Some of the money will head offshore, which is not a bad thing.

Because the profits will get repatriated here, and eventially so will the money and the capital gains.

That’s much better than wasting a hundred thousands dollars or more per household on inflated house prices.

Currently we’ve got $500,000 houses that are really only worth $300,000, but because so many people want to earn money from a rental the whole country has to borrow an ADDITIONAL $200,000 each from a foreign owned bank.

The house is exactly the same house it was. There’s no valid reason that it’s price should rocket up. It hasn’t got bigger, rents haven’t gone up massively.

It’s just artificially-created market forces.

We need taxation and regulation in place so that conditions are such that rental housing no longer causes a housing bubble that turns all of NZ into a slave for foreign banks.

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Gerrit

It isn’t about the homes, it is about the land. I can get the home built… most people who want a home would be able to work through the numbers and make it happen IF the price of property were not 20%-30% higher than anyone can afford. In other words, the section I need if I want to build here is tentatively priced at $150 large or more (that’s in an empty development, with a fair amount of improvement done, not a bare section so the developer has added some value). That’s the same I might pay a company for a lock-up shell ready for me to do finishing work.

That puts the value of the land is very high compared to the value of that house, and as a result the folks who build HOUSES on land on spec have been building very damned expensive houses. Back in LA the house value was usually something close to 2x the land it was built on, and that was never a cheap market for builders. Moreover, the value of a buildable section there, if I convert to NZ dollars, was STILL less than what they are asking here.

I see a couple of things going on. The first is that the folks who are “property developers” have a big part in the availability of land. A bare patch of property out in the back blocks means bringing services in or providing for a completely off-the-grid existence. Either is expensive. The effort made for this would be compensated by the lower price of the unimproved property, but the real issue for the owner-builder is that that property is going to be a damned long way from any workplace or transportation.

When a developer does do the work of sorting out the landscape, roads and etc, that’s valuable work. Not to downplay the cost of doing it that the councils impose either. I would hope that we Greens will, in our wisdom, recognize that there are some very real issues with the methods that are used by councils. I am going to be encountering some of this shortly. The stories I have heard are horrific and if (as reported) the council imposed overhead approaches 15% of the cost of a house and section that the developer has already organized, it is both unconscionable and counterproductive.

It isn’t the building that costs us so dearly. It is the land. I know where there are empty plots of land with roads next to them, walking distance from a train station, and those plots of land have been empty for most of a decade now and no real-estate agent can tell me who owns… I can’t even make an offer.

The thing is that the notion of “owning” land is entirely absurd in the first place. WE live for a century if we are lucky and the land swallows us up. The land however, has been there for a thousand years and save for the odd earthquake, erosion and continental drift, will be in exactly the same place a thousand years from now… and we own IT? Conceited b@stards we are.

If someone wants to lock up land through “ownership” and uses it as a form of a bank, that is probably NOT the best use of that land from the point of view of a society that is constrained by its mountainous environment to live on postage stamp sized plots of ground.

I find many things odd… the total absence of re-usable forms for casting standard concrete walls for instance. I cannot imagine why they don’t exist here. Every project builds formwork from scratch, which makes laying concrete block cheaper, but the blocks are far more difficult to get properly insulated.

Meh! So many questionable decisions around these issues. I will probably have to build my own answer.

BJ

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Gerrit

Rental property landlords are similar to farmers in that their incomes are low while their wealth increases. And most similar to farmers in not avoiding being taxed on their CG when they sell the property by favourable tax treatment. Each results in overvalued land.

There was little housing shortage in the 2004-2007 period, yet available credit and confidence in speculation for profit (borrowing against rising value of existing properties) created buyer demand.

There is need to encourage new home building for sale – bit this has nothing to do with those who buy up existing properties to become landlords.

photonz

There are two options – a duty paid when a landlord buys a rental property, or a duty paid when a landlord sells a rental property (instead of unrealised CG being taxed).

Similarly when a company owning rental property was sold it would be liable to the same duty (unless it had paid capital gains taxes on the buying and selling of the houses being sold as part of its property business activity).

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photonz,

That $300 Billion “profit” you are talking about is theoretical money. It ia not realised into a taxable hard cash commodity.

