Which way will the property market go now?

[SBQ]

As for the proposals I think just targeting property investors and denying them the ability to claim interest like every other investment is unfair.

Although someone mentioned the interest deduction might be available for new builds so assuming no government will address the heart of the problem which is central banks and monetary policy then leveraged investors might need to sell up and actually build some rental housing to get back on track from a tax perspective. Which sounds like a good idea as everyone seems to agree supply of new housing is part of the problem.

Probably won't change housing affordability while capital is virtually free and available thanks to monetary policy and central planners controlling interest rates. More tinkering but still no sign that the heart of the issue will be addressed any time soon. What form would that take? Restricting money printing to GDP or population growth, letting willing buyers and sellers determine the price of capital? sounds radical but it might help alleviate inflated asset prices, particularly housing in NZ.

Am I correct in thinking a lot of the detail is still being written up such as deductibility for new builds, definition of new builds, definition of residential property (i.e. is a GST registered airbnb residential or more like a hotel?)

As long as a landlord can claim interest after building a brand new house I can live with the changes even if they are unfairly targeting landlords when all they are doing is capitalising on a central bank gaurantee of rising prices through targeted inflation. It is only because how unfair targeted inflation and the calculation of the CPI is to future generations and how obvious it is becoming do we get this annoying and unfair tinkering IMHO.

PS to keep to the thread, I don't think it will change property prices much, but that said even overseas commentators have discussed NZ house prices to income. If it is a bubble then any prick might burst it but I don't think this will be enough. Time will tell.

If I make an investment in starting a small business, and it has long term assets and equipment that depreciate to a salvage value. When I plan to close up the business, these assets are taxed. Accounts receivables & cost adjusted inventory is also taxed at winding up the business. Then tell me why is it a rental property house after 5 or 15 years is sold without paying tax on the capital gain?


What is radical is the difference in capital required to buy a home. The individual or couple looking to buy their 1st home only has so much capital (earning ability). But to the landlord that has a much larger asset backing + cash flow, can easily pay MORE for the house in question. Capital is not free, it's strongly discriminated where the banks prefer to lend to less risky investors with high incomes and strong collateral backing. Basically the NZ housing market has turned into a meme stock investment portfolio and the losers are those that can get in and, if they do, they will pay dearly on long term 30+ year mortgages. Something that the Labour Party can do is implement what Canada has done for 1st time home buyers. Since the NZ banks have changed to a 40% LVR deposit - make an exemption for 1st home buyers of only requiring 5% deposit. For as long as I can remember since late 80s, Cdn gov'ts has forced banks to comply with this 5% deposit regardless of times during the economy.

Building new houses? Sounds like a business venture if the intent is to sell for a profit. But don't make it sound so bad, the Brightline test on new builds is still only 5 years. So one can invest into building new and hold them for 5+ years and sell for the tax free capital gain ; a move where most OECD countries won't allow regardless how long you hold them.

[fungus pudding]

[COLOR=#b22222]If I make an investment in starting a small business, and it has long term assets and equipment that depreciate to a salvage value. When I plan to close up the business, these assets are taxed. Accounts receivables & cost adjusted inventory is also taxed at winding up the business. Then tell me why is it a rental property house after 5 or 15 years is sold without paying tax on the capital gain?

I presume you are talking about depreciation recovered, which must be accounted for when selling business assets. Fair enough, that's as it should be, but that is not a capital gain. Any capital gained (over and above the depreciated value) is not taxed. You cannot recover depreciation on sale of an investment property for the plain and simple reason that it was not depreciated iin the annual accounts.

[allfromacell]

I get the anger around these changes but I think something had to be done to help curb the demand side of the equation. For whatever reason people in this country are property obsessed and for a lot of them buying houses is the only way they know how to grow their wealth, the fomo these last 12 months has quite frankly been terrifying.

The housing crisis is exactly that, a very real crisis and imo needs bold and creative policy, it needs to be taken as seriously as covid has been, after all it's shelter and the impact on our society is enormous.

Supply side obviously needs more work, but fortunately consents and completions are all approaching record highs and are at levels not seen for many years. RMA reform's are hopefully positive and can further boost the supply side of the equation.

All in all I get why people consider this an attack on them but I do support the government taking bold unique action on this very serious issue, I imagine very few posters on this website will agree.

[Aaron]

If I make an investment in starting a small business, and it has long term assets and equipment that depreciate to a salvage value. When I plan to close up the business, these assets are taxed. Accounts receivables & cost adjusted inventory is also taxed at winding up the business. Then tell me why is it a rental property house after 5 or 15 years is sold without paying tax on the capital gain?


What is radical is the difference in capital required to buy a home. The individual or couple looking to buy their 1st home only has so much capital (earning ability). But to the landlord that has a much larger asset backing + cash flow, can easily pay MORE for the house in question. Capital is not free, it's strongly discriminated where the banks prefer to lend to less risky investors with high incomes and strong collateral backing. Basically the NZ housing market has turned into a meme stock investment portfolio and the losers are those that can get in and, if they do, they will pay dearly on long term 30+ year mortgages. Something that the Labour Party can do is implement what Canada has done for 1st time home buyers. Since the NZ banks have changed to a 40% LVR deposit - make an exemption for 1st home buyers of only requiring 5% deposit. For as long as I can remember since late 80s, Cdn gov'ts has forced banks to comply with this 5% deposit regardless of times during the economy.

