Reaction to Labour’s negative gearing policy flowed thick and fast Monday morning, with critics saying it would push up rents, reduce the supply of rental properties and that the announcement marked the return of Labour's 'politics of envy'. Gareth Morgan and the Property Institute were among those taking pot shots.
In response, Labour leader Andrew Little said the move would help more people into home ownership. He added that rents were in fact at present being pushed up by speculators who were raising them to cover ever-increasing house prices.
Speaking on Radio NZ Monday morning, Little almost went as far as to acknowledge Labour’s housing policies, all else being equal, would push house prices down. But he stuck to the line that Labour was looking to “stabilise the market.”
This was despite his comment that the negative gearing policy along with KiwiBuild would help “correct the market” by making property investment less attractive while adding more affordable homes to the national stock.
The definition of ‘property speculator’ was also up for debate, with disagreement over how many of the tens of thousands of private landlords using negative gearing were ‘mum and dad’ investors with one or two rental properties for retirement income. The Property Institute maintained “speculators” were those who would likely flick properties before needing to use negative gearing.
And, there were arguments that negative gearing is not a ‘loophole’ that needed to be closed; rather it is part-and-parcel of New Zealand’s comprehensive income tax system. Read former RBNZ economist Michael Reddell’s take here.
‘Relieving themselves into the wind’
Gareth Morgan’s The Opportunities Party (TOP) said Labour’s promise to ban negative gearing was a merely a symbolic move. “Labour and the other old parties are simply relieving themselves into the wind if they think such measures will address the underlying issues that have led to the current housing affordability crisis,” Morgan said.
“National’s Stephen Joyce is right in his assessment that the Labour policy will reduce the supply of rental properties,” he said. “I can’t think of a more direct way to smash investment in rental housing. With loan to value ratios of 40% its bloody hard for anyone to negatively gear right now anyway so of course the supply of rentals will dry up.”
“TOP will remove the current tax advantages that owning either more and more expensive housing or multiple houses bring. Being a landlord or “speculator” has nothing to do with that problem. People can still own multi-million dollar mansions or multiple bungalows and reap huge tax advantages over those trying to get ahead on salaries and wages,” Morgan said.
‘Politics of envy’
Meanwhile, Property Institute CEO Ashley Church said the move was “a regression to the politics of envy” by Labour. “It would actually have quite a negative impact on the market, at a time when we need to be building as many houses as possible,” Church told Radio NZ.
The move would ride over fundamental accounting rules, Church claimed. “Essentially, what they’re saying is, if you make a loss in your property business, then that business shouldn’t be claimable against other forms of income, as it is with pretty much every other form of business.”
Church took issue with Little’s assertion that “property speculators” were using negative gearing. “Because speculators in my view are people that are in the market for a very short space of time, people that buy a property then sell it within days or weeks, whereas property investors are people and landlords who own a property for a long period of time.”
Census and LINZ figures showed that those using negative gearing overwhelmingly, “whether we like it or not,” were ‘mums and dads’. “They’re just on normal, average incomes, they’re normal Kiwis, they’re buying a property as a stipend for their retirement,” he said. “People do that for a pretty specific reason. New Zealand’s got pretty shallow capital markets so property’s been an investment that people can move into.”
Property Investors Federation spokesman Andrew King had said the move could add $4,000 per year to the average rent. Church said he believed the figure would be somewhere between that and $10,000, depending on how the policy was applied.
“Here’s this issue though. We’ve got a shortage of at least 60,000 homes in Auckland right now. We need those houses to be built by the private sector,” he said. “This policy would make that considerably worse, because not only would we have the existing landscape, which is not particularly conducive to building a new dwelling if you’re an investor, but it would also be putting a disincentive in place to be involved in the market at all.”
Little defends the policy
Andrew Little had earlier told RNZ that the biggest users of negative gearing were those who owned 4-6 properties. While some were ‘mums and dads’, “they’re not the big users of this. It’s the ones who continue with buying new properties.”
“We know that over a third of the claim of the losses comes from those who have set themselves up in the business of buying properties repeatedly – both overseas and domestic [buyers],” Little said. “We know that those [‘mums and dads’] who are owning one or two, own those long-term. They don’t get to use this tax loophole for the life that they own the property for.”
“Most of [those ‘mums and dads’] are…buying them because it’s an asset that holds its value. That’s part of their retirement scheme and some of them actually want the income that they get from the rent. They don’t want to make a loss on it,” Little said.
“The ones that are using the loophole are those who see a tax advantage, in some respects a business advantage, in gearing up to make a loss so they get the tax benefit.”
Little refuted claims that the policy would go against ‘Accounting 101’, as the Property Institute’s Church had phrased it. “That’s if the business is just confined to property, in which case they’re not using the tax loophole. This is a tax loophole that allows you to take the losses on your property portfolio and offset it against other income,” he said.
“That’s unfair for the first home buyer who’s going in there with no tax advantage and competing against speculators who get a tax advantage.”
“This [policy] gives an advantage for the first home buyers to get their first home, so we get more home owners. One of our big problems in New Zealand at the moment is that the home ownership rate is going down dramatically, so more people are renting,” Little said.
“While you have speculators in the market, with the tax advantages that they’ve got, hiking the prices of properties, that’s putting the pressure on rents. That’s what’s hiking them,” he said.
The policy was not a tax on new homes, Little said. Other policy measures would add more housing stock. “That, again, helps to correct the market. More affordable homes means more first home buyers get those homes, and we’ll stabilise the market.”
Update: This article has corrected 'Property Council' to 'Property Institute'
217 Comments
what a weak argument and where will these existing properties go when they are no longer owned by investors for rental houses?
as for putting rents up. good luck you can only get so much blood from a stone before it runs out i.e the market (wages) will set the level that people can pay
as for the state will have to step in, of course they will and i would have hoped he would have used the 150mil to build new houses each year to sell to FHB and kept some for social stock, building in Bulk to set plans to keep the cost down
The landlord cartel honestly believe Government will continue to increase subsidies to allow the poor tenants to keep paying ever increasing rents. I mean, where else will the money come from otherwise to pay the landlords if wage growth is stagnant?
The cartel believe they can never lose or go under. Any hurt is always passed onto the renter. Must keep our property investment scam going...
Totally agree with you.
