The Government has unveiled detail around who it wants new investment property tax changes to apply to, and how it wants these changes to be implemented.
It has released a 143-page consultation document on the decisions it made in March to:
- Prevent residential property investors from writing off interest as an expense when paying tax, and;
- Extend the bright-line test from five to 10 years, so that investors who buy and sell residential property within 10 years have to pay income tax on any gains made.
The Government said “new builds” would be excluded from both changes. In the case of the bright-line test, this means investors need to pay tax if they sell a property within five years of buying it.
In the consultation document, spearheaded by Revenue Minister David Parker, the Government proposed a property should be considered a “new build” when:
- a dwelling is added to vacant land
- an additional dwelling is added to a property, whether stand-alone or attached
- a dwelling (or multiple dwellings) replaces an existing dwelling
- renovating an existing dwelling to create two or more dwellings
- a dwelling is converted from commercial premises such as an office block converted into apartments.
The Government said a “dwelling” should have its own kitchen and bathroom.
As for the question of how new a property needs to be to be considered a “new build” under the interest deductibility rule change, the Government proposed it should have been acquired within a year of its Code Compliance Certificate being issued.
It’s seeking feedback on how long a property can be considered a “new build” for - IE 10 or 20 years, and whether this new build period will only apply to an early owner of a property, or subsequent owners as well.
The Government also suggested that in addition to owner-occupier property, the following types of property should be exempt from the interest deductibility rule change: employee accommodation, farmland, care facilities like nursing homes, commercial accommodation like motels, land outside of New Zealand, retirement villages and rest homes, and property owned by Kāinga Ora and its subsidiaries.
An owner-occupier with flatmates is also exempt.
The Government is considering exempting student accommodation, serviced apartments and Maori land from the interest deductibility rule change.
It also made the point it wants to prevent investors trying to get out of the interest deductibility rule change by owning property via companies, so it proposed applying the rules to close companies and companies whose assets are primarily (more than 50%) residential investment property.
Another complex issue the Government is seeking feedback on is around whether an investor should be able to deduct interest as an expense when they come to sell a property and pay tax under the bright-line test.
And the document considers how the interest deductibility rule change would work with the rental loss ring-fencing rule.
Members of the public have until July 12 to make submissions on the document.
The tax rule changes are already operative, despite their details still being designed.
The extension of the bight-line test applies to residential land bought on or after March 27, 2021.
Interest on debt acquired on or after March 27, 2021 won’t be able to be written off as an expense from October 1, 2021. The rule will be phased in over four years for interest on debt acquired before March 27, 2021.
The Government might have caused investors to rush into the market and push prices higher, had it said in March that changes would only apply after consultation.
National would reverse changes
The release of the consultation document prompted National to reiterate it would reverse both the bright-line test extension and removal of interest deductibility.
National Shadow Treasurer Andrew Bayly said it was "astounding" the Government would break the "fundamental rule of tax which is: tax profits, not revenue".
National Housing spokesperson Nicola Willis said it was "cynical" of the Government to exempt itself from the changes by allowing interest deductibility to continue in regards to Kāinga Ora houses.
She recognised the Government's own advisors had cautioned the changes could increase rents and impose additional costs on lower income tenants.
124 Comments
Yeah, bring on the capital gains tax. Surely adding a tax to something makes it cheaper, right? Every other country that has implemented a capital gains tax has made housing more expensive, but surely that can't happen here in NZ. I can't wait for labour to introduce 100% income tax too, so we can all take a well earned breather and sit at home and collect a benefit.....
Agreed. The more I look at these changes the more I dislike them. Basically long term holders of land/property with little debt won't be effected by the changes (interest rate/brightline). The short term add value flippers will get slammed. I feel like the flippers add real value to society as they buy, make an improvement & sell. They make there money out of adding value not land value appreciation. Given our terrible condition of our housing stock driving these people out of the market doesn't seem very intelligent. A capital gains of 10 or 15% for everyone will give much better market outcomes.
Tax free brackets are very expensive in lost revenue terms, which is why Labour only campaigned on a 0% tax bracket up to $2,000 at the 2011 election, rising to $5,000 "as finances allowed"..
Going to be difficult having a very expensive tax-free bracket if you add in capital gains but restrict them to 10-15%.
Just go with TOP's tax policy, a UBI with flat 30% tax.
