The huge white elephant landlord in the tax living room


Rather than a thorough overhaul of the taxation of all housing, the Inland Revenue Department  is tinkering with bright-line tests and ring-fencing of rental losses.

There has been lots of mutterings from landlords about the new 5 years bright-line test, and  unsurprisingly the NZ Property Investors Federation claim there will be “No good outcome from ring-fencing losses”.

Ring-fencing losses is supposed to “level the playing field between property investors and home buyers” says Labour’s Stuart Nash. The NZ Property Investors Federation correctly counters that once imputed rental is included for homeowners “Rental property buyers do not have an advantage over home buyers and the playing field does not need levelling.”

Fair enough, but the problem is they then go on to argue that that ringfencing will cause the rental supply will fall, increasing rental prices and overcrowding. Here is the example they give:

A NZ Property Investors’ Federation study into the cost of providing the average NZ home as a rental shows it currently costs $5,500 a year after all costs are paid, even with recent rental price increases and a cash deposit of over $50,000. If ring-fencing losses was introduced, this cost will increase to $9,000. This is an extra $67 per week.

The burning question is why would someone with $50,000 buy a $550,000 house with a $500,000 mortgage, at say 5% producing an interest cost of $25,000, that with rates and other costs make a $5,500 loss? It makes no sense without an expectation of capital gain.

But don’t hold your breath for a sensible capital gains tax. Even if one could be designed it will be years coming in and then affect only capital gains from the date of its introduction.  In the example of the ‘poor’ landlord above, the tax-free capital gain over the next few years may be very lucrative indeed.

The correct tax treatment is for the $50,000 net equity to be treated the same as if the investor had placed that money on deposit at the bank. At 5% this creates a taxable annual income of $2,500, a rather modest sum. But with a non-deductible $25,000 interest bill to pay and with other costs, the investment is clearly not worth it at current rents.

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And, it won’t get better because net equity increases each year as the value of the property goes up. Suppose in five years the value has doubled to $1,100,000 so that net equity becomes $1,050,000. Taxable income is $52,500 regardless of rental income and regardless of other costs.

The five-year bright line test should still be used to capture short-term gains, but is not enough on its own.  Under the net equity approach, landlords won’t be subsidised to speculate, and some may withdraw from this market. While that leaves more houses for genuine first home buyers, a price correction is not to be avoided if we want to contain the biggest housing bubble in the western world. The best we can hope for is gradual adjustment, not a precipitous fall such as experienced in Ireland after their strong bubble10 years ago.  

Labour’s ring-fencing is just tinkering. Losses from one property are still able be to be offset against others that make profits or carried forward and written off eventually.

Under the net equity approach there would be no more fancy tax accountants needed to manufacture losses.  No more fiddling the repairs and maintenance costs, crossing the fuzzy line between capital enhancement and write-offs for depreciation and replacements.  Moreover, as past capital gains are captured in the net equity approach, the wealth gap may narrow at last rather than continue to grow exponentially.

Unwisely Labour has taken the owner-occupied home off the Tax Working Group’s table. The danger is that elaborate owner-occupied housing becomes even more attractive. It would be better to allow a generous exemption for a home, say up to say $1 million net equity per person. That way the $20 million owner-occupied mansions will be included but modest homes fall outside the net.

Please no crocodile tears.  If you can’t make at least as much taxable income as you could if you put the money in the bank, then the taxpayer should not be subsidising you.



  1. Con artists the world over will be in awe and in admiration for our ‘ housing market’. The ‘ housing’ industry is simply a con job. A polite Ponzi swindle with all the guff and blather and fancy cars and boats and hi falootin high society bullshit that goes along with it.
    And in the back room, in the dark, in there, watching like the paedophile uncle at the Christmas Party, there they are… The Banks.
    The Banks created this. This nightmare. All of it. Our fellow Kiwi’s live in the gutters of their very own rich little country because foreign ( And not so foreign! ) banks suck out our money into their off-shore Gulf Streams, cocaine and Bentley’s.
    And I dare, I challenge, any foreign owned bank to front up to me on any public forum and try to deny that. To prove otherwise.
    Prove to me that your influence here is beneficial, worthy and useful to NZ / Aotearoa’s day to day running?
    If that can’t be proven and in fact, if the opposite is to be proven, then we must make the banks leave our shores and re pay what they’ve swindled. There must be a Crown initiated public inquiry into which of our politicians were most successfully lobbied by the banks, both historically and recently, to enable the banker feeding frenzies we see daily and then we must force the re nationalisation of our real, and cash assets.