“They’re just on normal, average incomes, they’re normal Kiwis, they’re buying a property as a stipend for their retirement,”
What about the normal, everyday people, on average incomes who want to purchase a single property for the novelty of living in it???
Also, am I the only one getting super frustrated that the media keep running to Andrew King and Ashley Church for their "expert" reaction and then creating an illusion that this is somehow unbiased?
Why not ask a real economist or perhaps a tax expert on how this will objectively play out.
This is where we are creating the two tier state. The 'haves' and the 'have nots'.
I think its a natural result of capitalism. And when you couple capitalism with democracy, you'll end up with boom/bust cycles that will keep repeating themselves - eventually have nots outnumber the haves, results in a sentiment shift, results in changing government and market resets....seems like a crazy way to go about our lives if you ask me...
On that point I disagree with you, the property market is so distorted by regulation, tax policy, subsidies and state involvement that it can hardly be considered a free market or on a level playing field with other investment alternatives - the free market and private ownership is I assume is why you have tangentially dragged capitalism into the debate.
However, I'll leave it at that to avoid going down into the rabbit warren of ideological difference. I've already had to take a long wash this morning after agreeing with Andrew Little on policy.
I disagree , the market is relatively free from interference , the problems have been limited land supply , and immigration on a tsunami scale .
So increased demand from migrants is being blocked by severely constrained supply .
The icing on top is that our immigration policy is targetted at the high skilled and / or wealthy , who simply , and sensibly , have money or saleable , high value skills, and no interest in paying rent to someone else.
"the market is relatively free from interference , the problems have been limited land supply , and immigration on a tsunami scale ."
Free from interference?
So you don't think that the RMA, councils and town planners have any influence on land supply?
And state policies, including taxation, have no influence on migration? You even admit that immigration policy is having a bearing on prices.
Seriously, stop and think before hitting the keyboard.
The market is free from interference .
We have no land taxes
We have no transfer taxes
There are no Gift taxes
There is no Capital Gains Tax
Unitl recently , there were no LTV requirements
Or minimum deposit requirements
There is VIRTUALLY NO restriction on anyone buying property in NZ
There is almost perfect information about pricing etc available to ALL buyers
Most properties are sold in an open and transparent manner such as public Auction
Its probably the least restricted property market in the world
You don't pay the rates?
The land/property market is a solid opposite of the free or competitive market.
There are limited supplies. The land is a limited resource, and also, with the zoning and building restrictions. You cannot just make more houses instantly.
I support for more tax and regulations on the investors but the market is definitely not a free nor competitive.
Its even worse when those who are supposed to be regulating the market have their fingers in the pie.
In other markets, the Commerce Commission would be reviewing this type of distortion. So my next question is, if our housing market is supposed to be a free/competitive market, why haven't the ComCom stepped in to ensure there is fair competition? Why don't they regulate rents and asking prices?
We know some segment of demand is investor demand, and that there are empty houses around Auckland. In the past land tax was used to address land banking, and this sort of measure can be used again to address unwanted demand and free land and houses up for those who need homes. If this hadn't been done in the past then most of the current owning generation wouldn't be in the position they are, so they can't exactly cry "Unfair!"
What's clear is that in addition to measures focused on supply we do also need to alleviate the worst demand - that demand that is speculative, investor-driven demand, and especially that caused by using NZ property as a place to hide or launder money.
In the past NZ also used government builds - and purchasing power - to help increase supply. I see no reason why NZ should not do this again. NZ needs to come back to an understanding that houses should be about homes for NZers, not first and foremost about investment vehicles for speculators domestic and foreign.
I'd support reducing income tax and increasing property tax, for example.
... d'yer see the Aussie larrikin who built a tree house up in someone's grotty old radiate pine , in Queenstown ...
Imagine for a second , how many Orc Landers we could similarly house in Kaingaroa forest ...
... and how appropriate , to send those hairy little howler monkeys back up into the tree tops ...
It should work like this to continue to encourage new builds:
- If you build new then you should be exempt and can continue to negative gear;
- However, if you buy existing stock for investment purposes then it should taint the entire investment vehicle (be it a company or trust and regardless of what other assets it owns) and you can no longer use loses from that vehicle to offset other income.
Then the arguments from Ashley Church and Andrew King (and yours) no longer hold water. If you're trading existing stock then you are doing nothing to alleviate supply issues - the existing housing stock doesn't magically disappear when it becomes non-viable for landlords at current prices... most likely outcome will be prices decrease to rebalance yield (investors' marginal offers will be lower) and owner-occupiers become more competitive.
I think you can argue both ways here. If you are using negative gearing to lower your income tax, you don't need to rent out the house, without the government subsidy (low tax cost equals subsidy) you will have to rent out the house (while you wait for capital gain) so there may be an increase in supply of rental property.
But if we just act fairly, we should treat any property investment as a business, the owner should should be a business and any loss should not impact the income tax from the person's day job which is covered by PAYE.
The current tax subsidy has enabled many Kiwi's to fund buying a second property or multiple properties, this has driven up house prices no question.
removing the tax subsidy may not impact the current owners, but it should stop the rot and reduce the future impact on the market.
sorry if this effects you personally, but New Zealand as a whole would be better off if there was less non residential investment in houses. just imagine how prosperous NZ would if all the money was invested in industry and more jobs and wealth were created.
"Census and LINZ figures showed that those using negative gearing overwhelmingly, “whether we like it or not,” were ‘mums and dads’."
But does this pick up big investors who have all manner of investments in one entity? The rentals just minimising the overall entity profitability? I doubt it.
Mum and Dad invested they may be, but they are still being subsidised by the rest of the population to invest in houses that are there by increased in price and making it more difficult (expensive) for the rest of the population to own a home.
The Mum and Dad investors have benefited from the poorly thought out tax policy, but that is not a reason to continue to subsidise them.
The responses don't stand up to scrutiny, keeping in mind that the "investment" has to be making a loss before negative gearing is a factor. No true investment is affected, no ones retirement plans are affected - who the hell can retire with an asset that COSTS money. This is an issue for speculators only.
Great policy, can we get on with changing the Government now and get it implemented.
@ Zombie , Labour are allowing themselves tog get carried away there is something called a LTC which allows you to offset losses on a business venture .