I don’t see why you would restrict a cap gains tax to 15%? And your proposal is the same as my proposal, we are both creating a tax-free bracket and that bracket will effectively cost the same amount of money.
A UBI isnt all that honest either as you will end up having to use an adjusting UBI for several reasons, some of which are: a UBI would be too low in the cities or too high in the regions, this creates an incentive to move to inefficient low-density areas that have lower wages and lower costs and a UBI punishes single parent homes; UBI is too little for people with some disabilities compared to able people, the UBI for children creates distortions as children need less, but the ratio of children to parents in family makles a UBI vary in its reltive impact. There are lots of downsides to UBI's which usually are not considered aganst its upsides.
A flat tax fails to recognise the scaling factors of wealth, as you become wealthier you can leverage society on larger scales, a higher percentage of your income comes from the national infrastructure and society rather than your personal efforts, this ratio should be reflected by a slopping tax curve.
I don’t see why you would restrict a cap gains tax to 15%?
Because you just said we should have a 10-15% capital gains tax. If that's not what you meant, you shouldn't have said it.
And your proposal is the same as my proposal, we are both creating a tax-free bracket and that bracket will effectively cost the same amount of money.
Er, I never proposed we should have a tax-free bracket.
A UBI isnt all that honest either as you will end up having to use an adjusting UBI for several reasons, two of which are: a UBI would be too low in the cities or too high in the regions, this creates an incentive to move to inefficient low-density areas that have lower wages and lower costs and a UBI punishes single parent homes, some of the most in need of extra help.
A UBI is a BASIC income. It's not intended to fully fund everyone. If you live in rural areas then you're likely to have fewer employment opportunities anyway so will be more in need of the subsidy.
At the moment benefits aren't directly adjusted for people living in cities vs rural areas, so this is a poor argument as to why a UBI would need to be if we already aren't doing that adjustment.
A flat tax fails to recognise the scaling factors of wealth
I didn't propose only a flat tax. I said to take TOP's policy which included a UBI. It also has a tax on residential property.
Also a UBI is effectively a negative rate of tax, and is automatically totally progressive, because as you earn more and more the tax rate you pay on your full income approaches that of the flat tax.
Flat tax ensures that's never any disincentive to earn more, whereas tax thresholds do actually stop people from considering whether to pick up extra hours or work overtime or take on a harder role if it pushes them into a higher threshold - I have personally been affected by this.
I did not say 15%, you must be confusing me with someone else. I personally support a marginal rate, pay as you go, cap gains, which is why i responded in substantial agrement to your post on the tax working groups proposal.
A UBI as you are describing it has almost none of the benefits of a broader UBI, im not sure what the point is? If its simply to correct tax imbalances then a 0% rate is much simpler. A UBI does create a tax free bracket in effect, what you are saying and what i am saying is very nearly the same, we are debating the nuance of the tax curve, but both our curves are much closer to one another than the current tax curve. This is very obvious if you simply call the negative compoant of a UBI part of the welfare system.
Why should working more be the aim of anything we do? Tax should simply reflect the fact that some of what we make we owe to society because society is what allows us to earn it in the first place. The amount you pay should be related to how heavily you draw on society to make it. Supposing tax should make sure not to disincentivizing longer hours makes no sense, it isnt taxes job to bend over for longer hours of work. Never the less, even using your curve, there is disencentive to working more because your average tax rate will rise as you work more. If you chart your proposal you will see an upward sloping effective tax rate.
Benefits are directly adjusting for rural through the rent subsidy, but yes, our system is also very flawed. I am not saying a UBI is terrible, but that is also flawed.
All the flippers do is take a property that once was ideal for a first home buyer. Something a little run down and in need of work, with a price that reflects the current condition. Sure, many FHB might not have the time to renovate but that's a pure assumption at best (we renovated as FHBers both working full time). Also, alongside the "avocado on toast" comments there are often suggestions that FHB buy a cheap run down house to renovate, a bit hard to do when all the houses have already had "value add" put in.
Fleeced Sheep, the aim should not be to make housing cheaper for everyone, but rather cheaper for those at the lowest rung, capital gains taxes take money from the richest, so they create less buying presure, and distributes it to the most in need, so they can buy more. Redistibution is the point of a capital gains tax sir.
