Capital Gains Tax

[BlackPeter]

Yep the Asset bubbles make the baby boomer rich richer.

There is no sense behind taxing every last cent of income (including all gains from money lent to businesses) yet leaving most of the gains from Leveraged investment housing and all the gains Owner-occupation untaxed. Residential Real estate bubbles are encouraged.

The real estate bubble (if it turns out to be a bubble - at current it is just a continuous uptrend with the odd minor ripple) has little to do with CGT or the lack thereof.

The main culprits are
- low interest rates - i.e. people can afford to pay more for a scarce resource (a worldwide problem)
- money created by QE searching a new home (see what I did there ) - again a worldwide problem,
- very expensive building methods (stick by stick instead of using industrial production methods - this is a NZ specific problem) and
- the aversion of most Kiwis to live in apartment buildings
(admittedly, there are hardly any good quality apartments in NZ. Chicken - egg?) - obviously a home made problem as well

Don't blame the lack of CGT for our high property prices ... most countries do have a CGT and housing is expensive there as well everywhere where people can find a job and want to live ...

Sure - I hear property prices in the UK are dropping, but this is because people don't want to live there anymore.

[Bjauck]

The real estate bubble (if it turns out to be a bubble - at current it is just a continuous uptrend with the odd minor ripple) has little to do with CGT or the lack thereof.

The main culprits are
- low interest rates - i.e. people can afford to pay more for a scarce resource (a worldwide problem)
- money created by QE searching a new home (see what I did there ) - again a worldwide problem,
- very expensive building methods (stick by stick instead of using industrial production methods - this is a NZ specific problem) and
- the aversion of most Kiwis to live in apartment buildings
(admittedly, there are hardly any good quality apartments in NZ. Chicken - egg?) - obviously a home made problem as well

Don't blame the lack of CGT for our high property prices ... most countries do have a CGT and housing is expensive there as well everywhere where people can find a job and want to live ...

Sure - I hear property prices in the UK are dropping, but this is because people don't want to live there anymore.

I agree with all those points. NZ has among the most expensive housing for our income levels. I would add two additional main points.

The lack of a CGT and stamp duties in NZ, unlike most other countries, has the effect of making real estate even more compelling an investment. The relative ease to borrow to fund the acquisition of a house or real estate (as opposed to greater difficulty borrowing for share investment and businesses) makes housing more appealing as an investment, as leveraged capital gains are more easily achievable by more people. Also no stamp duties are payable making more frequent buying and selling of the family home a more Viable and compelling option to boost untaxed gains in equity.

Housing also gets a fillip from the fact that alternatives to households’ investing in real estate are less compelling in NZ. We have a comparatively small share market (part of the reason being explained above) and a small managed fund sector. Also kiwisaver is newish and has weak incentives to attract funds away from the real estate investment for all of the foregoing reasons.

[fungus pudding]

I agree with all those points. NZ has among the most expensive housing for our income levels. I would add two additional main points.

The lack of a CGT in NZ, unlike most other countries, has the effect of making real estate even more compelling an investment. The relative ease to borrow to fund the acquisition of a house or real estate (as opposed to greater difficulty borrowing for share investment and businesses) makes housing more appealing as an investment, as leveraged capital gains are more easily achievable by more people.

Housing also gets a fillip from the fact that alternatives to households’ investing in real estate are less compelling in NZ. We have a comparatively small share market (part of the reason being explained above) and a small managed fund sector. Also kiwisaver is newish and has weak incentives to attract funds away from the real estate investment for all of the foregoing reasons.

If the lack of a CGT tax does make R.E. a more compelling investment (and there's no proof that it does), then by all means leave well alone. The purchase of a home makes for a stable society, so should be encouraged - not discouraged. Of course many proponents of a CGT would like their own home to be exempt. The thinking for many of them seems to be 'it's a fair tax as long as it doesn't apply to me'.

[Bjauck]

If the lack of a CGT tax does make R.E. a more compelling investment (and there's no proof that it does), then by all means leave well alone. The purchase of a home makes for a stable society, so should be encourages - not discouraged. Of course many proponents of a CGT would like their own home to be exempt' The thinking for many of them seems to be 'it's a fair tax as long as it doesn't apply to me'.

Presumably then investor housing should be further discouraged then to make room for owner-occupiers?

There are countries with lower home ownership rates with stable law-abiding societies. So there are several factors at play and stability rests on factors other than owner-occupied home ownership.

As for real estate being a compelling investment in NZ, I guess the household wealth wrapped up in home ownership and RE investment should be compared with those assets households own in shares, businesses and managed funds. How does that compare with other countries.

[fungus pudding]

Presumably then investor housing should be further discouraged then to make room for owner-occupiers?

You've obviously never been a residential landlord. Believe me, there's plenty to discourage res. renting as an investment without the IRD 'helping'.

[Bjauck]

You've obviously never been a residential landlord. Believe me, there's plenty to discourage res. renting as an investment without the IRD 'helping'.

Presumably there has been plenty to encourage investment residential real estate as Auckland and NZ home ownership levels have been dropping for years.

[iceman]

The real estate bubble (if it turns out to be a bubble - at current it is just a continuous uptrend with the odd minor ripple) has little to do with CGT or the lack thereof.

The main culprits are
- low interest rates - i.e. people can afford to pay more for a scarce resource (a worldwide problem)
- money created by QE searching a new home (see what I did there ) - again a worldwide problem,
- very expensive building methods (stick by stick instead of using industrial production methods - this is a NZ specific problem) and
- the aversion of most Kiwis to live in apartment buildings
(admittedly, there are hardly any good quality apartments in NZ. Chicken - egg?) - obviously a home made problem as well

Don't blame the lack of CGT for our high property prices ... most countries do have a CGT and housing is expensive there as well everywhere where people can find a job and want to live ...

Sure - I hear property prices in the UK are dropping, but this is because people don't want to live there anymore.

A good post BP that I totally agree with. My wife and I were talking about this yesterday when we drove through one of the lowest socio economic area here in Nelson yesterday, where she works and we have a rental property. Houses are old and many have not been maintained well but all sitting on large properties. The whole lot should be bulldozed and nice apartments built. The population in the area could easily be quadrupled and all withing easy walking distance to the town center. This could be repeated right around the country.

I do not agree with FP that home ownership is necessary for a stable society. Germany is a good example of a society where over 50% of the population rents and societies do not get more stable than Germany.
But a good interesting discussion on CGT.

[fungus pudding]

A good post BP that I totally agree with. My wife and I were talking about this yesterday when we drove through one of the lowest socio economic area here in Nelson yesterday, where she works and we have a rental property. Houses are old and many have not been maintained well but all sitting on large properties. The whole lot should be bulldozed and nice apartments built. The population in the area could easily be quadrupled and all withing easy walking distance to the town center. This could be repeated right around the country.

I do not agree with FP that home ownership is necessary for a stable society. Germany is a good example of a society where over 50% of the population rents and societies do not get more stable than Germany.
But a good interesting discussion on CGT.

Ahhh ... but Germans are not New Zealanders!

[iceman]

Ahhh ... but Germans are not New Zealanders!

Some are. Just ask BP :-)

[Bjauck]

Ahhh ... but Germans are not New Zealanders!

Also, the NZ and perhaps especially the Auckland of twenty years ago is not the NZ of today.