Theoritically I’m a millionaire IF cashed up ALL my assets (housing, CNC equipement, etc.) But I’m not one till I cash up. Until then I’m earning below average wage to pay for the assets and give another NZer a job.

You may take away the depreciation on housing stock but it wont change a thing.

Rents and home affordability will never come down until more houses are built.

It is like the car market. Years ago you could only buy a new car if you had overseas funds and second hand car prices were extremely high becasue of limited supply.

Then they allowed second hand jap imports.

Look at the prices of cars now versus 30 years ago. No comparison. That is what higher stock levels will do.

We need to do the same with housing.

But with the depreciation taken away who will build (fund) them?

The state is borrowing $50M a week so is in no position to build new housing stock.

The private investor wont, it is not advantages with the proposed tax changes.

So house prices will remain out of the reach of the BJ’s of this world world and rent will keep high.

What is happening is a self defeating taxation regime that is going to push prices even higher (add 2.5% just with the GST changes alone)

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Gerrit – I agree with your points.

The issues as I see them are
- the country is being badly damaged by high house prices.
- $300 BILLION in profit has been made on residential housing in just a few years, with a grand total of ZERO tax being taken on these profits.

So, how to stop house prices and rent going up, and how to tax the profits being made?

Rental owners have had a free ride for a long time. Good on them = they’ve made good money up until now, but it can’t continue.

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photonz,

Would a purchase tax work? Say 5% on buying a property for the purpose of renting it out.

You keep tinkering at the edges hoping that some sort of taxation will force a decrease in house pricing.

It simply wont work when far larger forces are at work.

1.- Cost of new housing. (around $300K to $600K depending on where and what quality)

2.- 45,000 imports per year who need somewhere to live.

3.- Land restriction preventing new housing developments.

You also need to look at how much revenue your tinkering taxes will produce versus the cost of doing so.

Start by reviewing the turnover in residential rental property. Wont be a whole lot.

Not that you would be able to measure it accurately as the sale of the company that owns the residential house does not require the title, on the property, be changed.

The company office simply changes the names of the shareholders in the company register.

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Astonishing that nobody has noticed the this about extending the interest deduction to the non-landlord/speculator/investor… which is that the higher prices of the houses become the norm and the advantage of having property becomes more firmly embedded as the cost/value of a house relative to other acquisitions becomes permanently locked into the higher valuations (because I can service that larger mortgage then, without worrying and so can a lot of other people who are distinctly middle class).

It is less upsetting to the market as a whole.

It complicates the tax system, particularly in light of the odd ways that mortgages are structured and issued here in NZ. I rather prefer being able to get a 30 year fixed, but I can’t imagine that sort of thing here, and the mixtures of loans and interest rates that changes all the time around the homeowner is significantly more complex than anything I ever imagined. That makes the interest deduction a truly artistic creation for the accountants who are structuring the finances for this purpose.

No, I am NOT looking forward to the discussions with the bank.

BJ

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Would a purchase tax work? Say 5% on buying a property for the purpose of renting it out.

It wouldn’t dirrectly affect current rental owners. But it would put a damper on demand for more rental properties and therefore keep a lid on prices.

That way, existing rental owners wouldn’t be penalised as such – but they just wouldn’t get as big tax free capital gains, because there would be a lid on house prices.

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I would imagine that buying a bare section in a reasonable area will be near as expensive as any kit house you could put on it. If you could find one that is.

Almost true. Sometimes too true. Depends on the sections. The Developers of course, want to max their profits and so only the most expensive possible houses are encouraged and built on spec. The half-million price point is very standard in the region. Land can go for 120-220k at the asking price.

There are inflated expectations out there still. The folks asking 220 are by and large, going to be disappointed. The properties under 120 are usually significantly impaired in some way, either extreme slopes or power lines. The two-tier tax sounds a treat, but still does not address leveling the competition of me vs the speculator/investor. I’m still paying taxes to replace his tax break and he’s still got an interest reduced loan if he’s structured his finances.

That’s a difference that really has to be removed from the system for the market to reflect real levels of supply and demand rather than speculation.

respectfully
BJ

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Gerrit

1. Many companies actually pay tax on their residential property business profits and are unaffected by CGT being applied to others. Their CGT does not prevent them on-selling properfties rather than building up a landlord portfolio – the tax rate is only 30% after all.

