisions this number was not reached until late 2014.There is no fact that shows tens of thousands of Aucklanders are homeless. Indeed, if I take your 40000 home shortage , there should be 120-160,000 people in Auckland homeless.I totally agree, true overcrowding( i was in family of seven / 3 bed, all siblings have excelled) and less than adequate accomodation will have social consequences whether it be unemployment or health outcomes, some of which will remain and have always been the case.What we have in Auckland and more recently in other areas, is a belief that houses are for speculation, not for shelter, that prices will continue to rise, that 'investors' account for an absurd amount of purchases, that Aucklanders are willing to take on mortgages 4.4 x the average size of a mortgage outside that region,that affordability for those, (and a dwindling number), that can obtain an interest only loan is ok , because interest rates are low, that Auckland property account for two thirds of New Zealands mortgage debt , and when it all does a creosote, prices will fall , and suddenly there will be more than enough homes to purchase, at much lower levels for those who wish to obtain shelter . New Zealand is one external shock away from having its housing market exposed for what it is , when that day arrives , sadly all taxpayers will be given the tab.
You either take that high-level view of dividing by 2.5 or build an incredibly detailed model of housing demand taking into account all the factors such as the housing needs of those who enter AKL, those who leave it, how long people live with their parents (and whether they would prefer a place of their own). And the list goes on and on. I'm not even sure such a model could be built. Cherry-picking a few examples of why AKL is different is no more than bandying about a few anecdotes.
And, to be honest, 20,000, 30,000, 70,000 - who cares? The current house prices and known levels of homelessness and over-crowding tell you all you need to know about the shortage of housing in AKL.
Looking at the 16 years from mid-1999 to mid-2015 Auckland consented 116,170 dwellings. In the same period it's population grew by 368,400 residents. That's 3.17 people per dwelling. Let's just say pressure has grown on housing over that time.
We might not be so concerned if these were all "family" homes but only two-thirds were houses (64.44%). Apartments contributed 19.44%, retirement village units 4.46% and townhouses/flats 11.66%. The latter three categories typically cater comfortably for less people than a house.
I have no problem with standing by the divide by 2.5 approach.
For Bernard Hickey to point to Future Urban properties as "land banking" is ridiculous. That is all the land can be as basically the owner will have to wait for councils to do structure plans and then infrastructure before any actual subdivision can occur. This could be timeframes spanning 30 years.
We all hope that we can solve the house price crisis with a stroke of a pen. Why? Because it's cheap. Taxes, regulations, LVR's, bright line tests, bigger zones on drawings cost the government and the councils nothing. Generally they achieve nothing either. Except create a bigger and more bewildering set of rules and regulations.
That is because the only plan that matters is the infrastructure development plan. The Auckland Unitary Plan is not a plan, it's a design. None of it will come to pass ever until the government and Auckland Council put their hands in their pockets and build new roads, schools, water pipes and parks. The only way Auckland will get denser is if Auckland Council rips out all the pipes that currently work well and replace them with bigger ones.
And it all costs big money.
If his business is buying and selling cars he pays income tax on the capital gain same as a professional property trader or share trader. If it isn't, any profit is his to keep.
The beauty of ten acre blocks is that by living on one you are automatically exempt from any form of capital gains tax when you sell.
Phil Goff is making sense to me.
Immigration numbers should be reduced until Auckland's housing and transport can cope with population growth, says Labour MP and mayoral candidate Phil Goff.
"Urgent and bold action is needed to stop the worsening housing crisis and restore the affordability and availability of housing," Goff said at his campaign launch in West Auckland this afternoon.
He said Auckland was growing by a record 825 people a week, two thirds of whom are new migrants.
The kiwi dream of owning our home is slipping out of the reach of more and more Aucklanders and rents are becoming less affordable
Goff's housing policy calls for an easing of record migration numbers to allow infrastructure to catch up with population growth.
"This can be achieved by slowing the issuing of temporary work visas currently running at over 209,000 a year or by lifting the threshold for permanent residency," Goff said.
He supports infrastructure bonds for new development, but says the Government's $1 billion infrastructure fund is too limited to have a meaningful impact and needs to be significantly expanded.
As mayor, Goff said he would advocate for policy changes by the Government which promote the interests of home buyers.
They include further increasing bank deposits for developers, extending the bright line test requiring tax to be paid on capital gains from two to five years, eliminating negative gearing and requiring foreign investors to build new units rather than buying existing ones.
