Within hours of my last post on the housing “bubble” going live, news broke of a radio advertisement airing in Singapore, Malaysia, and Queensland which described Auckland as “an investor’s dream”. The radio advertisement went on to state:
“Now many people invest in Auckland because of the high demand for rents. There’s no stamp duty, no land tax, and within New Zealand, generally no capital gains tax either.”
Now radio advertising on a Singaporean Classic Gold station is a truly time-honoured way of reaching informed property investors. Prurient? Yes. Problematic? Indeed. For those who missed it, the premises and conclusion underpinning my last post can be summarised as:
- Premise 1: Property taxes in New Zealand are relatively low compared to elsewhere in the OECD. According to Grimes (2003), 5.3% of New Zealand’s total tax revenues are raised from taxes on property, compared to an average of 8.3% across the OECD.
- Premise 2: New Zealand is a relatively open economy with few restrictions on foreign investment. We have, or are in the process of negotiating, preferential trade agreements with a large number of countries, such as Australia, Singapore, and Malaysia.
- Premise 3: Most countries overseas are currently running relatively expansionary fiscal settings, e.g. low interest rates. Some have even undertaken quantitative easing. There is an abundance of cheap capital is sloshing around like the world right now looking for a “home”.
- Conclusion: New Zealand is likely to experience excessive demand for investment property.
Hitherto John Key has been pushing the line that supply is the main issue, largely due to pesky local government regulations. We can’t do much about demand, John says. This, my adoring readers, is partly true and partly false. The billboard below highlights the international dimension to the demand for property in Auckland. The international dimension matters, even if I’m not keen on singling out this dimension on its own.
As mentioned in my earlier posts, I do agree there is a need to improve the responsiveness of the supply-side, and that Auckwood can do better on that front, e.g. allowing residential intensification. But there’s also no doubt that such changes will take several years to implement and take effect.
It’s also true that the New Zealand economy is doing relatively well and that, as a result, our population is growing strongly.
I tend to agree with Peter that a larger population will benefit New Zealand, especially in the long run. This is largely due to agglomeration benefits – both domestically (e.g. in Auckland) and nationally (from having a larger local market). Hence I don’t really agree with those people who argue for 1) caps on migration and/or 2) incentives for migrants to settle outside of Auckland.
Indeed people continue to choose to live in Auckland despite the disincentive provided by high house prices. That suggests many people quite like living in Auckland, and that they would be adversely affected from having to live elsewhere. I think we should be careful to respect those preferences. I also think it’s presumptuous of people to assume that migrants destined for Auckland could be almost as happy in Invercargill. I don’t think so; they seem more likely to head to Sydney, Melbourne, Brisbane, Perth, or Vancouver, i.e. be lost to us altogether.
On the other hand, it’s not correct to imply we can’t do anything about demand, especially from investors (NB: Source).
Simply running away from the problem, as the Government seems to be doing, is not a good strategy. The reality is that the demand for property we’re experiencing is partly the result of tax settings over which the Government has control. More specifically, the Government could choose to reduce the demand for New Zealand property by increasing taxes on property, if they so desired. As the frequently excellent Brian Fallow notes in today’s Herald:
The case for taxing the income of residential property investors is compelling. And their income is not just rental income, net of all the costs they can deduct. It includes capital income too. Alarmed by runaway house price inflation in Auckland, the Reserve Bank has called for a fresh look at the tax-preferred status of investor-owned housing. Investors, as deputy governor Grant Spencer pointed out last week, are the marginal buyers who set the price in large tracts of the housing market. They are often the people would-be owner-occupiers have to outbid to buy a home, and the prices it is rational for them to pay are inflated by distortions in the taxation system, including the “expectation of high rates of return based on untaxed capital gains”, in Spencer’s words.
In my last post we also discussed several ways we could increase the total tax burden on property in New Zealand, namely (NB: Thanks to those who commented with useful suggestions):
- Stamp duty – This is a one-off tax levied on property transactions. This can either be charged to the seller or the buyer. Australia and Singapore both have stamp duties.