    And do you know who I am? Do.You.Know.Who. I.Am? The person whom is well qualified to make such statements and lay down such challenges?

    I’m everyone and I’m nobody. I’m just like you. Just like you.
    When I see a fellow in the gutter, I’m right there too. When I see a kid go to school hungry? So do I, walking right along side. When I hear of a fellow in prison for the crime of poverty? I’m right there, in prison too. When I visited the bitterly cold homes of young people trying to bring up their kids while equally trying to scavenge some kind of enjoyment out of life, as they suffered and lived in poverty and hunger while trying to scratch together the dollars to pay for their resources while off-shore ‘ investors’ get richer and richer off their suffering?
    That’s who I am. Right in there with you. Because if I were not right in there with you? I’d be inhuman. A monster. A sociopath gleefully making money from your suffering.
    If I were not so, right in there with you, then I’d be one of them. Driving about in those flash fucking cars worth more than a house and land in our primary industry hinterlands. And I’d love to see the envy mixed with fear and loss on your faces as I drive past to the fancy bars to pay $12 or more for a glass of wine while my minimum waged-slave bar staff minions have been reluctantly given a rise of .75 cents to $16.50.

    The Banks are NZ/Aotearoa’s Public Enemy #1.
    The psychology of how they do what they do to us is text book stuff because they have a vice like grip on our MSM via our dancing monkey politicians.

    And speaking of which, this is kind of interesting.
    The U$A MSM chorusing the same gibberish in a mash up.

  2. The housing market is going to be one of the key drivers of NZ Wars II. 50% Haves, 50% Have Nots… 100% bloodshed 🙂

    • When will you lead the revolution Fidel? Time for you to rise? Have you organised the armed troops yet?

      • @ GERRIT. Are you writing at me?
        Lets assume, for the sake of an argument, that you are.
        Are you labelling me ‘ Fidel’ as an attempt at some kind of insult by way of sarcasm?
        I work in the film industry and I know the best of the best in sarcastic arseholes so you’ll have to try harder I’m afraid.
        And why is it? That when I try to defend us, et al, against the tyranny of the fascism that is the banking industry I get accused of being some kind of communist or socialist or some kind of rabble rousing desperado? I am not. Am I?
        I don’t believe I’m some kind of sweaty Leftie bran eater? I do love our fellow sentient beasties, that’s true, but does that make me Left within the given construct of the word?
        I hate vulgar expressions of faux wealth and pretentious privilege while our fellow people are living in the streets but does that enable others to label me ‘ Left’? If so, you’d be wrong.
        I’m not Left nor Right. I don’t like the idea of being compartmentalised by any conveniently dubious use of any language because I know what you’re up too. You’re trying to drag me down to your level. I refuse to go quietly. Like Mark Twain. “ Never argue with stupid people. They’ll drag you down to their level then beat you with experience. “
        I like to work at what I like. I like to pay my taxes knowing that it’s in the interests of the common good ( therefore, selfishly, in my own best interests ) and I like to know that my political representatives respect me for that and behave in a manner to which I appreciate, give or take. No one’s perfect after all.
        But here, in NZ /Aotearoa? This is on another level entirely. What… What is this?
        We have piles of dosh coming back from foreign sales of vital products and I’m not writing about Chinese made fluffy key rings or iShit. I’m writing about food. And yet we have terrible poverty verging on perverse cruelty projected at those most vulnerable and at most risk. What.The.Fuck? But worst of all! We, by our very lack of intervention, are witnessing the creation of generations of societal dysfunction manufactured daily. This shit’s going to come back and haunt us for years and years in the form of damaged souls. And that’s The Banks! They do this. And we crave their abuse. We borrow against our very lives to pay them to abuse us. And you call me Fidel, as if it’s an insult.
        You ask me when I will rouse an army.
        What the fuck are you on? Or, not on. As the case may be.
        The moment you pull out a gun? All is lost. Back to the cave, back to the fort, back to the trenches. We have, or at least some of us, evolved. We have one advantage over our common enemy, The Bankster, and that is that they have not. They’ve not evolved. They’re against the wall, they’re in a corner. They’ve had their day. They must now pay for their transgressions against us. They must now receive the dreaded window envelope in their brushed stainless steel mailbox on Greed Street.