This is going to be a mightily difficult thing to change because it is the reward for risking your capital and a cornerstone of our free market system
Yes you can offset your loses against future profits in a business. But can you use a business loss against your person income tax from another entity? Don't think so, and if so why is that allowed.
The current structure is just a tax subsidy, by a house and the tax department pick up part of the cost.
This tax subsidy has been used by thousands of Kiwi's to buy an investment property, directly increasing the cost of houses for all Kiwi's.
great for those that took advantage of the subsidy, Bad for everyone else.
Sorry if this effects you personally but it sounds like you have already benefited and should be happy to aspect the change for the greater good.
“Essentially, what they’re saying is, if you make a loss in your property business, then that business shouldn’t be claimable against other forms of income, as it is with pretty much every other form of business.”
The key difference is that almost every other form of business is taxed.
We are long overdue for a CGT which I feel would be a better solution than to eliminate negative gearing but I guess it is just less politically palatable. We need to have an even tax system across all forms of investment, the fact that property is essentially untaxed created proportionately more investment in property. the tax revenue generated could be used for building grants etc.
No, the key difference is a business is an activity usually based on some level of expertise or point of differentiation that enables someone to exchange goods or services for a price that generates a profit. It can extend beyond rent seeking, which property as residential housing basically is. Furthermore, the difference between a business and property investments is that the former is scaleable (unlike rental properties, unless you're trying to create slum conditions and cramming people into rooms a la Queenstown and the service workers).
Secondly, if residential property were a business, speculative instruments such as interest only loans would not exist.
Thirdly, starting a business is not based on the assumption that one can cash out at any time and likely cover their ass because "the price of businesses always goes up."
Property investment is a business, but it's a fundamentally different beast.
It's nothing to do with it being secured... commercial and business lending is usually secured as well. It's because they do pick and choose when they are business. Eventually RBNZ capital controls will catch up though. Love how the Property Institute says 'average mum and dads' are affected but give no evidence and TV news shows an example of a lady who has '4 or 5 properties' as retirement scheme... all negatively geared. Shows the unequal treatment for tax purposes v proper retirement vehicles, such as Kiwisaver. Pure and simple.
The average mum and dad investor is not relying on rental income for their retirement. They are relying on cashing up a mortgage free property paid for by the tenant and taxpayer subsidies plus capital gain. They will want access to their cash rather than leaving it tied up in property. Those with a large enough portfolio may be in a position to live off of rental income.
A "normal" business venture won't survive if it is negatively geared and not making a profit. A "normal" business venture is expected to provide an income that the owner can live off. How many "investors" get this from a rental property?
The involvement in the market of speculators shows that it is unhealthy.
The speculator is gambling that the prices will increase and he/she will make a large speculative gain. they rely on market volatility.
The involvement of investors in a different matter, especially if they are long term investors. they buy assets and harvest the proceeds from those assets. some add value to the assets over the course of the investment and the asset increases in value.
In neither case is a tax subsidy valid.
the speculator should be taxed on all profits.
the investor should add to make a profit and pay tax on it like any other business.
The having of secure and accessible home ownership is a healthy sign of a functioning society.
On such is our pension scheme predicated, and such has been the approach of previous generations' policies that once fostered a high rate of home ownership achieved in the 1980s.
We already have far too much investment in housing, surely we should be using policy to promote more balanced investments as Andrew Little has proposed? Ring fencing negative gearing might discourage some investors from building new, but that doesn't mean that those houses can't be built and funded by homeowners. It strikes me as strange that if two identical people buy houses and live in them that there is no subsidy, but if those two people buy houses and rent them to each other, they can negatively gear and contribute less to schools and hospitals etc, etc. The argument basically seems to be, give us subsidies or we'll take it out on the little guy!
Finally, if a large number of people are using negative gearing as a strategy the question should be why should government be subsidizing loss-making business ventures. If so many business ventures are dependent so heavily on government subsidies one has to ask whether they are viable investments.
It should work like this to continue to encourage new builds:
- If you build new then you should be exempt and can continue to negative gear;
- However, if you buy existing stock for investment purposes then it should taint the entire investment vehicle (be it a company or trust and regardless of what other assets it owns) and you can no longer use loses from that vehicle to offset other income.
Then the arguments from Ashley Church and Andrew King no longer hold water. If you're trading existing stock then you are doing nothing to alleviate supply issues - the existing housing stock doesn't magically disappear when it becomes non-viable for landlords... most likely outcome will be prices decrease (investors' marginal offers will be lower) and owner-occupiers become more competitive.
The impact on the tax paid is the same whether one is negatively geared or freehold.
i.e. Income $70,000, borrow $1m at 7% therefore interest cost = $70,000, i.e. negatively geared to tune of $70,000. Income to pay tax on equals zero so no tax. However the $70,000 in interest payments is taxable to the bank at 28%. Obviously some expenses come of this, but those expenses are taxed to someone else.
If zero borrowings then $70,000 taxable (tax $14,020) to the individual at an average rate of 20%.
Negative gearing is a fools strategy, these people are no different to those that start businesses and fail within the first 2 years.
The point is if you borrow to buy an investment property you are subsidised by 14,020 in the case above.
no subsidy you pay 14,020 tax. for most of us that is still real money,
with current subsidy you pay zero tax.
without the subsidy many people would not be able to buy an invest property, lowering demand in the market and reducing prices.
There is a direct connection to the tax subsidy and increase in property prices over the last years. any realist will see that.
Kinda covers it all - we will put the rent up, were providing a public services etc etc. More like blatant self interest/greed not wanting the landscape changed.
Perhaps that was once true, but the last two Governments have allowed rental housing to get twisted into the mess we have today. Ok then - make the tax offset change retrospective for 10 years - yes IRD issues a refund request for all tax offset in the last 10 years, and start leveraging the usual IRD penalties when the debt/tax offset farmers cant pay it. Use this to fund new/state houses.
I never understood the 'we will put the rent up' threat. If it could be done, why not already? Why not take advantage already of what the market can supposedly supply in terms of rents? Why wait? Are landlords keeping rent rises in reserve similar to how extra emergency power is available in some types of engines? If so, you know what happens when emergency power is used for too long -- the engine overheats and eventually shuts down.
This would almost be the same as renters all deciding they won't accept rents above a certain level- not going to happen. Or like OPEC's oil production agreements, but spread across the competition of 300,000 odd landlords. Good luck, there's always one person who gets desperate and caves.