- Capital gains tax (CGT) – This is a one-off tax levied on the capital gain calculated at time of transaction. The tax is paid by the seller. Australia has capital gains taxes.
- Land tax – This is a periodic tax (most commonly annual, but it could be charged quarterly) levied on the value of land. The tax is paid by the owner. New Zealand used to have a land tax, which was abandoned in 1992.
- Risk free rate of return (RFRR) – from what I can understand this basically looks at the equity someone has in a property and calculates a risk free rate of return that one should expect from that quity, which is then taxed.
- Imputed rents – from what I can tell this estimates the rental value home-owners derive from living in their own home and treats this as taxable income.
I think we can scrub CGT off the list, mainly for political reasons, i.e. National have poured disdain on the measure, and Labor have walked away from the highly loop-holey and problematic policy they took to the last election. Stamp duties appear to be poorly targeted and likely to reduce liquidity in the property market, which in turn might reduce labour mobility. So I don’t think stamp duties are a good way to go.
This leaves us with land taxes, RFRR, and imputed rents.
At this point it’s worth noting the “Tax Working Group” (TWG) recommended a combination of a land tax set at 0.5% and a RFRR on rental properties (NB: For those who are interested Interest.co.nz has an interesting summary and analysis of TWG findings). The land tax would apply on land worth more than NZ$50,000 and would include the ability to defer payment until the property is sold. This is a useful way to ameliorate effects on asset rich, low income households. Other ways including using the revenue from these taxes to reduce taxes elsewhere.
So “my” preferred approach is to simply adapt and/or adopt the generally sensible findings of the TWG. Thanks to their hard work a few years back we seem to have a good handle on what we need to do to quench some of the demand for property in New Zealand. In my next post I’ll explore their findings in more detail, but for now I’m interested in what others have to say. How say you?
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The CGT policy actually got better poll numbers than the Labour Party in the last election. I don’t think it’s quite political suicide.
Imputed rents, on the other hand, seems like way more of a political impossibility – the government’s going to tax you for living in your own house? The argument in favour is complex, and hard to explain. And it’s going to hit far more people than capital gains tax, and it won’t be nice enough to happen just when they’ve made a pile of money off selling a house.
I agree with CGT would not be as hard a sell as it’s often made out.
Nonetheless, National hate it and they’re the Government. So I think any change would have to be something they’d accept. Also Labour have subsequently walked away from the CGT policy, so it’d be hard to now adopt it again.
I agree with the imputed rents being more difficult to communicate and apply.
However, I think a broad-based tax (i.e. one that hits a lot of people a small amount) is more attractive than a narrow tax that its a few people quite hard.
The realities in Auckland are simply these:
– There is no bubble.
– Unlimitted immigration by those who are cash rich and see Auckland housing as cheap, and Auckland as ‘safe’ continually causes prices to rise (to give perspective a half decent apartment in Hong Kong is in the many millions – think what that buys in Auckland – that is why an extra 100k for an immigrant to win a house at auction is considered no big deal)
– Wealthy Chinese are currently actively buying boltholes in all safe western cities – Auckland is amongst the more attractive as there are no restrictions to ownership
– Any taxes dreamt up to counteract the problem will be ineffective – there are no western capitals that have found a silver tax bullet yet
– Auckland can only effectively expand north and south – we have vast oceans on both sides – therefore central property becomes gold
– Kiwi investors are only a small part of the problem – rents do not cover mortgage outgoings – most do not cover 50% – there are no waves of Kiwi investors buying up Auckland – it’s something politicians love saying to deflect from the immigration problem
– There is no bubble – Auckland prices are simply rising to become closer to those of other major ‘safe country’ western cities
– There are more buyers than sellers (additional 50k immigrants hit NZ each year and the majority want to live in Auckland)
– Building of new homes / apartments is slow and will most likely never pace demand
– The Reserve Bank rules on mortgages only impact Kiwis, they do not impact those who are cash rich or borrow overseas
– First Home Buyers are being royally screwed by the Reserve Bank rules – nothing is being done to help them, in fact it seems as they are being punished
– The Auckland Council and mayor are actively promoting and encouraging Asian investment in Auckland property
– Real Estate agents aren’t necessarily thrilled by the changing demographic – but love the commissions
– Property prices are increasing over 12% per annum in Auckland
– The government has a ‘head in the sand’ attitude to immigration and plays the deliberately misleading ‘nationwide’ numbers game (only x% bought NZ property – when that ‘x’ percent is mostly focussed in Auckland) to try and deflect focus from the real impacts of unrestricted wealthy immigration in Auckland
– Nothing will change in the forseeable future, regardless which political party wins the next election unless they actively tackle immigration and unrestricted purchasing by foreignors.