Laminar, I understand the argument, but I've yet to see what the extra funding generated by a CG tax will be spent on. History tells us it will be spent on buying votes, not fixing the housing crisis. Surely you haven't forgotten jacindas not CG tax speech already... CG tax creates incentive to hold, so this won't reduce buying pressure as you assume if turnover is reduced
Jacinda Ardurn is a failure on most fronts, tax amongst them. I am talking purely theoretically here, a capital gains tax would be a good thing, her poor man’s capital gains tax is a philosophical afront to reasonable tax policy and flies in the face of reason. She says not enough people want a capital gains tax, well ill bet you nealry 100% of those same people don’t want this Frankenstein tax change either.
That is the issue, there are no alternative investments producing the return and risk of property. If this collection of clowns infesting parliament and impersonating a Govt tried incentives, alternatives may become attractive, even improve productivity but this lot know the productive people do not vote for them so their interests lie in creating more beneficiaries reliant on Govt benefits and housing.
The proposed definition with tax advantage of "new build" to include "an additional dwelling is added to a property, whether stand-alone or attached", and "renovating an existing dwelling to create two or more dwellings" will encourage quasi-developers with developments pushing the limits. Putting a simple fire wall down the middle of a bungalow, or adding a tiny house out the back are two that come to mind.
However, arguably these provisions will seemingly on paper add to increasing the supply . . . albeit not necessarily of great quality.
gnx
Maybe one needs to stop living in hope and start to get one’s head around that house prices may be flattish at this level for some time.
RBNZ, Treasury, and Robertson see house price inflation cooling this year, but a significant correction not likely or desirable, and with some increase (2% pa) in the two following years.
One can hope or argue what you like, but they have some nous and influence - and for wider economic reasons are seemingly unlikely to take significant actions or decisions resulting in a major correction.
Just saying.
But the opposite of hope is doom and gloom!
Unfortunately printer8 is correct on this, the powers that be are not going to willingly do anything that might cause prices to drop. In fact, I think the forecasts are wrong and the prices will just keep rising, such is the utter absurdity of this country.
One needs to evaluate the consequences of the housing situation on their prospects and act accordingly. For many, sadly, it will mean abandoning New Zealand.
Brock
I take no pleasure in you acknowledging that I may be right (note use of "may"). It is extremely tough and very frustrating for FHB. Homeownership is a NZ cultural norm and expectation and it is sad that over the past thirty years homeownership for 25 to 35 year old has fallen from around 65% to 35%. .
Unfortunately in the near future I don't see affordability issues getting significantly better . . . and FHB are now also starting to face the prospect of increasing mortgage rates over the next three to five years.
Currently the market drivers remain quite strong. Yes, immigration is a low and the return of expat Kiwis as expected by many has not happened. As a result of the 23 March announcements, investors have become less active in the market (for which I have seen data supporting this); however it doesn't seem that investors are selling in significant numbers opening up opportunities for FHB. I was reading data this morning that property listings at the end of May are nationally 51% below the ten year average (although Auckland is only 17% below) and nationally listings are 71% below the level of May 2011. Building supplies are also currently creating a constraint to new builds and house supply.
Although RBNZ, Treasury and Government statements suggests that they see prices as being flattish and desirable for wider economic reasons, if the market remains too strong then yes, one could see a significant RBNZ decision; however, the reality is that for economic stability reasons RBNZ is not going to take action that causes a housing correction.
Yes, I have taken the likes of Groat to task. While he and others continue to be unable to acknowledge or see beyond the singular current issue of housing affordability - and RBNZ as incompetent - then they are not going to make rationale decisions. Simply focusing on moaning and blaming about things outside of one's control does not help one make the right personal decision.
So yes, unfortunately I agree: "One needs to evaluate the consequences of the housing situation on their prospects and act accordingly. For many, sadly, it will mean abandoning New Zealand" albeit it hopefully only temporarily. Where possible, Aucklanders could also look to the provinces to get onto the property ladder and there is plenty of evidence that this has been occurring.
While not an excuse, this is not the first time in our recent past there has been significant emigration for economic reasons.
Exec Summary: What should happen is house prices decrease in an orderly fashion to the point of 3-4 times median income. What will happen is house prices continue to rise (albeit at a much lower rate than the past few years) because kiwis have a love obsession with housing and will leverage to the days. It's like nobody is happy with the current situation but reality is it will just continue.
al123
No problems that one should not raise housing affordability as a concern - I have raised the issue for FHB for considerable time and since last November posting that house price rises were unsustainable and posed risks.