I don't think you understand what I was saying- I agree with you. Renters only have so much coin, and landlords need rent money so will accept something over nothing so some landlords will cave to lower prices, thus an agreed price raise or drop can't happen for either side.
If you are negative geared, but claim that as a loss so only pay 50% of the PAYE you should be paying and still look at a tax free gain at some point, it seems to make some sense. I mean what's not to like about someone else paying for much of your loss but you get to keep all of the gain AND tax free?
Way way back in the 1980's the world's greatest ever finance minister Paul Keating removed negative gearing from houses in Australia ....
... and for a big fat whole year absolutely nothing untoward happened ... the housing market chugged along as per .... investors continued to buy ... builders continued to construct ...
But ... sadly ... the power of the big banks and the property lobbyists caused PM Bob Hawke to cave in , and he instructed Keating to re-introduce negative gearing .... Sigh !
We now have vehicles called "Look Through Companies" ("LTC") whereby losses are attributed to the shareholders in line with their shareholding.
Difference between LAQCs and LTCs is that LTCs will also attribute profit in accordance with shareholding too. So it's a double edged sword.
My god, if I have to hear "mum and dad investors" ever again... I didn't realize that spreading your genetics around meant that you should be exempt from taxes. Plenty of "mum's and dad's" who make a ton of money by speculating, gaming the system and avoiding tax.
Genuinely not sure if you are being ironic or not. Bright line is only 2 years. If making losses on an asset (excluding speculative capital gains/losses) is a national pass time, its a problem that should be addressed, regardless of whether you've made babies or not. Kind of makes incentives for inefficiencies.
Would it not be simpler to say that every property where a loss is claimed, is by definition owned for the purpose of resale. Therefore tax is payable on any increase in value.
You would not own property that makes a trading loss, if you were not in the business of capital gain.
This isn't a good policy by Labour. My main criticism is that it is a systematic overhaul of the tax system but rather a a knee-jerk response to an issue that requires much deeper thought. I am really starting to question Labour's understanding of economics here. It doesn't seem hard to get around this from a tax-planning point of view regardless. The only tax policy that will work is either a general capital gains tax or the land tax purposed by Gareth Morgan.
Yes , but Gareth Morgan has some good policy ideas.
I am somewhat pissed of with National over immigration , I distrust Winston Peters , Labour just want to Tax everything and the Greens just oppose everything , wanting us to revert to being hunter -gatherers, living in caves and shitting in a bucket .
So this load of balls about Green party policy being for everybody to revert to living in caves and pooing in a bucket is just your usual barefaced dirty lies about their policies, but isn't it ironic that this is precisely the outcome that National have achieved with their policies. Unprecedented levels of people living rough without plumbing, and begging, stealing and scavenging for food. We just call them homeless and freedom campers.
If we have to make major changes to the basic underpinnings of the tax system, can we at least do it in a sensible fashion, rather than as a series of politically-driven enthusiasms.
One of the core tenets of business taxation is that you tax net income. Well that's out the window now.
At bottom, our tax system is transaction-based. A valuation-based CGT bungs that out the window.
Noting that most consequences are unforeseen, I wonder what will be the effect of these latest wizzard schemes.
"changing" and so?
For me a CGT and land tax is sensible and is considered at a National level. Now if an investor has not considered the possibility of a tax regime change and gets wiped out, that is their mistake.
In terms of "un-intended" we can see what we have now is pretty bad, just about anything "sensible" done to fix it must be better than what we have now.
NZ has a successful history of using Land Tax to break up large land banks and get land into the hands of Kiwi "mums and dads". Basing everything on incomes works well for those who are large landholders, and business owners with the resources to hide, disguise or otherwise reduce their recognised income. Things seem to always be cyclical...history repeats itself...and it seems we've once again started to teeter too far in the direction of putting too much of the load on incomes and too little on land, to the point we're seeing home ownership plunging.
Rebalancing to lower income tax and a higher land tax will remove some of the motivation to invest in property / land bank, and once again make it more available to average Kiwis instead.
Well, whatever your opinion, at least we're now having a real discussion (in this, plus various other articles over the last couple of months) about tax inequalities in RE investment vs investment in other asset classes. Shame it took until election year to bring it up.
NO , these silly comments about wanting CGT are just a sign of a total lack of common sense or resentment .
Capital gains tax is an insidious form of taxation that is always introduced by left leaning administrations , are very difficult to administer , and produce little income for the Fiscus .
If you want less of something , then TAX it................ do we want less housing stock ?
Really?
Please can someone explain how a new tax , which is easily avoided , could ever help a first home buyer ?
Rubbish, with no CGT capital gains is tax free income, why do we want this? ie why is it OK to tax a business who makes a good and employees people but not largely pure speculative behaviour?
"less of something" taxing it wont make it less of, no one will be knocking down houses. Instead once there is no gains to be made the speculators will exit the market making life easier for FHBs and real landlords IMHO.
Steven , dont kid yourself , do you think Australia , which has CGT , has no property speculators ?
If you think that CGT will stop speculators , you are simply WRONG , there is no precedence for this .
All that happens is that CGT becomes another cost , which is passed on the the final buyer , so prices go up .
Capital gain tax is only applied when there is a gain. if the property is brought and sold for the purpose of living why should there be a constant increase in prices. no increase in price no tax.
Maybe it will encourage more price stability.
Might get people to stay in one house for longer, build stronger communities where they live, invest in making their home better while they are living it in not just to flip.
Stamp duty may have the same effect,
I'm not convinced about the poor FHB political football being kicked around.
Gisborne is a great example of low house prices for the last 10 years (a tidy 3br in good part of town can be had for $150k) yet has one of the highest rates of renters in the country. With Home Start giving most people $20k that's virtually your deposit without even saving!!
So why are more people not FHB's? It's not because of house prices, there's a lot of other factors there that I think our politicians just ignore.
Gisbornes median personal income is about 80% that of Auckland - $25k vs $30k in the 2013 census. Yet Gisbornes house prices have been about a quarter of Aucklands. The DTI ratios are fine, yet a LOT of people don't own houses.
Rents have also been rising solidly for the last 10 years, so obviously there is plenty of demand.