2. Yes some landlords will try and bluff – that they would act to avoid paying a CGT, thus there would be a minimal tax gain – to deter an introduction.

The bluff can be called in a range of ways

* as I mentioned 10% on the property sale (not worth bothering avoiding) to another landlord. Something avoided by selling to a residential home owner – reduces the extent of the problem.

* a land tax only applying to land which is a income generating asset (residential property, farmland) in place of a CGT (the option of not paying the tax and paying it on the sale of the land/property).

I am satisfied that ring fencing property losses and changes to depreciation rules is enough change for year one, provided there is a year 2.

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BluePeter – if you want to invest in commercial property, you can can buy some in the countries largest property companies tomorrow morning, even if you are Ma and PA investor.

The only understanding it takes is that you will recieve a dividend of 8-10% (AFTER tax), you have over 100 tennants with long legally binding leases, and your properties are high quality in top locations, and run by experienced managers.

If you change your mind next week, and want to buy a little bit more, you can, or you can sell, or just sell part, and you will get a cheque the very next day. Try doing that with a residential property.

And rather than being fleeced by a real estate agent, you’ll probably only pay around 1% to buy or sell.

You don’t need to know as much or be as worldly-wise as if you’re buying yourself a residential rental property.

That breaks the first rule of investing – never put over 10% of your money into any one investment

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toad and SPC,

……….a realised one upon a property sale.

No good because most rental properties you are so against will actually never come on the market.

They are either owned by a family trust and passed down the generations or owned by companies where the company is sold, not the asset.

So bring in a CGT, it makes no odds to most investors, the “properties” are never sold in their own right.

Then you have investors who might sell their “properties” to kin folk for a token gold coin.

Implementation of a CGT is so cumbersome and so unpredictable in cashflow generation (totally dependent on property turnover) that it is not going to do anything to reduce property investment.

next you want death duties. Again a family trust negates that avenue.

—————————–

Will anyone address the other side of the economic equation. Cut expenditure to reduce the need to raise taxes.

I’m suprised the Greens are slow on that uptake in the speech today that expenditure is basically tapped at todays rate.

No payrises for state sector workers.

Good, lets see them ALL in productive tax paying jobs.

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Well as I actually support the idea of ring fencing property losses and can see some reason to cut back on the depreciation allowed (where the property is not falling in value) I am not upset over signalled changes.

But I think some of the money saved by cutting back on depreciation should transfer to repairs and maitenance (including energy efficieny investment) – to ensure our housing stock is not run down as we reduce income flow to landlords.

I also think the government could look at either a capital gains tax or some “tariff” alternative when the property is sold (excluding those of rental property business currently paying tax on the buying and selling profits) – a commercial transaction tariff (say a 10% duty) only payable (by those not paying any tax on their buying and selling profit) when the property was on sold to another landlord (the duty would be null and void if a buyer was making the property their primary home residence). That would both raise revenue from those avoiding tax on their realised gain, and also encourage purchase by home buyers. The duty money raised could help fund either the accommodation supplement or public housing investment.

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BJ,

I prefer that he does not have that deduction in the first place. I had thought my position had been previously established.

My point was not that houses are used only for living but that the costs incurred in producing labour are, almost entirely, incurred should that labour be produced or go to waste. In this way the profiteering of the labour is distinct from the profiteering of companies.

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photonz1 said: Raising GST is a good move, as it will tax those that spend a lot, much more than those who don’t.

Problem is that most of those who spend the bulk of what they earn are people on low incomes. Those who invest are people who have something to spare.

If you don’t have something to spare, you get hit by the GST increase.

I would have preferred a comprehensive capital gains tax – a realised one upon a property sale.

Raise the revenue from the real bludgers – not from those struggling to get by.

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BluePeter – you can say commercial property is riskier, but actual evidence would say the opposite.

I know what you’re saying, however commercial property is problematic for ma and pa investors because it requires a higher level of understanding, and the barrier to entry for quality properties can be significantly above the resources of the individual. I’m in a syndicate and we own a well-known mall – but that takes millions and dedicated investment management. I don’t know anything about small commercial holdings.