What can be done?
– We should start looking after NZ for NZers, much as many other countries do – no citizenship – you can not purchase (China, Phlippines, Indonesia and many other examples – a bit of googling will unearth more)
– We should adopt the Australian rules whereby immigrants can only Build, and not buy existing stock
– We should pressure the government to protect NZ for NZers, and make it easier, not harder for FHB’s – drop the 20% deposit, which is simply impossible without parental/family assistance (100k on a 500k home – which will buy very little, even in the suburbs)
Add to the ideas, but please don’t throw in any new taxes – they won’t make any difference to immigrant purchasing or rising property values. Taxes are a nice smokescreen and a pretence of ‘doing something’, but ineffectual.
Labour screwed up the last election for many reasons, and CGT just became another reason to poor scorn on Labour. To be fair, at the critical “sound-bite” moment, the former leader messed up the delivery of a complex policy that was challenging to present well as a “sound-bite”. All in the middle of a housing price boom. Game over……for the moment.
I do think a reconsideration of a CGT will happen. The question is – do we have to wait for the current property bubble to pop first?
Yes, because imposing a valuation day at the top of the property cycle is naff and all that will end up happening is people accruing capital losses when it does pop.
I think instructing local government to convert rates from a mixed capital + land value tax to a pure land value tax would be the way to go.
Waymad towards the end of this comment stream shows how easy it could be done.
http://www.interest.co.nz/opinion/75022/reserve-banks-decision-press-government-action-overheating-auckland-house-market
I dont see how that would solve undertaxing issue. We need to increases taxes overall.
Stu you are probably right about the need for higher taxes but to me there seems to be two issues. Firstly what tax will most effectively change the incentives in the direction that we want. Secondly what tax will raise the most amount of revenue for the the things we need as a community.
Why do we need to increase taxes? Shouldn’t we look to maximise the ROI from the existing ones?
Just moving to unimproved value for rates would certainly have a significant impact. But I accept that a mixture of improved and unimproved may be easier to ‘sell’.
This would have the desired effect of discouraging the holding of undeveloped land. It needn’t be an ‘additional’ tax.
Increasing the ” total tax burden on property” doesn’t automatically mean housing will be cheaper. It could make it more expensive (increasing the cost of a essential item doesn’t make it cheaper – increasing GST on food didn’t make food cheaper – rates increases doesn’t reduce cost of housing). Adding taxes to property would only make it cheaper if people who own or are purchasing have the expectation that it will make it cheaper. If they all think that more taxes will increase the cost of housing they will act accordingly and prices will increase. The market is driven by expectation. I suspect that changing foreign ownership rules would have a far greater effect on the positive expectations of property owners than increasing taxes will. Of course expectations of price increases also drives the supply side of the equation.
What do you mean by “housing” exactly?
Most of the tax measures outlined above will make *houses* cheaper, by reducing demand from investors. Modelling by Grimes, Westpac, and the TWG suggests this is the likely result.
On the other hand these changes will also tend to increase rents. So for these people *housing* becomes more expensive. On the other hand, a well-designed tax change could fully mitigate this effect by off-setting reductions in other taxes. In which case expenditure on housing would be a smaller proportion of disposable income than it is now.