        All for you Ma xxx

        • No, my comment was directed at Castro. Hence the Fidel reference in case you missed that.

          Take a deep breath, every comment is not about you.

          Castro mused that with 50% haves and 50% have not’s … there would be 100% (chance I suppose) of bloodshed.

          Need guns for bloodshed.

          Now your hatred for bankers is well know.

          Question, in Castro’s revolution, will you advocate to put the greedy bankster’s up against a wall and blood be spilled?

          For you said “They must now pay for their transgressions against us.”

          How will they pay?

          • If you want to learn about the law go to France. They really know how to do a good revolution. The French treat fraud the same as paedophilia just with out the whole cash for light sentences. Even if you’re the president of France won’t save you from seeing the inside of a court. Seems revolution has come full circle. Viva la France.

  3. You’re the tinkerer without any rent controls your approach is useless, they will just put the rents up.

    • If you make $50,000 per annum as an employee, but also generate $25,000 Capital Gains from a rental, then your total taxable income for the financial year simplistically equates to $75,000 and you will be legally obligated to pay tax on that after the 5th year of the bright line test. There’s no way we’d that I know of landlords absorbing those costs with out tanking the economy.

    • Rent controls of the sort that were enforced in New York City disincentivise landlords making any improvements on their properties, resulting in slums and abandoned buildings.

    • Ababy
      That is too pessimistic. Under the net equity approach landlords currently sitting on unrented houses waiting for the market to rise further will now have an incentive to rent fully adding to supply or if they sell, depress prices.
      Rent control if imposed now will do nothing to address the elephant in the room- which is untaxed net equity and rampant capital gains, with rental losses subsided by the state. Rent control would be another tinkering- even if it is marginally effective for some tenants

    • @ ABABY? What?
      You can use more than four words here, you know that right?

      What you write is like;

      Concrete daffodil earbud kitten.

      If you’re trying to denigrate me and bring The Daily Blog into disrepute then there’s no faking your stupidity, so that’s one thing I suppose.

      For the record:

      shill |ʃɪl| N. Amer. informal
      an accomplice of a confidence trickster or swindler who poses as a genuine customer to entice or encourage others. I used to be a shill in a Reno gambling club. figurative : the agency is a shill for the nuclear power industry.
      • a person who pretends to give an impartial endorsement of something in which they themselves have an interest. a megamillionaire who makes more money as a shill for corporate products than he does for playing basketball.
      verb [ no obj. ]
      act or work as a shill. your husband in the crowd could shill for you.
      ORIGIN early 20th cent.: probably from earlier shillaber, of unknown origin.

      Cool. I’ve upset at least one of the fuckers then. Go me!

  4. Once upon a time, the “Peculiar Institution” of Slavery was considered normal.

    Slave owners cited the Bible, claiming it was their god-given right to own other human beings as property, and loudly threatened dire economic consequences for the whole of society if slavery was ended. Where it was practiced, if you spoke against it, you could expect to be condemned. If you fought against it, you could expect to be lynched.

    Nonetheless, slavery was a barbaric institution, and it had to end. It had to end because it was objectively evil. Today, there is no question about this, it is never debated. In our times, there are few things more morally repulsive than slavery, and slavers can expect to spend many years in prison if they are caught.

    Landlordism is likewise, New Zealand’s “Peculiar Institution”, and likewise, it must end. This feudal practice is no longer morally acceptable. It is objectively evil.

    While Landlords may not be able to directly compel a tenant to work for them for free as slavers once did, the effect is materially the same. Tenants pay the Landlord as much or more than half of all of their earnings, and the Landlord can threaten the tenant with homelessness, keeping the tenant economically and socially chained in fear to the property where they live.

    Upon what basis can a Landlord do this? It is for no other reason than that the Landlord claims an invisible “property right”. It was this exact “property right”, and nothing more, that allowed Slavers to justify the institution of Slavery. When this fiction was overthrown, Slavery ended. Remove the same specious fiction today, and the institution of Landlordism will also collapse.

