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My view as well.
Changing the deductibility is plain dumb IMO - it is a business in the simple meaning of the word. Generating an income and therefore expenses incurred in generating that income should be a deductible expense. Get their tax if sold within 10 years.
Yes I know does not produce anything, but still income generating and providing a service, must be other businesses out there that do not produce anything - e.g. widgets but provide a service of some description, they would still claim interest if applicable...
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 Originally Posted by SBQ
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.
SBQ ,5 % deposits are available .
https://kaingaora.govt.nz/home-ownership/
Furthermore the banks are allowed to lend with less deposit than the RBNZ mandated LVR for a % of their lending. They generally allocate this to first home buyers.....
See the announcement here https://www.rbnz.govt.nz/news/2021/0...r-restrictions
The biggest problem the banks face with their customers wanting to borrow 95 or 90 % of the purchase price is them servicing the 95 or 90 % lending ....
Doesn't matter if you have a heap of assets- if you can't show you can service the debt (also at much higher test rates) from your income under "The Responsible lending code " they will decline.
https://www.mbie.govt.nz/dmsdocument...-december-2020
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Originally Posted by macduffy
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.
I would think there are several social trends at play. I think there would be more older people living alone (although back in the 1970's there sadly would still have been a lot of WW1 widows/ maiden aunts?) while poorer areas may have larger households. Some recent immigrant families may be more likely to have multi-generation households. I would also wager there are fewer single working twentysomethings able to afford their own or rent flats/houses alone.
Last edited by Bjauck; 29-03-2021 at 05:59 PM.
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Member
Originally Posted by 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.
Net Migration 18 years up until to 2001 (inclusive) was 44,400 or approx 2,467 increase per year.
Net Migration 18 years after 2001 was 477,900 or approx 26,550 increase per year.
It's simple supply and demand, mass immigration has been the number one increase of house prices.
If you want to come up with a number of "house price to household income", it gets even worse... immigration has the added issue of keeping wages suppressed which skews this statistic even further in the wrong direction.
Last edited by Norwest; 29-03-2021 at 09:35 PM.
Reason: added a word
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Originally Posted by Norwest
Net Migration 18 years up until to 2001 (inclusive) was 44,400 or approx 2,467 increase per year.
Net Migration 18 years after 2001 was 477,900 or approx 26,550 increase per year.
It's simple supply and demand, mass immigration has been the number one increase of house prices.
If you want to come up with a number of "house price to household income", it gets even worse... immigration has the added issue of keeping wages suppressed which skews this statistic even further in the wrong direction.
Agreed immigration has been a driver of housing demand. Hopefully Labour keep their latest promise and actually restrict it this time. Also agreed the supply side has been lagging but also the gauranteed capital gain from the RBNZ means landlords can buy at ridiculously low rental yields squeezing first home buyers out. They then need to bump up rents as quickly as possible to justify the purchase price (whether that is actually happening or not I don't know but I know they are buying at what would be silly yields if the debt wasn't going to be inflated away while house prices rise due to monetary policy)
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Originally Posted by Aaron
Agreed immigration has been a driver of housing demand. Hopefully Labour keep their latest promise and actually restrict it this time. Also agreed the supply side has been lagging but also the gauranteed capital gain from the RBNZ means landlords can buy at ridiculously low rental yields squeezing first home buyers out. They then need to bump up rents as quickly as possible to justify the purchase price (whether that is actually happening or not I don't know but I know they are buying at what would be silly yields if the debt wasn't going to be inflated away while house prices rise due to monetary policy)
Labour will shortly announce their latest promise - i.e. not to keep any promises.
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Originally Posted by stoploss
That's great to know NZ has 5% mortgages for 1st Time home owners but I do read from their link there's quite a huge criteria and, " First Home Loans are issued by selected banks, building societies, and credit unions, and underwritten by us, Kāinga Ora – Homes and Communities." In Canada it's gov't mandated and banks there can not discriminate by not accepting the 5% deposit rule. In recent times, their gov't insurer entity CHMC has taken on more a direct approach by 'backstopping' and 'buying' off these mortgages directly with the retail banks (so it frees up retail bank's balance sheet removing some of the risk). The maximum amount to mortgage under their scheme is $1M and a mortgage period of no more than 25 years.
I can understand the seriousness when Jacinda made her speech last week. NZ can not afford a housing collapse because our economy is too tied and undiversified to handle such an event. It's a lot different to in the US when the GFC hit, their economy was large enough to handle through the recessions (because their wealth of the country, unlike NZ, it not only based on houses at the top of the food chain).
Unregulated banks will prey on anything that moves so the Responsible Lending Code are only guild lines. I say this as Jacinda pointed out last week that the banks in NZ didn't play ball and allowed housing prices to escalate long term. Moral Suasion only goes so far and as i've seen in NZ, it seems the Reserve Bank doesn't keep a good eye on retail banking behaviour.
There's many aspects that the banks look at when lending, however I agree that 'how to service the loan' is the top priority. It is not a surprise banks are far more willing to lend on houses than to lend on a business venture. If not owner occupied home, the banks know the house can be rented out which produces an income ; something that a business plan can not guarantee when you go for a business loan. Nevertheless, the banks in NZ aren't at fault. It's more rather socially systemic that in NZ, most people get rich at retirement through ownership of multiple houses (which has limited productivity). When you mention shares ownership of reputable companies around the world, they are clueless and say it's a scam, despite that's how the majority of the rich I see in N. America earn their wealth.
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Member
Originally Posted by Jay
My view as well.
Changing the deductibility is plain dumb IMO .
Disagree. There's a cogent argument for their action.
Every NZer knows the real money in Res Prop is capital gains, to think otherwise is disingenuous. I believe some "investors" even run at a loss or just dont bother renting their house out, such is the situation. Ergo, if you are making a "business" and want to claim all the deductions you should pay tax on all the outcomes. Alternatively dont call yourself a business and dont pay tax on gains but also dont claim deductions. In the past ResPropinvestors have had the best of both sides.
You could use the same argument on shares that pay no dividends but, as ever, its never quite that simple.
My beef isn't with the ethos, its the daft piecemeal quagmire we now have. This asset is, that one isnt, this investor is that one isnt, depreciation this, bright line that etc etc. What a mess.
Blame democracy.
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Originally Posted by dibble
Disagree. There's a cogent argument for their action.
No there isn't. Income tax should be reserved for income from profit. There may be an argument for the bright line test, and I happen to think there is as our tax policy to tax gains based on intention has proven completley unworkable - to the point the IRD seems to have abandoned trying to collect tax from all but the most blatant habitual traders, but there is no such reason to apply income tax to an outgoing. It will throw the rental market way out of balance, ultimately resulting in rising rents. Labour should study their moves in the housing market right through the party's history to learn every move they have ever made to control rents has ended in disaster.
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Member
Originally Posted by fungus pudding
No there isn't. Income tax should be reserved for income from profit.
Yes, and profit for ResProp is predominantly the capital gain. To believe otherwise requires inserting one's head in the sand. Therefore if you arent taxed on all the profit you shouldnt be entitled to all the deductions. The execution is very debatable though e.g. rates is deductible and interest now isnt, some gains are taxed others arent (bright line) etc.
Your other point is merely speculation. The key determinant that throws rent out is the powers of supply and demand. Landlords cant just raise rent 'cos they are in a bad mood about tax, but they can if a shortage means the market is willing (however reluctantly) to pay more.
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