Reducing demand from investors is all well and good, they’ll still want a return when they sell. If interest rates are low, credit is cheap and supply is still restricted then all that will happen is house prices will rise to preserve current returns on things like a capital gains tax. It’s still a seller’s market until supply is addressed.
If you bring the cost of housing down far enough, people won’t need to be enslaved to renting, they’ll be able to buy or build.
That asian advertisement was obviously very offensive (“get New Zealanders to go to work for you and give you hundreds of dollars a week in rent”) but it speaks the truth unfortunately.
What we need to do is ban non-residents from buying houses and apartments in New Zealand. That’ll take the heat right out of the price issue, and according to some economists the coming correction in prices will result in between a 30% and 50% reduction in home values. When that happens, renting will reduce, and buying will increase.
Stu: “Most of the tax measures outlined above will make *houses* cheaper, by reducing demand from investors. ”
This is possibly not true. For this to be the case you would have to show that introducing property taxes would not only reduce return on investment (in order to stymie investor demand), but reduce to the point where the return on investment was at least equal too, if not less than a return provided by alternative investments.
Auckland is property capital growth is approx 15% p/year, the stockmarket 8-10%, so you would have to property by approximately 45% to drive the market away. This isn’t going to happen with these taxes (alone). In fact, I would argue that the stockmarket would have to be paying a 3-5% premium on property because of cultural factors in this country.
I think that at the margin investment demand is fairly price sensitive. Mainly because there seems to be so many uninformed investors out there. The next best investment for many of these people would probably be paying down existing debt.
A land tax seems appealing for many reasons:
Incentivises efficient use of valuable urban land
Discourages land banking
Broadens the tax base
Redistributes tax burden from asset poor young income earners to asset rich baby boomers.
But it would also be politically difficult. Rates are currently only 0.35% of property values and people go bananas when threatened with a 3.5% rates rise on this already low base. A 0.5% land tax could be equivalent to a 100 % rates rise depending on improvement values.
What if land value taxes replaced the current rating system? So the same amount of tax was collected. This change being about shifting to a tax that targets the supply response we want i.e. increasing intensification and decreasing land banking. Rather than being about collecting more or less revenue which is a separate issue, depending on the need/demand for community provided public services.
Agglomeration benefits are for big business, not people. New Zealanders are increasingly worse off with incomes dropping behind that of other nations, and prices of everything going up quickly. Auckland is already very expensive to live in, and is getting worse. You say this is what people want – I say that’s a load of complete rubbish.
Your belief that growth is good, more people, more consuming, higher prices of and for everything is precisely the problem that we face. Those who belief “growth is good” are in absolute denial of the very real problem of human activity on the environment. They (you) are blind to what you actually are – a locust species who will die after consuming beyond what is sustainable.
I was tempted to delete this comment for violating several user guidelines.
But then I thought it’d be more useful to leave it up and highlight your ignorance, both of my opinions and facts in general:
1. Agglomeration benefits consumers too. That’s why many people, even people who are not working, choose to live in cities and towns. Retirees for example.
2. Can you provide some data to show NZers are “increasingly worse off”? Unemployment is falling, wages are rising, net migration is positive (often because fewer people are leaving). Worse?!?
3. If Auckland gets too expensive relative to incomes, then people will choose to stop coming here. People choosing to live in Auckland suggests it is better (in a relative sense) than elsewhere.
4. I accept human activity impacts the planet in damaging ways. What I don’t accept is that migration to NZ worsens that impact. Perhaps the world is better off if more people live in NZ? Remember: These people exist already, and they will have an impact regardless of whether they live here or not. Perhaps NZ is the most sustainable place for them to be right now?
5. I’m (partially) blind because I was infected with toxoplasmosis (twice) in my right eye, which damaged my optic nerve. Thanks for asking.
One final comment: This is a post on house affordability and tax changes that may address such issues. Please stay on topic.
Stu, New Zealand is a low wage economy. You say wages are rising, but in fact they are significantly behind where they were. Wages here were once on a par with Australia and the United States. They are now woefully behind. A job that pays $15 an hour here may pay $25 an hour in Australia, whereas 30 years ago they would have been comparable. Furthermore, the “wages are rising” claim is skewed by figures for executive salaries. There are people out there getting millions for a job that used to pay hundreds of thousands. Most workers don’t see worthwhile increases.