I’m not saying residential is without risk – there is risk in everything – however it is relatively low risk and conservative. At very least, that is the perception, which isn’t going to change in a hurry.

I think you’ll find people are still off shares due to what happened in the 1980s!

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BJ,

Kit housing is a good idea. Interestingly enough New Zealands first kit house was the treaty house at Waitangi. Was bought in from Sydney. You can still see the part numbering system and the fastening used to build the place. Facinating restoration job done on the house and most interesting concept of kit housing.

……….who are sending the cash to Ozian banksters.

.

All we require is a simple two stage taxation system. Any money repatriated overseas is taxed at say 60%. If retained in New Zealand at say 10%.

Watch new Zealand get ahead then. The banks will either pull out (no great loss) or contribute to getting New Zealand productive again with decent loans for housing, business, etc.

………..symptomatic of land scarcity.

I would imagine that buying a bare section in a reasonable area will be near as expensive as any kit house you could put on it. If you could find one that is.

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Sapient, there are exactly 3 methods of making the playing field even between me and the property investor type. I can have the same tax deduction for the mortgage interest on the property as he does, or he CAN’T have that tax deduction, or you can mess around with a whole lot of complicated tax rules that make it look like you’ve done a bit of both.

It is a lot easier to manage the deductions applied to the cash-out refi than it is to cope with the myriad of ways a business entity can be substituted for a person for tax purposes.

Sapient: It is not true that a house is solely a place for living, there are a lot of aspects to owning a home and the fact that it IS a relatively inflation proof investment as well as a place to live has to be addressed in any logical analysis of it. People put a LOT of money and effort into owning homes.

Yes it IS a subsidy. One that is applied to business entities. Not available to individuals. So the individuals who want to concentrate on their strengths instead of futzing around other people’s money lose out.

However, the notion that the building of houses will suddenly stop because people are able to buy their own homes instead of renting from someone else, ignores a reality. People like me who want to buy but are currently shut out, are an underserved market. WE can’t pay for a McMansion, don’t want one, don’t need one. We are quite capable of doing “stuff” but there is not and have not been, any builders putting anything together for us.

Just the kit houses.

Part of the reason for this is that buildable land IS scarce and so the developers are trying to maximize profits on each scrap of land. So the upper end of the spectrum is overserved. The houses occupying half or more of a section is symptomatic of land scarcity. This is a point that Greens should not overlook and I think we tend to. Gerrit – We can’t all be landlords. We can’t all be farmers with big veggie patches either, but we all need a place to live.

Gerrit, if I use one of the kit build mobs to run the construction of the lock-up shell, I save a lot of the headaches and gray hair inducing problems. I didn’t guess at the numbers, I am actively in the market to do this and getting more active as the tax changes get closer to being actually fixed in place. I want to have my powder dry at the schwerpunkt because whatever they do now is going to be all I really expect them to do between now and 2013… and it is time I got myself dug in. My point was simply that the market is flooded at the top end and extremely sparsely served for the entry level owner-occupant. That’s a serious distortion, as there are stuff all individuals who can afford the hit. I would venture that as many as 3/4 of the houses in that new development are being rented to other people, and that the losses are being charged to the taxpayers of New Zealand, who are subsidizing the owners, who are sending the cash to Ozian banksters.

One thing about interest deductibility is that mortgage interest is practically all of the mortgage payment early on in the life of a loan, and mortgage principle (which is NOT deductible) is what you pay later on.

Makes it a lot easier to get in.

Now I don’t know that I am completely right here, but I am pretty sure that Key and English are comprehensively and reprehensibly wrong.

BJ

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taod says “It is largely a transfer of the tax burden from the wealthy to those on low and middle incomes.”

Quite the contrary.

OAlthough there’s one problem – it’s hard to offset tax for lower incomes when 40% of people don’t pay any tax.(or get it all refunded in WFF)

What percentage of the population do you think should make a ZERO contribution to their healthcare, education, policing etc?

Raising GST is a good move, as it will tax those that spend a lot, much more than those who don’t.

Beneficiaries, pensioners etc, will have increases to cover the 2.5% gst increase.

And people who save rather than spend will also get a benefit.

Pretty good all round – the main losers are big spenders and tourists.

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