The rising tide of market failure threatens to engulf this little country.
Lack of jobs, low wages, child poverty, 3rd world diseases, traffic gridlock, crippling electricity prices, expensive broadband, Pike River, New Zealand Rail, Air New Zealand, BNZ, Telecom, leaky homes, unregulated loan sharks, pokie machines, booze outlets and synthetic cannabis. The list goes on.
The latest one to make the headlines is the lack of affordable housing – with Auckland at the sharp end of the problem.
For the past six weeks the government has been in “negotiations” with Auckland Mayor Len Brown on a plan to address the crisis.
The government was desperate to get a deal done because Labour has gained the political advantage when David Shearer announced the building of 100,000 affordable homes for the offspring of middle class families. (The poor were never going to be able to afford to buy homes at $400,000 plus)
Housing Minister Nick Smith led the charge, softening up Len Brown with several public broadsides before negotiations began.
The agreement announced on Friday provides for fast-tracking for both new green-fields housing and high rise developments in urban areas.
39,000 houses more homes in three years is the aim.
The government argues that if we increase the supply of houses then prices will stabilize and allow more first home buyers to get a home. But there is nothing to back this hopelessly optimistic view. It is based on a touching belief that we have one of those (non-existent) ideal markets which deliver efficiently to everyone’s needs. Yeah right.
But National has to believe this because without it they have no policies.
Property developers now buy 45% of houses which come onto the Auckland market.
They invest for the huge unearned capital gains they get every year on which they pay no tax and to put more icing on the cake then are able to write off their rates, insurance and interest charges against what they earn in rent and, low and behold, they are virtually tax free.
OK so that’s the problem – what about the solution?
Here are a few things the government and Auckland Council should be doing:
.. A comprehensive capital gains tax to help drive property investors out of Auckland’s housing market The lack of a capital gains tax is theft from future generations by people who already have a home.or 2 .or 3.or in the case of National MP and Local Government Minister Chris Tremain – 20!..
.. Remove from the tax deductibility of rates, insurance and mortgage interest payments from rental housing investments
.. Build 20,000 new rental state houses in Auckland in the next two years. This will meet demand where it is greatest and will drive down rents in the private rental market. In turn this will save the government on the accommodation supplement (more than a billion dollars per year as a direct subsidy to landlords)
.. Require property speculators and developers to pay the added value on the land rezoned for this fast-track development into a council fund for affordable housing. This is what happens with overseas developments in similar countries where the “value uplift” of the land – tens of millions of dollars – is at least shared with the community rather than taken as an unearned windfall profit by speculator/sdevelopers.
.. Every development of more than 10 homes be required to provide at least 20% as affordable homes. Again this is typical of housing developments in similar countries overseas.
Without provisions such as these developers, speculators and wealthy middle class investors will enrich themselves while affordable housing remains a pipe dream for Aucklanders.
Prime Minister John Key is a million miles from any of these proposals because National MPs themselves are at the forefront of the problem.
Parliament’s 2013 Register of Pecuniary Interests shows half National MPs own three or more properties. Many have four or five and as we’ve seen one has no fewer than 20.
Together National’s 59 MPs own over 170 properties.
Other parties are not blameless but National leads by a country mile.
No wonder it’s so hard getting politicians to be honest when discussing affordable housing.
Well said. Just throwing land at the problem is not going to do it, because the real crux of the problem is the developers and the real estate as investment racket. Even Labour’s proposal does not adress this (correct me if I am wrong). How can they call half a mil $ houses “affordable”? By whom? Not I that’s for sure, and I am by no means “poor”. Housing expenses should not exceed one third of one’s income. Beyond that it is pure and simple financial slavery.
Property investors who earn income from sale of investment property pay tax on that income. I am surprised you did not know this.
What are you talking about, people who buy an invesment property for $300,000 and thern sell it a year later for $500,000 do not pay tax on this $200,000 financial gain. It is called capital gains tax, we don’t have it, we should have. They do pay taxes on the rental income after expenses which include the interest on the mortgage they have over the property. You and I can’t claim the interest on our mortgage as an expense against our income.
You are quite wrong. If you were aware of the tax rules in this country you should be aware that income from selling an investment property should be included as part of someone’s income and are therefore subject to income tax
See http://www.ird.govt.nz/property/property-investment/what-tax-shld-you-pay-landing/
“Rental dealers and speculators must pay income tax on any gain they make from reselling their property.”
Hi, theoretically you are right, if you buy gold or shares or property you can be taxed on the gain as income. But in practice you are wrong. Generally you don’t income tax on capital gains, you do so only if you are either tax naive, or, for the more experienced, that the speculative venture you’re undertaking is worth paying tax as income. Here’s the government’s own NewZealandNow website explanation of our tax system”
Key features of New Zealand’s tax system include:
No inheritance tax
No general capital gains tax (it can apply to some investments)
No local or state taxes apart from property rates paid to local authorities
No payroll tax
No social security tax
No health care tax, apart from a minimal accident compensation tax.
This is what the global property guide states.
CAPITAL GAINS
Gains resulting from the sale of real property are not normally taxed in New Zealand.
They are taxed at normal income tax rates only under the following circumstances: the business of the taxpayer consists of dealing in such property, the property was acquired for the purpose of selling the property and the profits or gains were derived from the carrying out of an undertaking scheme for the purpose of making a profit.
i.e. the caveats are almost worthless, for who can really prove “intent” at the time of purchase?
It does raise a major question over the financial literacy of some on the left that they are seemingly unaware of this.
So you’re saying that there aren’t loopholes to this and that all property investors are honest about declaring profit – what load of bollocks
That is a completely different matter. If you think there are major loopholes in this then perhaps you would care to point them out though.
Why do you think Peter Dunne isn’t terribly fussed with the concept of a Capital Gains tax? It isn’t as if he isn’t adverse at looking at different options for raising revenue, witness his recent car parking tax idea.
The reality is a Capital Gains tax on investment properties would not raise as much as some on the left try to make out. It would also likely have minimal impact on the housing market. Both the UK and the US have CGT and both went through a housing price bubble in the recent past.
As stated, this issue just serves to highlight the financial illiteracy of many on the left.
You really do talk a lot of crap Gosman – CGT is not a financially illiterate concept so why accuse anyone who wants it for NZ as being financially illiterate – maybe you need to dial down your self percieved wealth of financial literacy to work on your deficiency of humanity
I neither stated that CGT was a financially illiterate concept or that those who support it are financially illiterate. Indeed I am not for nor against it. It is merely another tax. What is financially illiterate is trying to argue that income from gains made as a result of selling investment properties are not taxed. Also the idea that a CGT has any major influence in reducing house price inflation. The fact you don’t see that just serves to illustrate my point.
Gosman it is not I but you who are illiterate as I have not stated wether I am for or against CGT – obviously offshore property developers would prefer not to pay CGT and if NZ adopted it then real estate here it would be less attractive of an investment option therefore relieving the market as a whole of a percentage of the competition
Get rid of the accommodation supplement and build state and council houses. This would take a big chunk out of unemployment as well. Moratorium on sales of state houses. If the people of St Heliers don’t like living next to state houses, move them out and put state tenants in their homes. Rehouse them somewhere else instead of rehousing the GI community. The police could be assigned prominent members of the Business Round Table to assault, rather than picking continuously on Minty.
A CGT on houses needs to rise exponentially with each further house a speculator owns and sells, with some discounting if the housing is rented out at a reasonable price.
Not fair? Too bad. I’d rather be unfair by taking one house off someone who has 20 than by denying a homeless person the opportunity to have shelter.
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