    Slavery was ended not by eliminating all property rights, but by eliminating one property right; you can own property, but your property rights do not extend to the effective domination of another human being.

    Landlordism will be ended, not by eliminating all property rights, but by eliminating one property right; you can own property, but your property rights do not extend to the effective domination of another human being.

    New Zealand’s “Peculiar Institution” of Landlordism cannot be tinkered with, or reformed. It can only be abolished. We need Abolition.

    The Landlord will scream that without them, there would be no housing, but of course this is utterly ridiculous. Slavers once claimed that without them, Black people would have no work, and no homes, and no one would care for them. This was an outrageous lie. Landlords create the conditions of housing scarcity, just like Slavers created and maintained the conditions of Black poverty.

    Without Landlordism, everyone would own their own home, just as everyone once did before the invention of Feudalism. Few people would need to rent, and those who did could always enter into their own arrangements with other owners to swap homes for a time. Society would be more prosperous and stable, and homelessness would be a thing of the past. All of the collaborators in this Triangle Trade in human misery, like banks, and realtors would all wander off to find better things to do, just like the Slave Auctioneers and Slaver Captains all did.

    The truth is, we don’t need “bright lines” or “capital gains taxes” or “more regulation” or “rent control”. We need Abolition.

    Landlordism must end.

    We must see the practice of one class holding another entire class to ransom to force them to work for free on pain of homelessness as morally repugnant.

    Let this be the start of a modern movement for the Abolition of Landlordism in New Zealand.

    • This is not a “class” thing – we are all free to purchase residential properties and rent them to other people who don’t wish to buy or have other priorities for their money. I work in Australia and many of my co-workers (nurses) own multiple rental properties of modest value (thus not likely to be badly affected should there be a downturn in the property market). Not many landlords are fat cats without a day job.

    • So you’re saying no person or entity (including the state) should be able to enter a contract with another willing party to provide said party with the means of obtaining shelter and warmth in exchange for an agreed method of payment? Where would this stop? Would you also ban rental cars, laundromats, hire shops, storage businesses, etc?

  5. The truth of the matter is; NZ is perverting capitalism. Businesses and markets need to fail/correct. Such failures are good, it allows bad business models to die and new ones to take their place.

    It’s like nature, the dead and decaying plant-matter (failed businesses) provides the NEEDED nutrients for health growing plants (new and better start ups). Instead the NZ government wants to keep a bunch of fig trees around which haven’t produced figs in years. WWJD

    Just to really hammer the damage this does to an economy home, I give you the following historical example:

    While the USA was enjoying the Model-T-Ford and the logistic, social and economic benefits – namely the car industry, Britain had other ideas. You see, the horse-and-buggy guys in Britain liked the market the way it was … so laws were past requiring motor vehicle owners to employ a 3 man pit-crew. It got to the point where vehicle owners had to employ a man to run in front of the vehicle, announcing its imminent arrival.

    If the business model in NZ is to buy houses for sums that make it impossible to rent them out for a profit, then try to sell these loss making rental properties to other speculators, for MORE than originally paid .. well, that’s stuuupid and totally ridiculous .. could only happen with the aid for poor governance.

    That will do for now I suppose ..
    Zack Brando

    • Well put Zack – however many people mistakenly view market corrections as a “failure of capitalism”.

  6. “And, it won’t get better because net equity increases each year as the value of the property goes up. Suppose in five years the value has doubled to $1,100,000 so that net equity becomes $1,050,000. Taxable income is $52,500 regardless of rental income and regardless of other costs.”

    This just proves it all, this country is so deep in the poo, it is a shaky house of cards built on a Ponzi scheme kind of economy, it will end BADLY, TERRIBLY BADLY, some time very soon.

    The tinkering that the government is going to engage in, it is little different from the previous tinkering from the in my view rather morally and economically corrupt last National led government.

    When rental income does not even cover your interest, well, then you should not be in the business of being a landlord, I reckon, as relying solely on capital gains to make an investment lucrative over time, that is an activity that may pass the test in Las Vegas and their gambling temples, not in a normal, healthy economy that is built on sound foundations.