However, when one gets so negative and bitter that one loses sight of reality, then one loses the ability to make rationale decisions. The focus on single self-interest consequences and tantrums by some posters has meant that they are unable to recognise or acknowledge the rationale for RBNZ decisions over the past year; as a result they have lost ability to see the likelihood of further RBNZ decisions and the implications for themselves and for sound personal decision making.
Your constant whining about what other people should and shouldn't post in the comment section doesn't contribute to making financial decisions either. You should stop moaning and make a rational decision based on the way things are: you dont control what people post in the comments section here. If you dont like it, dont read the comments. Your constant whingeing is not productive.
al123
In case you are unaware, postings on this site is about debate.
I see no problem in criticising posters simply making unsubstantiated posts and whines which do not add to the intent of the site but which you seemingly support . . and unfortunately for you I don’t propose letting them go unchallenged so will continue to do so.
Have a great day. Cheers
"and for wider economic reasons are seemingly unlikely to take significant actions or decisions resulting in a major correction."
exactly! and when they do finally act we will see a large rise in real interest rates ...and the whole stack of cards come down..or we live with high inflation and everyone is poorer, not just over leveraged speculators
when Graeme Wheeler introduced the LVRs he presented a paper on this very subject...reversion to the mean so a 70% percent fall from where we are today
do you live in a fantasy land where you think we will never have another financial crisis...another stockmarket crash? a fantasy land where the big government can save people from their own recklessness
New Zealand has been taken for the biggest ride and its costing my generation dearly
oh well Friday tomorrow but another funeral at the Remuera Golf Course for another chap who lost the good fight
gnx
Re: "do you live in a fantasy land where you think we will never have another financial crisis...another stockmarket crash? a fantasy land where the big government can save people from their own recklessness"
No I certainly don't. I have experience of Covid, the GFC, the 87 share market crash and Muldonism of the late 1970s.
The issue as to when a significant financial event will actually occur is highly uncertain . . . unless of course you have a highly accurate crystal ball. The type of event that you are talking about is tends to occur in fairly long cycles. There is one very regular poster on this site who has been calling that the housing market is going to crash . . . and has been doing so for well over six years in which time house prices have more than doubled.
Yes, significant financial events occur and one should be prudent regarding these . . . however, the reality is that personal risks are very considerably far, far more likely with equal or not greater consequences. These risks include sickness or serious health issues to you or your partner, serious accident, death of you or partner, loss of employment for either, marriage split, serious natural hazards such as earthquakes, floods or volcanic eruptions, house fire . . . all which will likely have far, far more significant consequences. However one does not freeze into inactivity, not make plans, and go around daily being doom and gloom
As you say "another funeral at the Remuera Golf Course for another chap who lost the good fight" - so sadly an example how one of these personal rather than financial events can be more significant.
I'm sure your mate would argue to stop griping and get on and live life.
I had a look but couldn't find it
but have a look at this link from the same time...from 2013 FFS! Eight years and nada
https://www.rbnz.govt.nz/news/2013/08/limits-for-high-lvr-mortgage-lend…
I have 4 apartments (a block) about a year old. On high density zoning, commercial rates through council, fire rated and registered for GST through my company that runs all the day to day operations for it etc. To me it’s a hotel so i’m keen to know if I can deduct interest or not? They are all run exclusively as airbnb’s.
A hotel eh? What's your rate per room-night? Do you do a different rate for weekends? Do you sell room-nights at lower prices when occupancy is lower than optimal such as weekends and public holidays? What's your average nightly occupancy rate weekday vs weekend?
Airbnb eh? Hotel my arse.
We yes I do.
And I have full resource consent from council to operate and rent out nightly 365 days per year to which I paid development contributions, traffic management plans etc.
I pay commercial rates to said council and its fire rated and Im registered and pay GST.
Many hotels advertise on airbnb, booking.com so whats the difference?
All the revenue is collected through a property management company to which I own and its always been legit with our accountants...
A co worker of mine recently bought a motel, there is now no manned reception, the motel phone number diverts to a cellphone. Doesn't really offer much in the way of services except for cleaners visiting daily and an on-site coin operated laundromat. Sure, its more than 4 rooms (about 20 I think), but really is not much different to an airBnB.