“Perhaps the world is better off if more people live in NZ?”
Taking on the burden created by places that over-developed is not something many New Zealanders want. Overcrowded and unsustainable mega cities give us a glimpse of what “growth” leads to. We should not repeat it.
“Please stay on topic.”
I did. You mentioned agglomeration benefits and I replied.
Actually, we’ll probably find that wages in NZ and Aus get closer over the next few years. Wage growth in Australia is low or non existent for most sectors at the moment, whilst wages in NZ are rising (although from a lower base). Many jobs in Australia are extremely overpaid compared to the rest of the word – especially low skill jobs. Some of that is starting to correct itself now as companies are finding it more and more unaffordable to do business here. Minimum wage got a rise recently in NZ, where as in Aus it has stayed stagnant for years (I believe it’s around $16.75 now)
Well said! When you import people you also import their problems (for example researchers have noticed significant detectable levels of corruption in NZ particularly amongst immigrants who come from countries where corruption is rife).
Kiwis are the worst off they have been relative to other developed countries in half a century. We have lower incomes by comparison, our household debt is the highest it has ever been. As Geoff said the average Joe has not seen any real wage growth as it has all gone to the top 20% (which drags the average up). Stagnant wages is one thing but if house prices are rising at about 4x the rate of wages then there is a serious problem.
Stu raises many great points and thank you for your article just I think some wrong conclusions were reached regarding immigration as it most certainly contributes to the housing problem, constant and consistant surveys from reputable sources repeatedly show that Kiwis are sick of immigration particularly from Asia and don’t want large numbers to continue. As I have mentioned in previous posts apart from students I don’t actually see much use of public transport by immigrants (yet I do see a lot driving SUVs and people movers).
@Bruce – “When you import people you also import their problems…”
As a migrant of 8 years I would strongly disagree with you Bruce. The reason I left my home country for NZ is because I’m sick of the corruption there. I certainly have no intention of ‘importing’ corruption to Aotearoa.
Personally I’m fed up of all these gross stereotypes of immigrants as nothing but trouble. When I was a first year hospital doctor 80% of my peers are migrants – the hospital was unpopular with local doctors as it’s perceived as a busy & poorly supported hospital. We did not ask for songs of praises from anyone, but a bit of appreciation would have been much appreciated.
Youre delusional if you think nzs a low wage economy. Recemt appreciation in nzd means we are paid handsomely by world standards.
Your comment agglomeration economies was fine. Your comments on what i (supposedly) think were way off mark, and off topic.
NZ is a low wage economy. Median hourly earnings in 2014 was $21 p/hour. No one can claim that this is representative of a high wage economy. Yes wages are increasing in NZ dollar terms relative to Aus (but this is because Aus dollar is decreasing in value not NZ dollar increasing) but we don’t buy goods and services in Aus dollars.
NZ income relative to cost of living is amongst the lowest in the world.
[Wage and salary earners lost about a quarter of their share of the income the economy generated between the early 1980’s and 2002. New Zealand’s wage rises have fallen far behind productivity growth. In the private sector, where labour productivity can be reliably measured, it rose 52 per cent between 1989 and 2010. But, average hourly wages rose just 16 per cent after inflation.]
I used to know a lady In Napier who refused to sign a new contract when the employment contracts act came in. At the time, she and her co-workers were paid around $7.00 an hour. Last I heard, her pay rate was up to around $30.00 an hour, whilst her co-workers (either those who signed the new contract or were employed from a later date) were sitting on around $13.00 an hour.
That demonstrates where New Zealand pay packets should be today, if the pro-business, anti-people economics process that has been followed in recent decades had never happened.
Measuring wages per hour in nzd not particularly useful measure when unemployment is lower than other countries and dollar has also appeciated significantly.