So why aren't more people owning houses? Especially in that time from 2-6 years ago where banks were literally just throwing money at people?
It's not as simple as cheap housing.
Let me take some time to debunk your stats:
1) Gisborne houses were not 1/4 of the price of Auckland houses in 2013. It was more like 60%-65% of median price (see landlords.co.nz data)
2) Ownership in Gisborne per 2013 census was 59% of households, Auckland was 61%, so not a material difference.
In towns with limited employment - unemployment is 11% in Gisborne (http://gisborneherald.co.nz/localnews/2301798-135/gisbornes-unemploymen…) there will be problem getting credit. Banks arent going to lend on beneficiary income. Census shows 70% of gisborne hh received some form of benefit while Auckland was 51%.
It's not a matter of DTI - its a matter of servicing. The fact is, cheaper houses in an area with better job prospects will lead to higher ownership rates.
More people are not FHBs because houses aren't affordable where FHBs want to live; you know, near where jobs in their field are. For example, Auckland and Wellington. What the hell is the point of buying your first house in the provinces where you don't have a job? Are you suggesting FHBs should become property investors or speculators first to get enough capital in order to buy a house to live in near where they work?
And if all the FHBs move to the provinces, then who is going to work all the jobs they leave behind in the cities? Immigrants?
93% dont have jobs .... http://gisborneherald.co.nz/localnews/2301798-135/gisbornes-unemploymen…
11% unemployment. nearly 2.5 times national average.
London is a great example for me. I rent in areas I cant afford to buy in. Not sure if thats the same as Gisborne.
But if property prices are not going through the roof and people can afford the rent, then people may not panic. But yes there are many reasons I would think.
Little says that this tax is aimed at those who own 5 or 6 properties, not the Mums and Dads who may only own one investment property.
Woud somebody please ask Mr Little what the difference is between a Mum and Dad owing a $2M investment property, and a "speculator" owing five seperate $400K properties?
Not being a breeder is Ok if you rule in the EU
https://pbs.twimg.com/media/C_pxx6IWsAAAvtv.jpg
But are they really worth 2 million, or is that value in the land potential for future development. That is a poor return for such a big investment. So the best way to realise that capital is likely for a developer to build a housing complex on it. Greed and over population is going to change the urban and suburban landscape for the worse IMO. Nz doesn't really know how to do urban instensification very well, and it has the high risk of being a ghetto.
source please.
About 150 listings on Auckland where rent is $1200+ .. out of some 3800 properties. Is that "loads"?
A low risk TD returns a better yield... which is the point being made. If it only works with negative gearing it's hardly a business is it. Would you run a restaurant day in day out at a loss? Only to launder money... wait, what....?
You could have several properties that all add up to a negative yield yet if you sold one you would have a positive yield. If one was comfortable with a small loss for a while it may be worth it in the long run. Perhaps sell one or more properties upon retirement and turn the rest of the properties into positive income.
Questions to be asked to Andrew Little:
a) why would overseas speculators "INVEST" in kiwi property when other markets like "share markets" , NASDAQ are better?
b) why do the incomes of average NZer continue to be flat?
c) Why does the govt not like investors in "Property".
d) Why has any govt been unable to develop other cheaper NZ regions for business investment? eg central NZ , Easterns NZ or Northern NZ.
e) why does the govt not make the mum-dad " investors" in Govt projects? council projects.
f) Why are savings like kiwisaver not taxfree till maturity/at payout?
a) Money laundering and trying to own assets outside of countries that lock down capital flight.
b) Because NZ is a low wage country where rampant immigration and low salaries are encouraged.
c) Because property is a non-productive asset which contributes nothing to society.
d) Because successive NZ governments are useless and have no long term vision.
e) Because you can't physically make them.
Some answers, mine admittedly
a) because we allowed unrestricted access, there is no capital gains tax, and if you rent the property out the government will even chip in to help you out, bet you won't find many countries will fork out welfare for foreigners, then of course, till bright line "test" you had no capital gains tax to speak of
b) because there is too much competition from a rapidly growing adult population
c) they don't? If they didn't they would have done something meaningful long ago
d) because the businesses don't want to go there? Infrastructure?
e) why not make any investor do that, and on that subject definitely make it only legitimate to buy new builds for the purpose of renting out, hands off the existing market
f) stuffed if I know
Housing is always going to be a political football. Another reason I prefer other investment classes - in addition to falling rents in CHCH and values now pulling back in AKL.
Was in CHCH recently and earwigging in a public place on a conversation between two women discussing the challenges of finding good tenants. One said she had just found a professional couple tenant, how pleased she was to have got them and listed all the improvements she was making at the new tenants request. 'Lucky you' said the other, sounding slightly jealous. How different were the conversations down there not long ago. A buyers market has arrived.
Christchurch is a clear example of supply and demand. Huge supply shortages after the earthquakes meant house prices rocketed. But that now seems to be reversing, and people don't want to see the price potential of their property decrease. People still seem to think house prices will only ever go up, or flatline.
but I get told Auckland is different from the rest of NZ.
we may only feel small tremors every now and again, but you never know there is a fault line into Auckland
http://www.civildefence.govt.nz/assets/Uploads/Shakeout2015/Maps/Auckla…
the most likely event will be a volcano and we are due one in the next 300 years, but we would have time to evacuate, to where who knows just imagine if a 1/4 of Auckland had to leave
http://www.civildefence.govt.nz/assets/Uploads/Shakeout2015/Maps/Auckla…
Experienced seasoned investors who have a number of properties that they have owned for awhile generally probably won't be affected negatively.
If anything they will see this as an opportunity to buy more property as they won't be competing with other pesky investors or buyers.
Generally speaking most of the investors I have close association with in chch overall would be positively geared.
The ones that will be affected are the ones with one or two properties and are propping them up.
Not that i beleive interest rates are going up much, but if they did then there will be blood on the floor throughout NZ and that is a dire consequence that Labour will not be able to explain away.
Can someone please tell me what financial expertise and success in business life has Mr Little and Ms. Adhern had in their life so far, that allows us to sleep well at night knowing that they are running the country?
Yes I do have P & I loans and still have access to further funds.
Look property investors are not created equally and I acknowledge that many don't look after their tenants that well.
One of the reasons is that they can't afford to due to propping up of their rentals and don't want to shell out any more money.