"Housing provision is in crisis but there are solutions.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11701171
I hate how they use the word affordability. Because affordability actually has little to do with the actual problem. You can make houses today more affordable by just reducing the interest rates that banks will lend at. But in a short amount of time house prices will go up o make up the difference due to under-supply and overseas investors. So the reserve bank dropping interest rates is really only fueling the fire. So at some stage something will break, as interest rates can only go down so far, and mum and dad investors will take their savings out of the bank and put it into houses or shares, like they have been doing. It is no coincidence that the NZ share market is at an all time high.
The problem is the cost of housing, and the cost to build, due to monopolies and duopolies in the materials market, as well as the retail market.Also there are skills shortages, and a big demand on builders.
Goff is just saying what the public wants to hear, and just highlights the problems that everyone already knows about. But has he actually got any new ideas. Whether he can make a difference is another thing. John Key said we had a housing crisis back in 2007 before National came into power, but he now says there isn't a housing crisis today. So when did the housing crisis stop being a housing crisis according to Key? Houses are far more expensive now than they were, and the house price vs house hold income ratio is far higher, to the extent where Aucklands ratio is one of the highest in the OECD. But at least we have good broadband now, so can watch all the TV we want.
The easy way to beat land bankers is to rate everyone on land value. It is far more fair than rating on CV, which is essentially a wealth tax. If land is rated on LV, then the land bankers will be paying the same rates as someone who has a house built on the property That means that land bankers will have to pay far more in rates. At the moment they are not paying their fair share, because the infrastructure is usually in place, but they are not paying their fair share of rates for the upkeep of that infrastructure. In my town they rate on LV, and as a result there is little land being land banked. Developers and land-bankers hate rates being done on LV, and as a result many councils now rate on CV, which is just a wealth tax, as you get rated more by improving your property.
Changing the rating basis from CV to LV is not going to make much difference now. There is too much money to be made by simply holding onto undeveloped land and waiting for the right offer to come along. A rates tweak might lift rates by $100 or so but that won't be any incentive to develop.
The main reason that land taxes and land value rating won't have much effect is that undeveloped land will be valued by QV more or less at rural values. Inside the RUB that will still be eye-watering but nothing compared to a serviced section. But when the land banker sells the land it's not sold at that undeveloped value. The seller can command a premium and take a large share of the value uplift that happens when land is formally developed. And they can do that because there is a perennial shortage of land that can be developed - i.e. that Auckland Council can extend network infrastructure to.
It depends on how they do it. There are still a few towns in New Zealand that do rate on LV, and I know that land bankers hate it. It incentive's developers to quickly sell their new subdivided land. For example there was a new development near me, and the rating based on LV on the land is around 2500k per year. When it has a house on it , it will go up to about 2800k per year, because the regional component of the rates are done on CV. So that is only a small difference/ However that same piece of land in a next door town that rates on CV only, only charges the developer about $500 a year for rates, and will raise up to $2800k when a basic house is built on it. So the developer has far less incentive to sell the land quickly, and can hold out for a higher land price.In some cases there have been pieces of land on the market since the GFC. Although in this particular town the council decided to offer all developers rates relief on land, so they hardly pay anything at all.
You have one ratepayer paying $2.5m? Will almost cover the CEO's salary!
I'm not sure we are talking about the same thing. I am talking about land that is not yet zoned residential but can be subdivided down into lifestyle blocks. If I read it correctly this is what Bernard is also talking about. In Auckland it is the Future Urban area.
You have to be careful about where the undeveloped land is and what the council's policies are on rating for water supply and sewerage. Some councils will charge landowners for water if a piece of undeveloped land lies inside a serviced zone. That can make holding onto undeveloped land a bit annoyingly expensive but, again, totally worth it if land prices are soaring. Being serviceable can also push the LV up quite a lot. In the rural areas LV can still make the rates on farmland comparatively high but its unlikely to fiorce anyone to sell or develop quickly.
I used to work at a council that rated on LV and I can't recall anyone ever mentioning it's effect on land-banking when the debates on LV v CV were held. The biggest issue was the comparative free ride lifestyle block owners got compared to real farmers.
Look at countries where they ban foreigners trading on businesses and houses, Venezuela, Russia, india, thailand, Philippines etc. All banana republics with extreme poverty due to banning and or making it hard for foreign business and home ownership...protectionism brings poverty to to masses and wealth to the corrupt and cronies...be happy that new Zealand is so honest and free
But other, more advanced countries have been able to differentiate between housing and businesses, like the most recent example, Canada. Perhaps you could do the same. Not going to be so free as tenants in our own land, ask those sleeping in cars, its pretty much banana republicsville for them, I suppose they don't count, though.
Not really Keywest, TCBH, - the money laundering and foreign buying of NZ is putting tremendous pressure on the kiwi dollar. Reduce that and our dairy industry will get a new lease of life along with the other exporters. I am surprised the farmer groups are not squealing more. At the moment rural NZ is being sacrified for the big smoke with high exchange rates along with relatively high interest rates caused by the madness of Akl housing.