Stu, are you an employer? If so then you should disclose it when you talk about wages. My job in Australia is paid 30-40% more. Wages in my sector basically have not increased for 6 years while new technologies made it increadibly more productive for the employer and demanding for the worker. Not to talk about non-monetary aspects like overtime, afterhours, breaks, long sevice. Try compare that with Australia.
Here’s my thoughts for what it’s worth. Auckland’s unaffordable housing is a complex, multifaceted issue and there is simply no silver bullet.
The property bubble has been let to grow for so long now that it’s arguably something that no party will dare allow to burst. If it pops there will be a great deal of pain for a lot of people and I can’t see any politician taking the steps to put the pin in it — too much is riding on the current inflated prices. No government wants Auckland’s housing market to crash on its watch; it would cost them the next election (and probably the next two as well) so they have a vested short-term political interest in maintaining the status quo. In addition to this political interest, the average age of our politicians means these people own property and want to retain the windfalls from the booming market, so they’re personally invested in the status quo, too.
I guess what I’m saying is that I believe this horse has long bolted — the gate has been left open by successive government failures and unwillingness to rein it in when they still could. The horse is gone and we’re not going to get it back. That’s the short and sweet of it.
With this view in mind, I think we need to accept that for more and more people, particularly younger generations like myself who’ve literally missed the property boom boat, renting is the only option.
This means the focus needs to be on stopping the bubble from growing further (capital gains tax of some sort, land tax, limiting purchases to NZ-residents etc, adjusting LVRs, appropriately addressing the forced scarcity caused by council regulations etc) but importantly, the Government needs to show real leadership and create fit-for-purpose legislation that’s workable and enforceable that creates strong protections for renters. I’m thinking things like housing WoFs, rent controls, tenure guarantees, maximum rents, rents pegged to average income etc.
I’m not saying this is easy, probably far from it, but we can’t just continue to maintain a laissez-faire attitude to housing and leave it up to the market. Look where it’s got us to now. We’ve effectively created a group of haves and have-nots, the former looking a hell of a lot like a landed class. There needs to be broad acceptance that housing is not like an iPhone or TV; it’s something people need to survive — we all need shelter. This means that we need to ensure that tenants are protected because it’s nigh on impossible to move from being a “peasant” to the landed gentry (the few exceptions that prove the rule excluded).
That’s my take on it.
Hi Dave K, thank you for your comment, with which I tend to agree – especially this: “I’m not saying this is easy, probably far from it, but we can’t just continue to maintain a laissez-faire attitude to housing and leave it up to the market. Look where it’s got us to now. We’ve effectively created a group of haves and have-nots, the former looking a hell of a lot like a landed class. There needs to be broad acceptance that housing is not like an iPhone or TV; it’s something people need to survive — we all need shelter. This means that we need to ensure that tenants are protected because it’s nigh on impossible to move from being a “peasant” to the landed gentry (the few exceptions that prove the rule excluded).”
I think we need to realistic and it’s not always possible to go back to the way things were, as much as we would like to. Dynamics change and we need to accept realities. I like using the analogy of an exam. At some point you will have left study too late and you’re going to fail no matter what you you do. All you can do is focus on doing well at the other exams to balance out and counteract the fail you’re guaranteed to get — there’s nothing to be gained by wishing you could turn back time because you can’t. However, after some time has passed you may be able to resit that exam after preparing for it properly and get the grade you always wanted (say the following year when that paper is again offered). I think you get my analogy but yeah, it’s just my take on it.
By way of context to my comment above, my partner and I both have university degrees and good paying jobs with good long-term job prospects. We’re both under 30 and we have no dependants. It’s no exaggeration to say we’re very fortunate. Yet we personally think buying a property in Auckland is beyond our means. If that’s how we feel (and I’m conscious and very grateful for our comfortable position and we do our best not to take it for granted), what hope is there for a couple that’s pulling in the average income? There are people paying up to 70% of their income each week in rent on properties that are simply not up to scratch. If someone wants to be a landlord, that’s their business, but I personally don’t think the law should allow you to be a slumlord, as it currently does.