We see it differently in that improving your property generally gives you a better standard of tenant and a more valuable property.
"One of the reasons is that they can't afford to due to propping up of their rentals and don't want to shell out any more money."
I presume this is because they paid too much for the property and are reliant on the tax subsidy to afford to keep the property.
Would you agree that these people would not have become property investors without the effective tax subsidy?
Do you agree that the large number of such property investors have increased property prices in NZ?
Can someone please tell me what financial expertise and success in business life has Mr Little and Ms. Adhern had in their life so far, that allows us to sleep well at night knowing that they are running the country
Fair point. John Key had the strongest financial expertise and business success, perhaps more than any other leader in NZ's history. However successful he may have been, he doesn't have the powers of Gandalf, and neither does Andrew Little.
Not a fan of the L+G parties, and agree maths failure and spelling issues just sum them up. The ponzi is sucking not only the renters dry, its also sucking dry the businesses that employ through massive pressure on wages. Simply it is penalizing people employing other people trying to be productive. Which is the lesser of two evils. Nat has the blinkers on so bad on this issue that I suspect it wont see straight until they face plant into the opposition bench's.
“National’s Stephen Joyce is right in his assessment that the Labour policy will reduce the supply of rental properties,” he said. “I can’t think of a more direct way to smash investment in rental housing. With loan to value ratios of 40% its bloody hard for anyone to negatively gear right now anyway so of course the supply of rentals will dry up.”
This only applies to new-ish property investors and considering recent hikes in property values the 40% is no real issue for investors who purchased their property 4-5 years ago or earlier. Our humble abode purchased in July 2012 has increased by 50%.
At least Labour are trying several measures to curb property speculation - and perhaps slow demand.
The problem that ALL New Zealander's face is rising interest rates - FHB, Investors and renters all get hit one way or another. The only difference is that under current policy of negative gearing property investors ca reduce their tax bill.
So many will get their nose out of joint and the fact the Property Investors Association are crying foul as it will hurt "Mum and Dad investors" is simply pathetic. If your sole purpose is to negatively gear your rental property to save tax then I have no sympathy for you.. just think of the "Mums and Dad's who pay exorbitant rents and struggle to get on the property ladder.
The current housing system is two tiered - those that have can benefit far more financially than those that don't.
And for any property/mum and dad investor pleading poverty as a result of this policy announcement - perhaps it's a reminder of what most of struggling families have to contend with!!
“National’s Stephen Joyce is right in his assessment that the Labour policy will reduce the supply of rental properties,” he said. “I can’t think of a more direct way to smash investment in rental housing. With loan to value ratios of 40% its bloody hard for anyone to negatively gear right now anyway so of course the supply of rentals will dry up.”
If the current 40% LTV ratio will make it hard for anyone to be negatively geared then there will be no impact, so no smashing of the market.
If there is a flood of houses coming onto the market due to the removal of the tax subsidy then house prices will decrease. Real long investors may still buy for rental yields, and more owner occupiers may be served, but again no reduction in rental supply as some renter will convert to owners
Here's the Emperor has no clothes moment for all of you out there :-
Our Housing backlog will not sort itself out until we sort out the immigration mess we have created .
Quite simply , without turning down the immigration spigot , we can never get on top of the housing backlog
And while this continues , new builds will go up and up in price and the prices in the secondhand housing market will track along behind or be pulled along behind .
They are worried about offending the Chinese, I have heard some Chinese say that they have been told to go overseas and buy property as they are unable to own property in their own country. What is good for the goose is good for the gander and we should give them a taste of their own medicine. This is not racial it is economic sense.
SUPPLY & DEMAND
Yes, taxes & interest rates have some influence but the basic rule of SUPPLY & DEMAND is overwhelmingly the main contributor.
Look at it this way, taxes & interest rates are the same everywhere in NZ, so why have house prices increased so much in Auckland and so little in Southland or Gisborne etc... It's because many people move to Auckland and very few to Southland or Gisborne, simple as that.
So we must have policies that best address the SUPPLY & DEMAND issues
Personally not a fan of the immigration into,Auckland either, but the ones that do come in would tend to bring in money for the country!
Unfortunately we have many in the country that give us a larger population but are a continuing drain on the country and don't provide a lot that is positive!
You know according to their policy Document on their website Labour have still got the idea in their heads that they can build and sell a house for $600,000 in Auckland .
I just dont understand how , unless they build a 1 bedroomed box 100 kms form Auckland CBD
A decent flat section costs that unless you go to Wellsford in the North or Pukekohe or Pokeno in the south
Anyone who is using negative gearing is by definition a speculator, whether they are Mums and Dads or not. Otherwise there is no logic in an investment that is making a cash loss - you are simply buying a capital asset with the expectation/hope that it will increase in value in future to offset the cash losses. That's speculation, however you slice and dice it.
"Investing" is centred around expectations of positive cashflow.
If providing housing is not a productive industry could someone please advise me what they consider to be a productive industry that the average person can invest in?
It would need to give a good return and be safe in that you won't lose all of your investment?
If I don't get an answer I take it that there is no better investment than a positively geared rental in NX!
Most of these ...
| Division | Title |
| A (PDF, 357kb) | Agriculture, forestry and fishing |
| B (PDF, 201kb) | Mining |
| C (PDF, 1511kb) | Manufacturing |
| D (PDF, 173kb) | Electricity, gas, water and waste services |
| E (PDF, 235kb) | Construction |
| F (PDF, 419kb) | Wholesale trade |
| G (PDF, 328kb) | Retail trade |
| H (PDF, 125kb) | Accommodation |
| I (PDF, 265kb) | Transport, postal and warehousing |
| J (PDF, 284kb) | Information media and telecommunications |
| K (PDF, 174kb) | Financial and insurance services |
| L (PDF, 158kb) | Rental, hiring and real estate services |
| M (PDF, 208kb) | Professional, scientific and technical services |
| N (PDF, 173kb) | Administrative and support services |
| O (PDF, 173kb) | Public administration and safety |
| P (PDF, 142kb) | Education and training |
| Q (PDF, 172kb) | Health care and social assistance |
| R (PDF, 203kb) | Arts and recreation services |
| S (PDF, 253kb) | Other services |
Returns will depend on your effort and skill. Almost all of these are not 'rent seeking' and outcomes are economically productive. 'Productive' is where the output can be used as an input by someone else for their business purposes. It is not 'productive' if you can't do that.
investing in property isn't rent seeking.