Building new houses? Sounds like a business venture if the intent is to sell for a profit. But don't make it sound so bad, the Brightline test on new builds is still only 5 years. So one can invest into building new and hold them for 5+ years and sell for the tax free capital gain ; a move where most OECD countries won't allow regardless how long you hold them.

As FP pointed out I think you misunderstand what a capital gain is. Accounts Receivable and inventory are part of the normal business process. Accounts receivable is just sales of whatever product or rent you charge. When a business is sold such as Kiwi Ninja in the herald this morning for I think $203million any gain over and above what has been invested in this business will be tax free much like rental houses used to be before the bright line test.

Probably a good idea to make it harder for investors over first home buyers with differing LVRs although I was of the impression that Canada's housing market wasn't that much better than ours.

If true an interesting statistic in a herald article this morning from Chloe Swarbrick is that 30% of residential housing is own by investors with 4 or more houses. I would take that with a grain of salt but it is hard to see why the NZRB needs to support those investors with easy money and low interest rates for the last 30 years, obviously if true it is working really well for some people and getting better every year.

Building houses requires more equity as it is a business venture and carries much more risk, but it does provide the much talked about increase in supply of new houses. Using tax policy to encourage a change in behaviour may work. More likely some unintended consequences will arise. My understanding is that if an investor builds the house they can then rent it out and claim the interest deduction as normal and the bright line test is brought down to 5 years. But this is speculation as I am unsure if this is actually the case.

Still doesn't get to the heart of the issue which is monetary policy and centrally controlled interest rates. Although that said under a totally capitalist system I suppose home ownership rates would be a lot lower by now. At least Labours doing something for better or worse.

[Aaron]

Herald article probably behind the pay wall but here is the bit that interested me.

https://www.nzherald.co.nz/business/...YSJ7FVZ4Q4SRU/

To get a sense of how affordable we think house prices should be, it helps to look back at the long term trend, says Olsen.

House prices basically bumped around at about two or three times household income from the 1970s on, he says.

"We had a multiple of below four up until 2001," says Olsen. "After that it starts to go up quite rapidly."

In the year to June 2008 it peaked at 5.7.

"It took a bit of a pause after the GFC but then it's only gone up from there," he says.

2001 this started, although the federal reserve is not the NZRB this was around the time Alan "Bubbles" Greenspan provide the Fed put after the dotcom crash. 2008 recognised that things had gone too far and that there was too much debt but this was solved with more debt and lower interest rates.

Maybe there is a direct connection between monetary policy and insanely high house prices although no one was suggesting this in the article the rises may have been coincidental.

But if monetary policy is the issue why can't it be changed? I would suggest.

One there is a global currency war and any rise in interest rates will push up the value of the dollar hurting our exporters.

Two possibly debt levels are so high they can't be repaid in any ordinary sense of the word "repayment" but they can be deflated away by debasing the currency they are valued in.

Who gets hurt if interest rates go up and credit gets tightened, probably everyone if there is a collapse and we will no doubt hear how it will hurt the poor worse, although if monetary policy is increasing inequality and reducing social mobility and equality of opportunity surely a change in monetary policy will hurt those that have benefitted the most from the current policies.

So I guess this means we ignore the heart of the problem around inflated house prices and hope it doesn't lead to something worse in the future.

[fungus pudding]

I get the anger around these changes but I think something had to be done to help curb the demand side of the equation. For whatever reason people in this country are property obsessed and for a lot of them buying houses is the only way they know how to grow their wealth, the fomo these last 12 months has quite frankly been terrifying.

The housing crisis is exactly that, a very real crisis and imo needs bold and creative policy, it needs to be taken as seriously as covid has been, after all it's shelter and the impact on our society is enormous.

Supply side obviously needs more work, but fortunately consents and completions are all approaching record highs and are at levels not seen for many years. RMA reform's are hopefully positive and can further boost the supply side of the equation.

All in all I get why people consider this an attack on them but I do support the government taking bold unique action on this very serious issue, I imagine very few posters on this website will agree.

I don't. I imagine most posters will agree the govt. needs to take some action. What most will disagree with, I think, will be the particular actions they have chosen to take.

[macduffy]

House prices basically bumped around at about two or three times household income from the 1970s on, he says.

I would suggest that the components of "household income" have changed a lot since the 1970's. Many more single parent households on low incomes, more beneficiaries, resulting in lower average household incomes. Doesn't change the fact though that NZ is short of housing, particularly in fast growing regions.

[Aaron]

Interest rates in the 1970s would require a much lower income to price ratio or houses would have been unaffordable if you needed to borrow money.

[fungus pudding]

I would suggest that the components of "household income" have changed a lot since the 1970's. Many more single parent households on low incomes, more beneficiaries, resulting in lower average household incomes. Doesn't change the fact though that NZ is short of housing, particularly in fast growing regions.

Stay at home mums were the norm until mid 70s. So while there were fewer single parent homes, I'm not so sure that many households had two working adults. But yes - the housing problem is plain and simple - not enough houses.

[iceman]

I don't. I imagine most posters will agree the govt. needs to take some action. What most will disagree with, I think, will be the particular actions they have chosen to take.

Absolutely my view as well FP