Property investors’ lobby groups have been up in arms this week about Labour and Greens’ plans to close tax loopholes and fix the housing market.
That’s probably a good thing.
Like investors in any other sector of the economy, they expect to make money – but they have preferential tax treatment that investors in other sectors don’t have. Closing tax loopholes means property investors might make less money.
It’s natural for them to oppose political parties’ policies that have that effect – their resistance just shows the policies might actually work. They’d be far more relaxed about policies they didn’t expect to work.
Auckland is one of the most expensive places to buy a home in the world – first or second on the list, depending who you ask. The government’s own new Housing Affordability Measurement says buying a home is unaffordable for four out of every five Aucklanders, and even renting is unaffordable for two thirds.
The politics of it are very simple. National’s criticisms of Labour’s new housing policy are the same as the criticisms from the Property Institute and the Property Investors Federation. National is appealing to its likely supporters by sitting back and leaving the tax loopholes open, letting house prices rise, and rise, and rise.
The property investors’ lobbyists have suggested that plans to end tax advantages for property speculators will encourage investors to sell some of their investment properties. Again, that’s a good thing.
Investment properties are typically the same kinds of properties as first home buyers look for: at the cheaper end of the market, including apartments, units, townhouses, and smaller, cheaper houses. If investors aren’t buying so many of these types of more affordable properties, first home buyers will have a better chance.
Some people (like the Finance Minister) say this could raise rents, because fewer rental homes will be available. This is scaremongering. In reality, if more people can afford to buy their first home, fewer people will be renting. It balances out in the end.
This is why the Green Party is completely unapologetic about our plans to rebalance the housing market with a capital gains tax on investment properties, and why we’re OK with Labour’s plan to end “negative gearing” for property investors.
Negative gearing is when the owners of investment properties use tax losses on income from their properties to offset tax on their other income, such as their wages or salary. It can be a nice little loophole to provide some extra cash in hand while the property itself increases in (untaxed) capital value.
I’m not opposed to making profits from housing. Someone who buys an old rundown house, fixes it up themselves, and then sells it has earnt the money they make. A decent landlord who treats their tenants well, follows the rules, and looks after their rental property deserves a fair return on their investment.
But this is income, and it should be taxed like all other income. That’s why we need a capital gains tax.
The Kiwi property investment myth is based around a hard working mum and dad who have saved up and bought a modest rental property as a retirement savings plan. They rent it out to students or recent graduates who are saving a deposit to buy their own home in their mid-twenties.
The reality is different: fewer than one in five property investors own only one investment property. A third have two or three, according to ANZ. And there is a greater number of property investors who have seven or more investment properties, than those who have just one investment property.
The tenants aren’t just young people either. Home ownership is at its lowest level since 1951. Increasingly, we’re seeing lifelong renters, partly because property investors are buying up all the cheaper homes.
Renting isn’t a bad thing – or it wouldn’t be, if the standard of rental properties was higher and tenants had more security and stability, but that’s another issue.
Fundamentally, the Green Party thinks the tax system should encourage people to invest in productive and sustainable businesses which create jobs. Speculative investment in non-productive assets, like houses, should be discouraged. Loopholes should be closed.
Don’t just take our word for it: ask the IMF, the OECD, and New Zealand’s own Reserve Bank.
New Zealand needs more houses, and to build them will require investment by both the government and the private sector. The Green Party has proposed using the government’s low cost of capital to provide low-interest loans to community housing providers, enabling them to build quality, affordable homes. We would fund these by issuing housing bonds to private investors. In this way, people who want to invest usefully in property have a safe, socially responsible investment option.
We should not fall for the spin about “hardworking mum and dad investors”. Tax systems shouldn’t be designed to give anyone a free run at profiteering from the housing crisis. When the National Government wants to continue to protect this one sector over all others, we must call them out for it.
Our goal has to be that every New Zealander, whether they rent or own, lives in a warm, dry, affordable home.