So a residential lawn mowing business isn't a ' productive business' by your definition as it's not producing anything and can't be used as an input by someone else for business purposes.
Shall we shut down those pesky non-productive lawn mowing businesses then?
no, it's not. you need to google what rent seeking means from an economics point of view. It's not just getting rent for something. It's trying to influence laws/policies to get extra income or reduce risk for your business. Taking advantage of existing laws isn't rent seeking. Neither is collecting rent.
whether you are upgrading or creating new stock is totally irrelevant.
David, the question is how do you invest in these productive industries?????
Is it solely by shares?
If it is then leave me out as it is pure and simple gambling, as you have no control over shares as you are dependant on other investors!
Why would you want to,gamble your life savings and potentially lose everything.
It clearly states that renting and real estate services is a productive industry!!!!
You are getting angrier by the day The Boy. I think you are negatively geared in reality. I note what Warren Buffett and many others have achieved just by owning shares. Warren is no2 in the world wealth wise. You need money and intelligence to be in shares. Your comments about something you do not understand say it all.
Owning real estate doesn't compare to equities in terms of productive output. If you were to compare $1 billion worth of property with the same in private or publicly floated businesses, the underlying employment and ROIC (operating profit, not capital gain) in business far outstrips property.
Property is no longer a genuine asset class. It's riddled with political meddling and delusional tax avoidance schemes.
There are always investment opportunities if you keep your ear to the ground. Small businesses are always looking for funding and / or partnerships that encompass expertise and cash for shareholdings.
I associate with people that have wide ranging interests, I keep an eye on businesses for sale, there are so many opportunities outside of real estate that are far more productive, exciting and fulfilling in my opinion.
See here;
Is the relevance of this particularly aimed at the situation when and if there is are price crash? If that were to occur without this provision, would landlords be able to offset their capital losses against other income? (particularly if you are planing to introduce a capital gains tax) If so, with this provision, will they still be able to do it?
If this is the case, it is another dam good reason for implementing a ban on negative gearing.
Agree with some of the other comments.
- The houses are not going to disappear even if the landlords do, so who cares if they disappear from the market, in fact good riddance. The best owners of houses are the people who live in them.
- Working for income and the housing supplement are just subsidies for landlords. so they will not have much luck trying to raise rents. The government would be wiser directing extra expenditure toward building more houses and saving the cost of subsidies by putting downward pressure on house prices, rental rates.
landlord bashing continues. why dont we get to the root of the problem>>>> supply issues. To hard, is it? Landlord bashing is easier and preferable. Well, lets hope Labour will not add to the already shortage of homes by cutting the thread that supplies homes. 60% LVR etc is in place. Let the market play the game with a good govt in place. The current one aint that bad, compared to the alternatives we have so far.
Now looking at supply issues. We have a very watered down version of original AUP. The final AUP has not gone far enough, as if we are still planning in the 90's. Some streets have mixed housing suburban on one side of the street and mixed housing urban zoning on the other side on the same street under the current AUP. Madness, really. Why not mixed housing urban on both sides? May be left for AUP2 in may be 2020?
I think we are getting to the root of the problem - weren't 40% of sales to investors in Auckland last year? So if they leave the market and we just start supplying houses to those who intend to be owner occupiers, bingo, our problem becomes much more manageable.
Yes we will still need to build more houses to account for rampant immigration and to cater for natural growth, but if you remove 40% of the buying demand, it will allow owner occupiers to enter the market. Which will have a far more positive outcome for the future of the NZ economy than would be the case when a bunch of landlords just add more properties to their portfolios.
Any move to Control speculation and unfair tax advantage is bound to get strong negative reaction from powerfull strong lobby. Nothing new but this is a move in the right direction by Labour.
The investors if doing loss in rental, why invest in the first place.
Reality is that people invest /speculate for capital gain and to adjust /reduce taxes.
Strong lobby so will be hard to get this policy across.
I'm starting to think the issue isn't so much supply and demand of houses but supply and demand of "wealth".
I don't believe property or equity investment rated highly for Boomers parents. This so called national pastime of property speculation began with the Boomers in the mid to late 90's.
It used to be enough to have a job, a freehold family home and savings. Either that model is now fundamentally broken or greed has taken over or a mixture of both. How do we address these issues? The answer is not more economic growth or increasing house prices.
A root cause is our perception of wealth. Shelter is a basic human necessity along with air, water, food and clothing. Why haven't we priced people out of those other items?
"New Zealand’s got pretty shallow capital markets so property’s been an investment that people can move into.”
He's quite right. We do have a shallow capital market, compared with Oz or any other developed country. Why? Because of the gross distortions of our tax system that favours property over productive enterprise.
I'm glad he brought that point up.
Is it not blackmail by strong lobby whit vested interest.
http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11856…
Corruption
@sharetrader this issue is lightly different to trading in shares which is voluntary , shelter is is something we all need and if you cant buy you are forced to rent
Immigrants are seemingly willing to pay 50% more than the current rent and 20 % over fair value to buy , so we have a long way to go to get a diminisihing return
yes they will pay more but they will only pay what they can afford, if they earn 100 they can not pay more than 100 unless they borrow, then what do they eat or how do they cook with no power, what do they wear
there is a limit to what people can pay due to nearly all are wage earners.
so landlords can bleat all they like about putting rents up but at the end of the day rents are linked to wages and without wage growth there is a limit to rent increases
So Andrew King is against Labour's proposals while the IMF and the RBNZ are for them. One of that trio has a vested interest in the status quo remaining the same - I know who I will be listening to.
Why does NZ media continue to present biaised reporting. Next we will have the Barfoot family and NZ Init commenting on it all over the media. I was disappointed with the Garner interview with Bill English. He was trying to nail down how many houses each party was going to build - when he had English in his cross hairs he should have asked how many houses they had actually had built in the last 9 years.
Andrew Little makes the point that the home he bought in 2000 cost him $315,000 and today it is worth $830,000.. He says it has tripled in values whareas family incomes have not..
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11856473
I'd like to point out that M3 money was $95 billion in yr 2000 while today it is $324 billion..
The quantity of money has more than tripled while wages have not..