Yes, prepay only, not 100% sure on the keys but assume each room has lockbox with combination outside like many airbnbs. Turn up, enter the combination to release the keys and in you go. Or digital locks is another option, can even get ones that the code can be remotely changed via wifi these days.
I don't think you'd qualify as a hotel, see definition under the Hotel Association of New Zealand Act 1969;
hotel means any premises used or intended to be used in the course of business principally for the provision to the public of—
(a) lodging; and
(b) alcohol, meals, and refreshments for consumption on the premises
If you don't fit subclause (b).
Are they subject to building warrants of fitness as motels etc are? Do you pay any toilet/bed tax your council may require? Do you have public liability insurance? Do you have smoke stop doors? Do you hold fire drills? There are a number of regulations that apply to commercial accommodation suppliers that I do not believe Air BnB's are, so unless you are complying with them, you are nothing of the sort.
It looks like you wont be able to deduct interest as it sounds like your dwellings would easily convert to residential accommodation. See paragraphs 2.10 to 2.13 of the Government discussion document:
https://taxpolicy.ird.govt.nz/publications/2021/2021-dd-interest-limita…
See paragraph 1.34 for email or post address. You have until 12 July:
https://taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2021/2…
Except that's done so that any additional income earned by the beneficiary is easily taxed without trying to complicate things by also having an untaxed income stream.
It also means tax cuts or tax increases affect beneficiaries as well.
Not the same as a government department pay tax on assets to the government that directly funds that department.
Not weird. Govt LOVES money go rounds. That's exactly what they do when WINZ pays a benefit, the beneficiary pays (most of the time) Kaianga Ora (HNZ), Kianga Ora returns a tiny amount to the Govt. The money go round that would be cheaper and better if it flowed directly from WINZ to HNZ, or even better still was just a book entry and never moved at all. Apparently all this inefficiency and lost/leaked $ is required as its the tenants money (right) and they need to learn how to budget "their" money care of the taxpayer.
Govt keeping the old rules for itself is just an alarm showing that economically it makes no senses to supply the service at current returns. They need to keep the standard tax rules for themselves or the HNZ books would look like more of a disaster zone than they already are..
This looks like a recipe for small business owners to get a bit of a side income. Transfer ownership of your business to a holding company (with clear terms), pack the holding company with just under half the value of your company in real estate from 10 seperate participants. Have each person own 9ish percent of the holding company and everyone can claim the interest as an expense, give the small business owner 10% of the savings and everyone is happy? (Just need to make sure that the holding company’s deed is drafted to reflect the asymmetry).
How much admin would you do for $160,000? The answer for a lot of people is 4 years full time work. What if you stood to save $160,000 after tax every year, how much admin is that worth to you? If mortgage interest rates hit 4%, 10 property investors with a million dollar property (just below Auckland median) each joining up with a small business owner could each be better off by $16,000 per year after tax. So long as the properties were all 100% leveraged (you would be incentivised to put all your borrowing here anyway because this part is tax deductible) via cross securitisation or guarantees, the small business doesn’t even need to be worth much. What this will achieve is a skewing of the data available to report on and a favouring of more established / intelligent investors over Joe average who ends up with a rental property due to circumstances out of their control (first home buyer whose parents in a small town fall sick, requiring the first home buyer to move closer to their parent). If you set the incentive for advanced tax planning high enough you’ll get complicated and opaque tax structures appearing. Tens of thousands of dollars per year is in my opinion enough to get people really looking into this stuff.
What happens to a property where the owners have to go overseas for a year or two for work reasons, and then come back but the property is rented out in the meantime to cover costs. Is it then regarded as an investment or just during the time the owners are away? If so it would be cheaper to leave it empty and thus increase the shortage?
How would it be cheaper not to rent out? You'd still be paying the interest cost and earning no rent. Cutting off your nose to spite your face.
Could be some at the margins deciding not to rent out as the returns will be a little lower, but I doubt it would be dramatic.
Hi B.D
I believe they clarified this under the initial announcement.
It used to be if the majority of the time you owned the house it was owner occupied then no tax and vice versa.
They have now made it pro rata, if you rented it out for 10% of the time you owned it then you would have to pay tax on 10% of the capital gains. If you rented it out for less then a year then no tax as well.
