BNZ chief economist Tony Alexander says a Capital Gains Tax will not be introduced any time soon and believes the current loan-to-valuation ratio (LVR) mortgage restrictions should remain in place until the country heads into a recession.
Meanwhile Labour Leader Andrew Little believes tweaking LVRs could help combat speculators.
The spectre of Capital Gains Tax reared its head this week when the Reserve Bank's deputy governor Grant Spencer called for the government to give "fresh consideration of possible policy measures to address the tax-preferred status of housing," a comment that has been widely taken to refer to the introduction of a Capital Gains Tax on housing.
In his latest Sporadic newsletter, Alexander listed four reasons why he believes a Capital Gains Tax won't happen.
- The current National-led Government oppose it and went into the last election saying one would not be introduced.
- Labour appear to be backing away from the idea.
- The timing is wrong.
- A Capital Gains Tax in Australia has not prevented sharply rising house prices in Sydney.
Alexander pointed out that while capital profits would be taxable under a Capital Gains Tax regime, capital losses would be deductible.
So if there was a significant downturn in the housing market, it could prompt owners to put their houses on the market, and any losses they suffered would be lessened by their ability to claim them as tax deductions.
That could accentuate the housing downturn and increases the possibility of banks suffering losses which would erode their capital bases.
"The time to introduce a Capital Gains Tax is when the market has been stable for some time or is at the bottom of the cycle, not where it is now," Alexander said.
He also described the likelihood of the LVR restrictions being eased as "slim to nil" and pointed to Spencer's comment that doing so "would invite a further surge in credit-based demand for housing".
Alexander said the LVR restrictions would only be eased when the market could handle the unleashing of potentially tens of thousands of frustrated young buyers wanting to buy a home.
"That will be when our economy is next in recession," he said.
However labour leader Andrew Little believes that the current LVR restrictions may need to be tweaked to target specific types of property buyers.
"One solution could be focussing LVRs on Auckland speculators, rather than on the regions, families or first home buyers," Little said in a statement calling on the Government to target property speculation.
"But the first thing the government has to do is admit there is a housing crisis.
"As long as [Prime Minister] John Key and [Housing Minister] Nick Smith keep their heads in the sand, property speculators will run rampant, average house prices in Auckland will top $1 million and the home ownership dream will turn into even more of a nightmare.
"The most important action is to simply build more houses to increase supply."
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24 Comments
So Mr Alexander has admitted there is potential for a "significant downturn in the housing market".
It's about time one of these lying bank employed economists started telling the truth regarding the real risks our housing market faces.
I think the most difficult part of being a "bank economist" must be keeping a straight face.
Let's be even more so, they are pissed ie angry, they know full well, that although house values in many of the regions outside Auckland have not risen and in some cases, fallen, that if (when) Auckland's market implodes they will not be immune to the effects of it!!
Amen and pass the collection plate..
Not only will the rest of NZ not be immune in term of their house values, they will be called on to fund whatever bailout plan the politicains of the moment dream up. No populist PM is going to stand back while tens of thousands of Auckland homeowners go bankrupt. Or maybe the banks will get in strife and call on OBR.. it wont be limited to Aucklanders.
A legitimate answer: They are pissed off!
The rest of New Zealand has to suffer all the downside and none of the upside of Aucklands housing issues. Higher interest rates on their farms and businesses , LVR restrictions on their house loans and the potential for a sharp correction that will undoubtedly effect them very badly as well as Auckland.
All these downsides are due to a localised housing boom where localised measures should be taken to solve it. We need to introduce Auckland specific housing measures and stop punishing the rest of New Zealand
Auckland is a success. Look at the job growth over the last year in Auckland. Compare it to say Wellington. We must have debt and immigration to be able to grow. Why on Earth would you not want growth? Have you been to Wellington lately? I live here and while I do love the place, it clearly is a city rolling over belly up. Why? because there are no incentives to live here. not enough development, investment, loans, ie GROWTH.
Why would the regions housing market be damaged by the effects of and Auckland implosion? Without large numbers of foreign buyers, frothing at the mouth investors and mums & dads jumping on the band wagon pumping prices there isnt a buyer pool that would be leaving the regionl makets en masse?
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