But I guess these arguments hint on broader questions regarding neoliberalism’s belief in markets as being infallible and suitable for all “products”. The thing is, it’s quite different when we’re dealing with necessities of life or in the case of housing, where switching costs are very expensive — you can’t just “shop around” like you would for say a new laptop or phone. But I digress! `
I agree. Rose tinted glasses never helped anyone respond to future trends.
Not so many years ago high-profile ‘neoliberals’ were loudly proclaiming that they preferred to rent and that it was the best long term option.
The bubble must be popped slowly so as not to alarm the populace too much.
The first thing to do is stop it growing, stamp duty, no foreign residential purchases CGT, whatever will do it.
The Supply side of things seems slack. Why are there 30,000 homes in SHAs gifted and only 170 built? Are the developers staging things to maximise profitability?
I’d be surprised if they’re not..
If the carrot not working- how about a “these bonuses we’re giving you expire on a certain date” stick?
I do not understand why you are so negative about Stamp Duty. It can be very targeted, ie 3% in Auckland and 1% in Hamilton. It can also be changed quickly as it relates to a specific transaction. Singapore also has “Additional Stamp Duty” levied on foreign buyers and those Singaporeans buying a third or more property. Sounds just what Auckland needs. Certainly buyers from Singapore cannot complain.
I could be swayed by stamp duty, but its impacts on liquidity seem rather negative.
Less liquidity would be good for those renting as the sale of the property is a major reason for tenants losing their home.
Jesus…when did Kiwi’s become such whining losers? Get over yourself and lose the socialist wet dream of forever taxing people slightly better off than you.
The money used to buy these homes has already been taxed…so sod off if you think it should be taxed again just because you preferred to rent. I bought my first home for cash – if you lot spent some of your internet time making money you might be able to do the same!
You do realise the issue being discussed here is considerably broader than just taxation, right?
I don’t call someone with $50 million ‘slightly’ better off.
“when did Kiwi’s(sic) become such whining losers?” I think you’ll find it was around when Douglas was let loose on the economy that Kiwis became losers. The vast majority of Kiwis were losers from that disastrous (failed) experiment.
The foundation laid by the Douglas reforms enabled NZ to cope with the GFC much better than most other Western economies. If we were still suffering under Muldoonist policies we’d be like Greece….
” I think you’ll find it was around when Douglas was let loose on the economy that Kiwis became losers.”
I think you have to go back a bit further than that to sheet the blame for the actual start of the rot.
Muldoon had 9 years of buggering about with the economy before Douglas got there. Stagflation and Fiscal Drag weren’t just a pair of transvestites back then.
And the resultant meddling he did with penalty rate personal taxation rates, wage freezes, price freezes, car-less days, import licenses and restrictions, petrol sales bans in weekends, and foreign exchange bans and ever increasing subsidies for farmers really, oh and all those failed Think Big projects that wasted tonnes of money all made the Kiwis become big losers.
And don’t forget there was also the National Gov’t that came after Douglas that also made things a lot worse than what Douglas came up with.
You could however say that the loosening up of the bank sector under Douglas’ watch set the wheels in motion for the current feeding frenzy of banks over mortgage lending which has led to this situation.
Nowadays seems you have to win a lottery to buy a house, back then you had to win a lottery just to be able to get the mortgage to buy a house.
Hear, hear! And by the way, Property Investment is a business. And it is taxed in the same way.
“Property Investment is a business. And it is taxed in the same way”
The service that this business provides is exempt from GST so it isn’t really taxed the same way as most other businesses at all.
“Capital gains tax (CGT) – This is a one-off tax levied on the capital gain calculated at time of transaction. The tax is paid by the seller. Australia has capital gains taxes.”
In New Zealand, this is assessed as income, and is taxed as Income Tax. We do not need another tax to do the same job. The more types of tax generally the greater the scope of avoidance and evasion as people play one tax against the other.