Nothing in there appears to deal with the issue of someone having (or acquiring) a small share portfolio, hearing really bad things about it and selling it all and using that money to pay down rental property debt, then hearing good things about the market and borrowing against the property to buy shares (now tax deductible). Repeat a few times and all the borrowing against the property is now for shares?
OMG, this is now more wishy washy than it was last month.
For example, what is student accommodation? Is it any property rented primarily by students? Or something else? What happens to all the look through companies? Do they all have to be terminated? What are the tax implications of change of ownership? Does the brightline start again, even if the property has been owned by the same parties (directors) for twenty years? What of the legal obligations?
This is just scraping the surface of these proposals. How can honest taxpayers comply when there isn't enough clarity? How much non compliances occur, even when they are sincerely trying to comply? More arbitrary ad hoc Labour policy.
Student accommodation in this context undoubtedly means a halls of residence or other specific business operation set up to cater to students of a university. Not a house in Dunedin that happens to be rented to students.
What are the tax implications of change of ownership? Does the brightline start again, even if the property has been owned by the same parties (directors) for twenty years?
Why wouldn't it? Right now any property that is bought is subject to the bright line test if it is on-sold within 10 years. Income tax is due on the profits earned in the period, proportional to how long it was used as a rental property. If it was used as a rental property for 364 days or less (aka, an owner occupied house), then no income tax is due on the profit.
It's not retrospective.
The intent of the changes were announced prior to 1st April 2021, and apply to the tax year from 1st April 2021 to 31st March 2022.
All they're working out now is the details of how they apply. If they had worked out the details first, it still wouldn't be retrospective.
It is retrospective because it applies to property acquired prior to the introduction of the new rules. At least that is how it will be perceived by the business community and those looking to invest in New Zealand. Imagine you order a bunch of apples from Australia to sell and whilst you still have 50% of your stock the government decides that you now can no longer sell apples from Australia (a normal government would exempt existing inventory and only apply the rules going forward. This labour government did the equivalent of applying the ban to existing inventory as well). Investors will worry that if they invest here and suddenly the government decides that IT jobs are driving inequality in NZ because IT consultants get paid too much, the investors investment may get targeted and the rules wouldn’t just be for new investments going forward but also apply to existing investments (retroactive).
It is retrospective because it applies to property acquired prior to the introduction of the new rules.
Er, no.
You pay tax each year, as per the rules of that tax year. The rules for this tax year were changed before it started. There's absolutely nothing retrospective about that. Tax rules changing with little notice or public consultation is NOT the same as changes being applied retrospectively.
A retrospective change would be to say all this applies to the 2020-2021 tax year that has just completed, and people now have large(r) tax bills to pay than they expected, based on past assets they owned that they have no ability at all to go back and change, because you can't change the past.
Furthermore the specific changes in interest deductions don't occur until 1st October 2021 at the earliest, so even if you did have an asset that you bought in February 2021 prior to the announcement of the change in rules, and you wanted to avoid the change in rules, you could sell it between March and October and avoid the changes.
If the changes are avoidable, they clearly aren't retrospective.
The changes to the bright line test going to 10 years weren't retrospective either, even though they were effective from 27th March after being rushed through Parliament under urgency. There were specific carve outs for sale and purchase agreements that were signed before the announcement, even if the settlement date was after 27th of March. Without those carve outs, that would have been retrospective legislation, and they deliberately made efforts to avoid that.
Effectively you're saying each time the registration rate for cars goes up it is retrospective legislation, because you already own the car. Similarly if the government decides to bring in some sort of road user charge for electric vehicles from 1st Jan 2022 that would also be classed as retrospective by you for anyone who already owns an electric car. That's clearly nonsense.
This description of the ease with which people can avoid the additional tax bill by selling their second largest asset in the next few months is class - straight out of the playbook of the 8,000 [Government PR employees]. Slightly off script though, as the government has previously described the interest deduction change as retrospective.
This description of the ease with which people can avoid the additional tax bill by selling their second largest asset in the next few months is class
I said nothing about the "ease" with which it could be done, I simply said it was possible to do so, to illustrate a difference between something that is truly retrospective or not - if something is retrospective there is nothing at all you can do to avoid it. But prospective legislation changes can be avoided, if you want to. That statement is not making any judgement about how realistic or desirable it is to avoid such changes, merely observing that there's a difference between things being possible or impossible.