Oh common on !!.... this kind of BS and naive thinking is what is holding us back ... Jesus! what have farmers and exchange rate have to do with all this ,,,? .... and what does money laundering and foreign buying has to do with the kiwi dollar .... for God's sakes get a bit of insight about the matter before opening your traps???
the exchange rate has a hell of a lot to do with the health of the NZ economy. Why do you think the RB lowers or raises the OCR, it is to manipulate the currency to where they want it to be to control inflation.
but since we have huge inflows (buying nz dollars) they are not getting it anywhere we it needs to be for exporters and tourist, the two biggest industries that earn overseas funds that we will need to pay our overseas debt
Now I am seriously disappoint Sharetrader, ..., you call few billions during 2 years huge ?!! ..there are billions NZD changing hands every week overseas by hedge fund and investors completely out of our control hardly having anything to do with buying houses here ( or pumping money).. NZD will remain attractive in a world where 2% is a better investment than 0% or negative rates ... especially Japanese investors... this is not new its been going on for years
check out some RBNZ comments on FX ...they admit that incremental changes in OCR has very little effect on FX rates short term ,, NZD actually goes the other way each time they lower OCR.... the NZ economy is much better than we are claiming, hence our $$ is strong and we have 2% OCR .. but that is only part of the story .... Also refer to Roger Kerr article here for more insight on this matter.
You fight.
That's what you do.
Or you lose New Zealand to a bunch of 2 Dollar shop owners or thier proxies, thier accountants and thier lawyers and thier trust accounts, and also provide thier elderly parents from wherethefuckinstan. based in some shit hole in china or india, a free home in a safe country.
All on your dime.
yep, people do not understand foreign exchange markets, up to 90% of foreign exchange is purely speculative in that 2 participants bet against each other and never actually transact the money from country to country, (only the difference in profit and loss) thus a big fonterra NZ dollar exchange say even at $100 million is just a blip in the NZD vs USD spot rates
Yep, and 100% of that 90% get bought and then sold, or sold then bought because its speculative, and that's great for the likes of Fonterra because its not directional and because it provides liquidity to the markets thus stopping a $100 NZD purchased by Fonterra pushing the currency up 100 points everytime they do it. What drives exchanges are long-term investment flows, and trade in a very minor way.
KW you sound like you are the expert.
I am not talking millions on a spec deal I am talking physical billions. If 30% of housing purchases have been made by immigrants, people considered non residents, "students" and foreign aliens then with a mortgage debt of over $200 bn indicating the level of activity in the market we are talking about a lot of physical money getting converted from CNY, PDs, Rupees, Rands etc into Kiwi. Kiwi goes up.
Its not just housing investment, Wheeler is reluctant to drop rates which would inflame housing even more so foreigners are doing the carry trade and buying Kiwi. Kiwi goes up.
http://www.stuff.co.nz/business/money/7810453/Property-linked-to-high-d…
Its not that difficult - just take a deep breathe.
Sorry small town , just like to note that your understanding of FX flow is very simplified and just done on the back of an envelope .... do you think that few billions during last 2 years a huge sum that can leverage NZD ?!! .Doubt it very much ... .there are billions NZD changing hands every week ( if not everyday) overseas by hedge fund and investors completely out of our control hardly having anything to do with buying houses here ( and BTW there is no physical money any more changing hands, its all electronic numbers and accounts).. NZD will remain attractive in a world where 2% interest rate is a better investment than 0% or negative rates ... especially Japanese investors... this is not new it's been going on for years .. this is not the first time we had very high NZD ...
check out some RBNZ comments on FX ...they admit that incremental changes in OCR has very little effect on FX rates short term ,, NZD actually goes the other way each time they lower OCR.... the NZ economy is much better than we are claiming, hence our $$ is strong and we have 2% OCR .. but that is only part of the story .... Also refer to Roger Kerr article here for more insight on this matter.
Oh, and almost all assumption ( and text book methods) mentioned in the article from 2012 proved to be wrong -
The cure for high prices is high prices, they say:
Luxury condo sales in Miami have crashed 44%. According to the latest report by the Miami Association of Realtors, the local luxury housing market is just as bad, if not worse, than the Hamptons and Aspen.
http://www.zerohedge.com/news/2016-08-27/%E2%80%9Ci%E2%80%99ve-never-se…
The chances of any sort of fall in prices Auckland, let alone a slowdown, seems much more remote, at least in the minds of potential land-bankers. And their expectations are the crucial component in this latest frenzy of land-banking.
Nope.