What is needed is more enforcement of the existing tax rules, which is what the IRD is doing, as a number of developers and speculators have found out. Amazingly the IRD does read the Herald and even the Dominion Post. As such if a serial developer does not declare and pay the tax then they can expect to have to account to the IRD as to why they have not and pay the associated penalties. As the penalty rates are substantial the IRD is generally not in a hurry as they just increase the amount of tax owed.
As a persons tax affairs are private, this work of collecting taxes is not reported in the paper or courts.
A more effective way of resolving the current housing issues of price and availability could be restricting non residents, including Kiwi citizens to only buy new builds. This would add to the existing supply and not fuel prices for existing housing. I would not see this as being the answer but it would help along with others.
Well stated, but the governments have been reluctant to fund the IRD investigations in spite of great returns on money spent.
Apparently, the non-resident stamp duty in both HK and Singapore is having the desired effect.
You are fixated with the demand side and more taxes, but the simplest way of frightening off investors is to say that AC are about to allow more land on the Auckland fringes to be developed. It is the fact that land supply is limited that makes it interesting for investors. If anyone could buy rural land near Auckland and put a house on it without all the Council fees and constraints, there would not be a prospect of rising values and investors would lose interest.
I will say it again. Property speculators, immigrants, foreign owners, etc will all drive up the price of property – but only if the supply is constrained. Take away the supply constraint and more demand will just result in more houses.
I’m inclined to semi-agree with this.Prices will never come back into line until supply can match demand. Unfortunately, even if you banned non-resident buyers, there’s so many Aucklanders and NZers who want to buy a house in Auckland that prices will stay high, although perhaps not climb as rapidly as they might otherwise. Simply taxing those who are selling houses isn’t really going to add any more to the market, which is what we desperately need. As long as there’s a shortage that can’t meet domestic demand, there’s going to be price increases. Changes to the tax structure would have to impact residential investors without impacting owner occupiers if you want to give them a better chance – blanket approaches won’t help much at all.
A multi target approach may be the only way we can ease the bubble. Relying on land bankers to open their holdings a minute sooner than maximum profit time is simply not going to happen.
Same thing with the 39000 SHA homes in Auckland, a massive 170 of which have been actually built…
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11435721
I think the Government naively believed that granting all these SHAs would deliver 39,000 “built” houses by the end of the 3 year period to end of 2016.
Instead all it will result in is at best 39,000 consented sections and some houses, with construction of most of those another 2-3 years away from that,
I think what needs to happen is all existing and all future SHAs need to have their consent “lifespan” (retrospectively if needed) shortened to expire 3 years from the time the SHA was approved.
After all getting a SHA shortened the council consenting time to 6 months with no room for local opposition/appeals to occur.
So in return that meant you knew you’d have a set time (e.g. 2.5 years) to complete the builds after that. That way you’d have to have completed your construction within 3 years or have to reapply for consents (or apply for extensions).
The SHA arrangement was that the developer needed to have all their ducks in row before the SHA was applied for, those that just wanted to up their lands value by getting a consent (usually then on selling it as consented land for a tidy profit) would soon find out that the SHA “bait” had some hooks in it.
That will get the supply side moving.
Meanwhile in the real world… Land development is a little more complicated than That. Why should developers build in the middle of nowhere and not have to pay for the infrastructure costs of doing so (all those pesky Council fees)?
Yes the argument should be about “supply”, the majority of which should be on land within the existing urban boundary.
Of course the majority of development should be in and close to the city because that is what people want. If you are going to live in a city you want to be near the most amenities -all that activity as possible. But if you insist that all the new development be in one area only -the rules are such that those lucky landowners get huge pricing power. So all the gains in agglomeration go to the existing land owners while the next generation of new comers end up paying all there productivity gains for the ‘privilege’ of agglomeration. Allowing more choices means the next generation get to keep more of the productive gains.
In the real world if you limit the supply of something for which there is demand, the price goes up. It is that simple. If you charge for access to infrastructure but allow people to build where they want, most people will prefer to live closer to the centre. But having the option of being able to live further out will help keep prices down.
the disconnect between real income and property prices makes the housing market blow up inevitable