Home thoughts - an election issue

Housing has emerged as the largest issue to date in the election, which is still five months away. Housing Minister Nick Smith was in Christchurch this week with further announcements for the earthquake-damaged city. Business editor Dene Mackenzie reviews the announcements so far.

Housing Minister Nick Smith says it could take up to 20 years to address the imbalance between incomes and house prices.

Speaking recently on TVNZ's Q+A programme, Dr Smith said the target he had given his ministry went back to long-term affordability measures - which was the ratio of incomes to house prices.

''That's what really matters. Historically, that number's been about four for New Zealand. Currently in Auckland, it's seven. I've set that long-term objective of getting it back to four.

"That means incomes are growing faster than house prices and you need that repeatedly over a period of a decade or two to get those ratios down.''

Housing ownership had gone backwards each year since 1987, he said. A fall in home ownership from about 75% in New Zealand to the present about 65% had occurred over that period.

There was no instant magic bullet the Government could use to

change those 20-year trends, Dr Smith said.

Labour has proposed a capital gains tax, which leader David Cunliffe said would stop the tax subsidies to speculators who were locking young New Zealanders out of their first homes.

But Dr Smith said a capital gains tax would make no difference to the housing market.

The Productivity Commission did not mention foreign buyers in its 200-page report.

''They did a comprehensive look at this debate around capital gains tax and said no, it won't make a difference. So look across the Tasman to Australia. They've got restrictions on farm buyers. They've got a capital gains tax of sorts and their house prices have gone up by more than New Zealand in the last 12 months.''

Mr Cunliffe said the problem in Australia would be much worse if the tax policies were not in place.

''We're not talking about crashing house prices. There is no way that house prices are going to crash. Middle New Zealand does not have to worry about that.

"But what we don't want - what I don't want - I've got one home [and] I don't want to see the value of it crash. But I don't want my two sons locked out of the market when they come to need a home.''

Housing was one of the crucial issues in this year's election, he said.

Dr Smith was in Christchurch again on Wednesday announcing more help for the housing issues in the city.

The Government would invest $75 million through a new Christchurch Housing Accord Fund and the Christchurch City Council would invest $50 million in a new housing entity.

Two villages totalling 180 homes would be developed by the Government on council-owned land in Colombo St and Welles St.

Those would expand the homes available for temporary accommodation while families rebuilt their homes. The units would be sold later as affordable homes on the open market.

The council and the Government would continue working together to encourage private sector residential development, particularly in encouraging more affordable housing, Dr Smith said.

Earlier in the week, Social Development Minister Paula Bennett and Dr Smith visited new community housing provider Vision West to view one of the West Auckland homes to be rented with an income-related rent subsidy.

Mrs Bennett said there were more than 5500 people on the state house waiting list nationwide, nearly 1200 of whom were in West Auckland.

While Housing New Zealand had more than 4000 properties in the area, new community housing was needed to meet the growing demand.

The Government is targeting housing issues in Auckland and Christchurch because of the number of votes those two cities hold.

Without winning the party votes in the country's two main cities, National will find it hard to hold power after the September 20 election.

The Reserve Bank introduced loan-to-value ratios to try to restrict house prices by requiring purchasers to have at least a 20% deposit, in most cases. One of the country's largest real estate companies has called the LVRs a failed experiment.

Dunedin North MP David Clark said Dunedin home buyers were being punished, despite city housing value increases being below the rate of inflation.

LVRs were shutting first-home buyers out of the market.

''In Dunedin, first-home buyers are down 2.8% since LVR speed limits were introduced in October 2013. Yet, housing prices are hardly on a runaway track. Young Dunedin couples dreaming of a first home are finding it a nightmare to get on the housing ladder.''

And yet LVRs did not seem to be having a large impact in Auckland, where house prices had risen at an average of 14% over the past year, he said.

Instead, in places such as Hamilton, the West Coast, Dunedin and Invercargill first-home buyers were being hardest hit - even though house prices in those centres were not out of control.

Regional New Zealand, which had mostly static or falling house prices, was ''taking a hit'' when 95% of house price inflation was coming out of Auckland and Christchurch, Dr Clark said.

''LVRs should be targeted at areas where house price inflation is rampant. A house buyer in Dunedin shouldn't be punished because the Government can't get Auckland's housing market under control.

''The Reserve Bank was forced into a corner by the failure of the Government to get a grip on the housing crisis.''

Labour would exempt regional first-home buyers from LVRs, applying the ratios only in Auckland and Christchurch, he said.

New Zealand First leader Winston Peters said his party would stop non-residents who were not New Zealand citizens from buying houses.

''This is plain common sense. In a housing crisis it is bizarre to allow foreigners to grab a significant portion of the housing stock. Yet, the National Government has turned a blind eye to foreign buyers, repeatedly dismissing NZ First's warnings as `alarmist'. That was until April 2014.''

It had been now revealed Finance Minister Bill English was briefed in July last year by Treasury on restricting overseas buyers and was assured it was feasible, Mr Peters said.

Suddenly, it was confirmed NZ First was right all along. Prime Minister John Key was conceding a rethink on foreign home-buying was due and there was merit in gathering more data on foreign ownership.

NZ First would also create a land bank to expand the supply of affordable sections that could be financed by first home buyers at ''reasonable'' rates of interest, he said.