House prices have kept pace with the unfettered growth in money while family incomes have not..
If money supply keeps growing at a faster pace than incomes.... will things like negative gearing policy make any difference...???
Is the NZ housing stock a better proxy for measuring the effect of monetary inflation than the CPI..???
If so... then it is incomes that have lagged badly...???
Nail on head. House prices have been among the biggest benefactors of unrestrained monetarism. The problem is that nobody knows the implications of all this, particularly when one of the most fundamental pillars in the hierarchy of needs is financialised beyond recognition. Neo-serfdom.
Income growth has been unnecessary with asset price inflation. The public feel wealthy and are not scared of spending. This ultimately creates a cycle where the economy feeds of asset price inflation funneled into consumer spending. It can come crashing down in a screaming heap and that will be dictated by human behavior. In our globalized and information-based economy, there is no real impetus for income growth as far as I can see.
To all that think that the sharemarket is not gambling you are in dreamland.
Experience has shown that you can lose all re 1987.
Son has a super scheme in Oz that when left there in 2007 had 1k in it and now less than $600 40 per cent loss in 10 years with fees and so called investment.
Return on equities thru financial planner inheritance last year 4 per cent.
Give me positively geared property any day.
I know people who have lost more than 40% on property, but I'd be an idiot to say that means property is always a terrible investment. There's plenty of evidence out there about the benefits of shares over property, you can generally expect higher rewards which compensate for the higher short term risks. As you keep telling us you're a long term investor, shares should be right up your alley so long as you don't take fright whenever the market wobbles.
Personally never lost money on property and don't beleive I ever will.
The thing with shares is you have no control over them.
Bad experience, Equiticorp, Rada etc.
Don't like investments that you can lose all your money without any fault of your own.
Yes people can do ok on shares but a passive investment and not that exciting whereas I can improve property and providing a valuable service and need to people.
TAB is a safer investment than shares.
"TAB is a safer investment than shares."
It's hard to argue with someone who has such a lack of understanding of both how the world works and basic maths. TAB has a negative expected value, shares have a positive expected value. Both have a degree of variance attached. If you only own shares in a couple of companies you're doing it wrong, it's virtually inconceivable that a diversified portfolio could go to zero.
As it happens, despite being a landlord I've made more money both from shares and from gambling than I have through property. Take off your blinkers.
The Boy they did not lose it all. And people who hung in there and bought more have done very well. It was an opportunity to buy good dividend yielding stocks at a cheaper price. Warren Buffett, No 2 in the world wealth wise just carried on to where he is today. You love to exaggerate which shows your ignorance. Houses also dropped in value in 1987 along with other asset classs. I will stick to my shares, commercial property and subdivisions. You stick to your "as is where is portfolio" in poor old Christchurch.
Gordon, I have 2 as is properties and return near 15 per cent and will get insurance on them, as next to no damage and now fixed.
Hope the equities market does hold up as we have got a lot thru a financial advisor as previously stated, but not a great return last year.
Offer still on the table! If you are up for it? let me know!
The NZ sharemarket has outperformed the Auckland property market over the last 5 years. Yes, the Auckland property market.
I don't think you should lump all investing via the sharemarket as "shares" as if it is all the same. Investing in one company will give you a completely different investment than in another company. There are more risky investments (e.g. start up companies), and less risky ones. This is the same with property.
Property is just one sector of the sharemarket, so to limit yourself to that is putting all of your eggs into one basket. For example, if you invest into a listed property company (on the sharemarket), instead of having ownership in two properties, you would have ownership in billions of dollars worth of property, with much safer cashflow. If one of your tenants moves out, that if half of your cash flow. Half! That is hugely risky compared to owning shares in a property company, where the occupancy would be around 99%, and one vacancy wouldn't make a scrap of difference.
Even then, you should have more than just property shares as that is risky to have all your eggs in one sector alone.
Please don't think the property market does not have fluctuations just like any market. The only difference is that the sharemarket shows price changes everyday (because it is more liquid than direct property - again another positive).
Every month there is a pile of cash coming in from Kiwisaver contribtions...bucket loads of it and all looking for a new home (but not an auckland dump) . An ongoing pump to the sharemarket. Invest and enjoy.
http://www.kiwisaver.govt.nz/statistics/monthly/contributions/
I agree completely. But people shouldn't play dumb about it. If society decides that housing speculation is undesirable, then take the hit and find something else to invest in.
The problem with residential property people is that they generally lack the ability to invest successfully in other asset classes. They mistake their profits in gearing up and buying a scarce asset as "skill". I think most of them know this, which is why they are keen to see the sector favoured on an ongoing basis.
I'll wade in here just to provide some balance, or at least another data point.
I live in Christchurch. Have both a rental property (cashflow positive) and a portfolio of financial assets (shares, bonds). I have had rental property and financial assets for most of my adult life (quite a while), so time enough to gain some perspective and see a few cycles go by.
Personally I prefer financial assets over directly owned property, easy to achieve acceptable returns with much less hassle. Also I think less risk due to wide diversification, plus good liquidity. Most people I know prefer property, sometimes I think only because that's what they hear about at dinner parties.
My portfolio returns? - over last 7 years, just over 8% p.a. after fees and witholding tax, with a moderate risk profile (70/30 shares/bonds) and no effort from me. So not stunning, but acceptable for investing rather than "gambling". That's it, no axes to grind, just another example from the real world.
Hmm maybe. I'm all in favour of reduced taxation, but be careful what you wish for. Again, some perspective. As I recall, before the FIF regime was introduced any gains on share transactions were taxable. Make 20% gains in a good year, loose a third of it. Now, I calculate that in a good year FIF tax will knock about max 1% point off my portfolio performance (so 8% becomes 7%). Yet in a bad year, nothing. Furthermore, investment decisions (rebalancing, sector rotation, etc) can now be made free from the concern of triggering tax on any realised gains, which used to be a major impediment to implementing a strategy. So, some negatives and some positives. Like most things in life I find.
Like rest of the voters I think Little needs an education on small business accounting. However he does have one thing right. It is unfair for young families with their first home to not have any way of off setting the interest cost on their home loan. Well surprise. Why not copy what is done in many other western tax systems around the world and allow people with one only house they live in to write their interest off their taxable income. I would even be happy to pay more tax to implement such a scheme.
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