Russel Norman

Stabilising the housing market

by Russel Norman

I discussed the question of ringfencing the losses from rental housing on Morning Report yesterday – tax changes for investments (mp3, 2.7mb, Morning Report, RNZ) .

Cullen refused to front up to the discussion but I think it’s important that we discuss it. Housing prices have doubled in six years and it is a big social and economic problem (via impact on interest rates and hence value of dollar). I was debating John Shewan from Price Waterhouse Coopers who argues that it will make no difference to the housing market. Unfortunately for him his argument was severely undermined by the accountants interviewed by RNZ who said there were many thousands of people going into the property market to get the tax writeoffs. Which is of course the case.

It is clear that we need to work both sides of the housing market if we are to stabilise prices – demand and supply.

On the demand side, ringfencing the losses from rental accommodation (or at least the losses from interest costs) would certainly have an impact on demand – probably affecting around 10% of the total housing which is rental accomodation geared to make losses which can be offset against income for tax purposes. A capital gains tax exlcuding the primary family home would be likely to have a similar effect, though smaller size. The Reserve bank is calling for an investigation of this as well (as is Treasury apparently). Restricting the sale of land to NZ residents and citizens would also have an impact on demand – maybe 5% of the market though nobody really knows.

On the supply side we need to allow more medium density housing along transport corridors. And we need a big growth in the supply of state rental accommodation with affordable rents to make sure that rentals don’t follow housing prices in the next 12 months.

I think if we are going to have tax write-offs on losses from rental investments they should probably only cover maintenance (not interest) but also investments in energy efficiency like insulation. If we are serious about climate change and making houses warmer drier and healthier then we need to create incentives for landlords to improve the energy efficiency of their houses.

Shewan said we shouldn’t do this because it would distort the tax system – we would rather cook the planet and let families shiver in cold damp houses than “distort” the tax system?? Not me. And anyway the really big distortion in the tax system is the failure to tax income from capital gains – that is the number one distortion in the tax system and the other political parties are too scared to make the case of why it should be fixed.

Published in Audioblog | Environment & Resource Management by Russel Norman on Fri, June 22nd, 2007   


More posts by | more about Russel Norman