    The mega billions now owed to Australian owned banks makes New Zealand a cash cow that is not dissimilar to some third world ‘economies’, exploited by the richer nations. Hence the Nats’ desperation to allow continued high immigration and foreign investment, in not only farming, manufacturing and services, but also residential real estate.

    We are at the same time, while we have an already totally over leveraged financial situation of the country, that is ALL debt considered, public AND private, heading to adventurous further high risks, investing billions in very costly infrastructure projects. Some are of course desperately needed, but how will we pay for them, when there was so much neglect for years, when we have allowed people play monopoly on the housing market and go sky high into debt by buying homes that are over priced, so that immense debt should not even allow us to go deeper into debt.

    In fact, we are heading for something worse than the ‘Greek crisis’, we are heading into a financial fiasco. I fear this government will cave in further to the powers at play, continue to allow high level immigration, allow in thousands of foreign workers in construction, farming and service industries, and delay the collapse as much as it can, shifting the liability and mess to the coming generations.

    Only a collapse of the house of cards can lay the foundation for a new, fresh start, although extremely painful, the alternatives are idiotic, insane.

    It should never have been allowed to reach this crisis point, it is criminal what has been going on, and what is going on.

    Fasten your seat belts, global developments, e.g. a trade war between China and the US, and other crisis, they will perhaps soon see to it, that the collapse will come sooner rather than later. It has to happen, and only government intervention will save the whole situation, once this collapse has taken place.

    We do not so much have a shortage of housing, we have a shortage of AFFORDABLE and AVAILABLE good housing, as many houses are under occupied, compared with past generations, by property owning middle class and upper class owners and perhaps a partner and kid or so. Others stand empty, thousands of dwellings in Auckland for instance. There is a lack of good quality state housing stock, and much else will also show signs of needing improvement soon, given poor building standards in the past.

    The investment will be massive, and we have not even sorted out the leaky building crisis and its consequences, while new build does show flaws already, in Auckland and elsewhere.

    This country is a basket case, if you reveal the fricking truth, a true basket case, where all tricks are used to conceal the issues, and to show off a fake, glossy surface for tourists and gullible property buyers.

  7. $50 000 in the bank earning 5%?


    That was YEARS ago. In the days when Rodney Hide said anyone who was placing their money with a finance company in the hope of getting an extra half percent above the bank rates was Greedy. Around 8.5% before it plunged to earth like Icarus.

    ‘Save for your retirement. You can’t count on the government to pay you.’

    True. Bitterly true.

    None of them – neither the parties for the workers nor the parties for the others – can run an economy that leaves savings safe from predatory taxes or rising inflation or the desire of clever people to harvest as much as they can from fields they never ploughed nor sowed. As one astute person said, ‘There’s mugs and there’s us.’ Like so many, I never made it to ‘us’ status.

    I possibly have the wrong definition here yet – we’re not actually talking about ‘capitalism’. We’re not talking about putting wealth to work for the greater good of many or all. We’re not talking about enterprises needing funds to both set up and operate until the cashflow begins.

    We are talking about a special welfare system that’s rigged to put minor increases in pay or benefit improvement straight back into well-lined pockets. Every time. And, in between, the government will pay out ‘supplements’. How obscene.

    There’s very little now we, the lesser monied folk, can claim tax credits for. In the interests of efficiency we don’t actually do tax returns each year. Only people with some form of business, by the look of things. Or a thin trickle of income from overseas funds/pensions.

    I wonder if Dr Cullen has the skill and courage to look at this antiquated biased offence of a system, married to the inefficient ‘economy’, and recommend a massive clean-out of clutter from the last thirty-odd years.

    Skip the overhaul. Start afresh for the vastly changed and changing faces of work and retirement. For the present and long-term needs we can already see closer than the horizon.

    He was part of a government that never repaired or alleviated the hell created by Ruth Richardson. A man with indelible spots… “Sad.”

  8. Andrea Agree that 5% seems a pipe dream but was for illustrative purposes. Currently a rate of 3.5% would be more realistic- but the rate would be set each year to reflect what is happening to interest rates.