Other policies included smaller and more affordable houses on smaller sections and measures requiring better building quality and sustainable housing.

''The National Government has made a hash of housing and New Zealanders are suffering from it,'' Mr Peters said.

- dene.mackenzie@odt.co.nz


CGT pushes house prices up

The fatal thing for capital gains tax is that the existing investment houses are sold in the same market as individual vendor's homes. If the investors push up their asking prices the non-investor vendor will not leave their asking price at the lower level! What's not fair on house buyers is to raise house prices simply because people selling a house are "not being taxed" (despite having paid rates on the property, GST on initial purchase price and maintenance costs, and company or personal tax on the rental income). 

As a landlord of 4 houses

As a landlord of 4 houses myself, all this will do is push up the rents on houses I and others own and rent out. If we could no longer receive as much capital gain you will find that good landlords like myself and my wife will have to charge more for the rent and will be forced to not make improvements to the house in question, as there would be no real benefit in the long run to the landlords. In the end will just mean people paying a lot more in rent. I rent my houses out for only what they cost me and in most houses I make a loss as what I charge does not cover all the costs. This is the same for most landlords. Capital gain is where the money is right now. But if CGT comes in the money will be in the rent. SO it won't change much apart from weekly rent cost

CGT - fairness above all

Done as I suggested CGT raises rates on the increases in values on buildings not used as a family home - it will make landlords think more about returns from rents rather than capital gains, they will improve rental properties rather than let them go to see, farmers will worry more about year to year productivity rather than that retirement bonus. What it won't do is push up the prices of family homes as they would not be taxed by such a CGT and the values of homes as rental properties will decrease to landlords who will tend to put them back into the owned housing pool rather than depending on long term speculation for their real payoff.

I have heard Labour making noises about not applying CGT to family homes (but no hard policy yet), I think it's the only sane political way to get a CGT passed.

I think you quite missed my point about Australia, I was addressing your issue of CGT "not working" over there, my point was that here we have an added (IMHO main) benefit from a CGT which would be to move investment into areas which are currently sorely lacking in the NZ economy, but are being invested in in Australia because of the large government mandated investment pool floating around their financial markets.

Again my main argument for a CGT is fairness - in is completely unfair that people who make money by working hard should pay more tax than people who sit on their backsides and live off of  capital gains. I don't see how a capital gain is any different than interest and why should one be taxed and the other not.

Taxes raise prices

Your ideal version of capital gains tax is not what Labour is proposing. They won't lower tax elsewhere, in fact they intend to raise taxes so they can spend more. Also, you can't argue that we need a capital gains tax because other countries have one and then argue that other countries have them for different reasons to us. Voters aren't dumb - they don't want the Govt raising house prices just so Govt can take a cut of every sale. That's part of why Labour failed last time and it's why they will fail again if they keep pushing this policy. 

Being fair

As I said I think it's terribly unfair to give unearned income a tax advantage over earned income, there's no incentive for people to actually go out and work - imagine what would happen to our society if we were all able to live off of our capital gains - it would fall apart. Read Warren Buffet's spiel on gold investors it applies equally here.

I'm not suggesting that we increase our total tax intake, I think that bringing in a CGT should be paired with a decrease in income tax rates so that the gross economic effect of introducing a CGT would be revenue neutral, what would change would be that over time investment would tend to move from passive rent seeking to more active wealth creation, which would benefit all of us.

Australia doesn't  need a CGT for the same reasons we do, they already have that massive pool of retirement money rumbling around their economy (and ours) getting invested in long term wealth creation projects, it's probably the main reason why their economy tends to do better than ours (and where they get the money to buy up larges chunks of our economy from, including our banks) - hopefully Kiwisaver will eventually do the same for us but it will take a decade or two for that effect to really kick in, in hindsight it's a real pity that Muldoon dismantled the previous attempt to do the same thing and replaced it with a more socialist alternative.

Tax is tax

The last thing we need is more tax. Investors are already in the market so they will push the price up to cover the cost of the capital.gains tax which will hurt all home buyers.
Just because everyone else has a CGT doesn't mean we should too, especially as it failed in Oz.

Yes, a capital gains tax

New Zealand is one of the very few western countries that don't have a capital gains tax, many tax capital gains at the same rate as ordinary income and I can't see any reason why unearned income should be taxed at a lower rate than income from doing actual work, that's a quite insane situation which if anything should be the other way around.

Creating an even taxation field will encourage investors to move their money out of the housing market where they are pushing housing prices up without creating any real lasting wealth into more useful long term investments. Otherwise they are pushing home ownership out of the reach of our kids, they'll hop on a plane and go somewhere where they can afford a house.

It's common overseas  to provide a capital gains tax exemption for the family home - one that follows the needs of a normal lifetime: not charging tax on income that's transfered from one home to another as your trade up, and a one time exemption as you sell your home as you retire - this pushes the burden of the capital gains tax onto those who are speculating, pushing housing prices up while protecting home owners.

No silver bullets for complicated issue

Capital gains tax will increase house prices because the sellers will all want the same amount of money in their pockets and price the house accordingly to recover the tax. Since when has a tax lowered prices? LVR's are also missing the point though. But if you can't raise $40k then you might find a mortgage difficult anyway so at least it should reduce the chances of the banks failing I guess. The root of the problem is fools paying too much for houses.

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