Slightly off script though, as the government has previously described the interest deduction change as retrospective.
Citation needed.
And perhaps a human rights violation by way of discrimination in favour of the largest entity in the country. The government got away with taking unlawful action in response to Covid in the interest of saving lives. I wonder what they will use to try get away with this one.
Any investment needs an return based on associated risks decided by a market. The more you manipulate this market in this case housing, with regulation, money supply, land supply etc the larger the list of unintended consequences get.
From a very basic point of view with rental property and investment is based on net rental return % + estimated capital gain % = total est return. Every person has a different expected rate of return and view of risk. The market as a whole shows the result of these individual opinions.
To achieve the total return required, say 10% for ease of math 5% Cap gain + 5% cash flow.
All else being equal if you take away through govt legislation the possibility of capital gains to contribute to this then a larger portion needs to come from cash flow. If you change tax laws and other legislation to hamper cash flow then you have fundamentally changed the maths.
That's fine and is being done to bring "affordability" into the market but the consequence will be very reduced new supply of rental accommodation or a massive increase in rental costs to motivate the private sector to keep investing in rental property. If as a society we have consciously decided we don't want private rental investment then that's ok but the consequence is the Government better be ready to fill the void, and I very much hope they do! Unfortunately that is where I loose faith..
This Govt continues to make it up as it goes. It makes policy and budget annoucements without doing any investigation etc prior to the blah blah sessions that have to follow to decide what their announcements really mean and the implications of those anouncements. Ardern is there for the good news and glory but not when the public see that in fact nothing has happened and infact got worse eg mental health/health/education/child poverty/homelesness/social housing list /household poverty etc. If the Govt spent as much effort on meaningful well researched policy as it does on PR spin and misleading and dishonest statements all NZers would be far better off. One of the direct results of this policy is and will be very significant increases in rents. To believe or suggest otherwise, like Robertson and Ardern, is both stupid and dishonest. Everyone else in NZ can see it so dont lie and try and mislead us about it?
At least Labour have done something to try and slow down the run-away train that has left thousands of people behind. Would we tolerate paying more and more for the power we need, the water we need or the air we breathe? No, because these things are essentials. Housing is an essential. Housing needs to stop being an investment vehicle.
Why does the Govt want renters to stop renting private homes and move into public housing? Is it because this gives the Govt greater control over their lives, and therefore votes? Whatever the reason, its readily apparent that there is a critical shortage of rental homes, as more landlords exit and more people end up on the public housing waitlist. Active bonds lodged with MBIE have fallen off a cliff this year. https://jonette.co.nz/listings/posts/property-investors-respond.html?fb…
The government should be providing much more social housing. The fact that beneficiaries and others in precarious job, health and life situations are left to the whims of the private market - many of whom inflict destruction on rental properties and thus make being a tenant harder for everyone - is a travesty.
The government has the balance sheet, the moral mandate and the wrap around social support services to be providing for these people. The private rental market shouldn't be burdened with them, or be seeing them as a resource to exploit.
Let's prevent power generation investors from writing off interest as an expense when paying tax, establish a bright-line test of 10 years, so that energy investors who buy and sell energy within 10 years have to pay income tax on any gains made. New energy providers would be excluded from both changes.
This should lower energy bills and increase the supply of cheaper electricity to all.
It will be extremely gratifying to see the end result.
Would suggest that power is more regulated than PI investment. One has choices not available to tenants, and you don't hide from your income tax with your power bill or power shares. I can buy solar panels and bypass the grid if i so chose, where as putting up a tent in the Auckland Domain or Victoria Park long term is not an option.
I never heard anyone complain that they could not afford to buy a home during the slumps eg 1998 to 2001, 2008 to 2011. However, when house prices are rising, there are numerous articles saying how house prices are unaffordable. Could it be that the real complaint is that the non-home owner is not positioned to receive the capital gain? So stopping house price growth is unlikely to resolve anything as less people may/will be motivated to purchase if prices are not increasing and it is cheaper to rent. Also, when they say house ownership is decreasing, the %age of decrease is quite small, hardly noticeable. From 60 something % to 60 something %. The changes to interest deductibility will have a delayed effect on the market, mostly to be felt in the next 2 to 4 years and it looks like a shortage of rental housing is coming up.
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