    I agree with comments that have suggested that the economy has been totally done over by what has happened. I hope the TWG can escape from the confines of past thinking and propose a radical overhaul of property taxation– Michael Cullen was the one who took the family home off the table after the 2000 McLeod tax review-a mistake in my view.

  9. If people want houses it is up to the state to supply if they can’t do it for themselves.
    If somebody takes the risk of buying/supplying a house then people need to respect that and be willing to pay or buy their own!
    Landlords supply the product and often chattels that do obviously whare out needing replacement which is a cost like anyone/ business incurred.
    If people don’t like it they should buy/mortgage their own.

    • John I realise this concept is hard to get your head around. Imagine how freeing it would be not to have to determine the net annual loss any more? No more accountant costs. You still replace the whiteware and pay for rates interest etc but it comes out of the rent directly. If you don’t get enough return than you are not in the right investment

      There would need to be regulations as to standards of rentals

      • If you regulate minimum standards of accommodation, rentals may have to rise. This will penalise tenants willing to live in accommodation that falls short of an arbitrary minimum, but in which they would be happy to live in exchange for a reduced rent.

    • Personally I’d massively roll back the subsidy land lo did get through the accomodation supplement and jam that money into emergency housing till state housing has a chance to get there act together. Making money off poorly educated people is what charlatans do.

  10. This basically smacks of a controlled communist state, fine if no longer able to claim,but don’t howl when rents need to be cranked to cover costs and yes profits!
    Nobody is going to invest money borrowed or otherwise if there is no return/dividend.

    • That requires a normally functioning market on the property market, but we do NOT have this, my friend, the real estate market in NZ Inc is so flawed and overblown, it is a bubble offering temporary ‘bliss’ to valuation focused idiots, who may get an orgasm looking at their Auckland home values, but it will BURST sooner or later.

      The market does NOT function, when it comes to residential real estate in much of NZ Inc.. Those that believe in markets also have to accept overdue CORRECTIONS, that means a CRASH. So live in your little middle class property owning bubble and keep dreaming of a return of sorts.

    • John you are not living in the real world. If you like capitalism you need corrections other wise the system does not work. Capitalism works to an economic clock always has always will. If you don’t want a crash and subsequent recession – you can have socialism with out its cycles cause thats what you capitalists seem to want. Capitalism with out corrections does not exist and if you think it does you are living on another planet…

      • Yes Jono corrections are needed – and they tend to weed out the get rich quick speculative investors and reward those who invest for the long term.

    • Nobody is going to invest money borrowed or otherwise if there is no return/dividend.

      John, no one forced speculators/investors to get into the housing rental business. As such those who own property need to follow rules set down by society (via Parliament).

      It’s the same as any other industry; there is no such thing as an uncontrolled business environment. Manufacturers are not permitted to dump polluting chemicals into our waterways… or at least shouldn’t be.

      And I bet you’d be the first to complain if a fat-rending or tyre-burning business set upshop right next to your home. People who demand a laissez faire economy are usually the first to jump up and down when unfettered capitalism bites them on their arses.

      The good people of Kapiti – who consistently voted National – found that out when Air New Zealand cited commercial reasons for pulling flights out of that region. Kapiti voters voted for capitalism but didn’t like it when capitalism bit their National-ticking, ballot-marking hands.

      • As and aside, IF (and it’s a big if) we borrowed to transform new Zealand’s energy sector into all renewables solar and wind farms. Effectively creating a state run monopoly that all taxpayers own with all the associated benefits of every citizen being an instant shareholder. Effectively harvesting the free energy of the sun. We could dramatically lower energy prices so that productivity gets an Insta boost. That would give every one chips on the table, so when energy shares rise every ones chip stack rises lifting all waka’s.

        It’s a bit of a stretch to get from here, to solving the housing crises but it’s yet to be proven that realestate investing increasises New Zealand’s home ownership rate.

        • Indeed, Sam. More than one economist and financial commentator has pointed out that real estate “investment” is dead money and doesn’t contribute to increasing overall real GDP and create jobs. It just makes a money-go-round, “flicking” houses to each other using cash from overseas lenders.

          Re-directing investment into renewables would (a) cut our reliance on dangerous fossil fuels (b) reduce import costs for fuels, and (c) have a flow-on effect to create new green technologies. Win/win/win every which way.

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