The council has slashed land supply around Auckland City by 2/3rds and has ratified a plan to keep that restriction in play until 2040. Tax or no tax land prices are going up.
The only "Rule" Capitalism respects is Tax. It shapes economies, society as a whole, its a deterrent, it morphs into a "stick" when its needed. Stamp Duty, CGT, IRD to actively go after CGT on speculators, private & commercial. How about getting rid of rates by having Stamp Duty at 3%-5%? Load more onto foreign investors & speculators.
If your theory was correct, then Sydney and Melbourne house prices should have halved by now ... they actually went up ... and still going up as we speak ... maybe tax is not the "stick" some like to think it is .... and maybe it is NOT the answer .. the world is changing !
Australia has draconian tax laws.
Stamp, duty, capital gains tax, higher income tax, stamp duty you name it, they've got it.
And still house prices march upwards :
http://www.businessinsider.com.au/australian-house-prices-are-surging-a…
Bernard, like a lot amateur economists, think that tax is the answer.
It is not.
If anything it discourages people from selling and holding on instead, therefore making the shortage worse.
..of course tax is an answer. The major reason for buying is the tax free gains and the tax deductions on said mortgage. The neg tax gearing is a major draw for investors...$500 mill in neg gearing tax write off p.a says it all.
We can still have a supply shortage, but with lower prices. The tax satus is providing that turbo boost to pricing well above the shortage value.
Of course you realise you will put hundreds of thousands of people into the street if you remove negative gearing.
A great many business up and down the country will go to the wall as the only way they can break even and pay wages is to have the benefit of negative gearing and the small tax advantage that gives.
and nearly all use property as their security.
It's appalling that most people are totally ignorant about what negative gearing really means .
What you are saying, when you say -
"the only way they can break even and pay wages is to have the benefit of negative gearing and the small tax advantage that gives."
Is that those business, are loss making speculative ventures. Playing a stupid game of tax avoidance, and reverse equity borrowings. If a significant fraction of our economy is an accounting gimmick, we are already in the shit, we just don't know it yet. I hope you are wrong, but it sounds true in a typical sort of way. LOL this will be watchable.
So how is it possible to have supply shortage with lower prices ... that is another kooKooland fantasy , not market reality mate.
Cut the negative gearing and apply CG tax on property investors and you and I will hold the Can and pay for housing the thousands of homeless tenants ( who could never buy a house even for 50K) .... which will sleeping rough until the state builds new houses for them, or worse buy the houses they are already live in !!
these incentives have been designed and enacted to property investment class for good reasons a long time ago ( one of which is because they are businesses providing a service to the public like Hotels and Motels)... ... so apart from just throwing big words like tax status, and tax free gains etc ...... better visit and understand WHY these rules ( allowances) were put in the first place and what do they compensate for !! ...
Here are few words to jog people's memory too: Rates, Mortgages, Maintenance, depreciation, compliance, H&S, Insulation, Heating, Fire alarms, Bad Dept, tenancy tribunal cases, P labs, property damage, Drugs, property cleaning, Property managers, Body Corp Admins, and the list goes on !! ... Oh did I mention Tenant's agro and problems ??
Eco Bd
"So how is it possible to have supply shortage with lower prices ... that is another kooKooland fantasy , not market reality mate"
Simple. Its called the ability to pay. Take away neg gearing and remove the tax refunds frorm your fellow tax payers. Chuck in some more dairy declines, higher interest rates, higher local rates, job losses, cap gains tax. Bingo...less cash, lower prices....less ability to pay.
Housing shortage remains (due to tap wide open immigration).... but we wouldnt have so much of this ponzi related debt hanging around like a noose....ready to strangle the country when interests rates rise.
Yes mate, thank you for the clarification ...and I agree... Lucky for you coz it seems you are not a TAXpayer eh? I guess me and my fellow tax payers should join you to be safe !!
Are you imagining the economy your are describing?,... this sounds like the day after WWIII has started.... its a disaster and unemployment would be reaching maybe 20% .....and most home owner would NOT be able to pay mortgages ... almost half of the population would be living rough or in cars ... -- there won't be anyone left to tax for CG or anything even GST.... I hope that you join me in praying that we won't see such a day.
So is that where you want the country to go ?? To make houses affordable again and get rid of Debt?
Maybe that's the L&G coalition secret plan ? .... but
I rest my case mate - cheers
Incorrect IMHO as that tax removes some speculative demand ie it is not just about supply. As an example the oil price went to $147US in July 2008 due to shortage but collapsed to around $35 very fast as the world's economy faltered demand dropped away the speculators ran seeing they could make no more gains. So all that needs to happen is to make the profits marginal and then the short term fast buck speculators exit.
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