For and against Labour’s housing policies

Andrew Little announced a range of policies trying to address housing issues at Labour’s Congress yesterday.

NZ Herald: Labour to end tax breaks for landlords and property investors

He said Labour will:

  • Ring-fence losses on rental properties so they can no longer be used for tax breaks on other income. It will mean losses can only be applied to income from housing.
  • Use the estimated $150 million in increased taxes for $2000 grants toward insulation and heating.
  • Negative gearing will be phased out over five years.

The tax breaks benefited property speculators and those on high incomes and were heavily used by foreign buyers.

“This will create a level playing field for home buyers and help families get a fair shot at buying a place of their own.”

He said both the International Monetary Fund and the Reserve Bank had recommended removing the tax breaks.

Last year, the IMF said ringfencing tax losses on housing investments would weaken a significant price driver in real estate.

Little said the so-called “mum-and-dad” investors who had a rental property as a retirement investment were not the target of his policy, but admitted some could be affected.

“The vast majority of them don’t use this loophole. Those that do will have time to adjust.

This policy is about the big speculators who purchase property after property. It’s about those big-time speculators who are taking tens of thousands of dollars a year in taxpayer subsidies as they hoover up house after house.”

He said it was indefensible to hand out tax breaks that were effectively subsidies to property speculators when many couples were struggling to buy their first home.

But not surprisingly there are some critics.

NZ Herald: Labour Party’s focus on tax breaks ‘cynical’

Steven Joyce…

…said removing the tax breaks for property investors would not have the effect Labour claimed – and would hit mum and dad investors more than Little believed.

He said Little’s claim few small-time investors used it was “pulled out of the proverbial”, saying negative gearing was used for all loss-making investments – not just residential property.

He said tax working groups under Labour and National had concluded getting rid of negative gearing was unlikely to result in more housing supply and the most likely impact was higher rents. “You’ll end up with fewer houses being built and higher rents.”

He said countries which had ring-fenced housing losses still suffered fluctuations in house prices.

Property Institute chief executive Ashley Church…

…said it was a cynical move designed to set one section of New Zealand society against another and a “direct attack” on those who bought an investment property as a nest egg for retirement.

He said it could also result in fewer rental properties – and higher rents as landlords tried to claw back the losses.

“Your typical property investors are average mums and dads – not wealthy cigar-smoking fat cats.

“This move would certainly stop them investing, but in the process it would quickly lead to a shortage in rental housing which would fall back on the Government – so it would end up costing the taxpayer a lot more in the long run.”

Church also disputed Little’s claim it would even things up for first-home buyers, saying families were being closed out of the housing market by high loan-to-value ratios, not investors.

Andrew King, executive officer of the NZ Property Investors’ Federation…

…said the advantage the tax breaks gave to investors was over-exaggerated. He estimated that removing the ability to claim losses for rental property providers would increase the cost of providing the average home from $6184 a year to $10,293 – an increase of $79 per week.

That sounds significant to me, especially if part or all of that $79 cost per week as added to rentals.

The biggest potential problems seem to be:

  • If property investment costs are increased then rents will increase
  • If property investment is less attractive less houses will be built to rent so less will be available, which will put pressure on the cost of renting
  • If property prices remain at their current very high levels then poorer people will still be unable to but their own home.
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28 Comments

  1. David

     /  May 15, 2017

    Little,s big policy announcement at his election year congress is potentially raising 150 million from property investors, its all a bit sad and pathetic after 9 years in opposition to not come up with a positive policy platform. The Labour Party, bringing laziness to the next level.

    Reply
    • Blazer

       /  May 15, 2017

      you need to read the whole policy ,not just a selective portion of…it.

      Reply
  2. David

     /  May 15, 2017

    The IRD wont let you continually run a rental at a loss and you need a path to positive cashflow or they simply deny you the offset. What tends to happen is you buy a house to rent and you give it a coat of paint, put in a heatpump, new curtains etc. which takes a month or two then perhaps another month before the tenant moves in so the first year is generally at a loss. With gearing for investors at 60% now its pretty hard to have ongoing losses, investor activity is off 30% since the RBNZ changes and banks are incredibly reluctant to lend on anything that doesnt have positive cashflow.

    Reply
    • Blazer

       /  May 15, 2017

      how long do you run them at a…loss?

      Reply
      • Brown

         /  May 15, 2017

        I would have thought that you being a know it all would know the answer.

        Wifey breaks even pretty much on her rentals because I do the maintenance labour I’m allowed to for nothing – just materials and travel go in the accounts. If Labour go down this road we will just up the rent, which is presently well below actual market rent, so Labour can spend more subsidising tenants. We sort of break even, taxpayers lose.

        Little hasn’t thought about consequences before opening his gob. At least he’s consistent.

        Reply
        • Blazer

           /  May 15, 2017

          still haven’t answered the question…1 year,5 years,10 years?

          Reply
          • Brown

             /  May 15, 2017

            Forever if thats the reality because you top up the account from other sources. The reality is that it’s hard to do that for long because the existing rules and low interest rates make it difficult. IRD are awful but not stupid and accountants won’t push so hard it becomes illegal.

            Reply
            • Blazer

               /  May 15, 2017

              ‘The IRD wont let you continually run a rental at a loss’

              ‘Forever if thats the reality ‘…..I see,very …good.

      • David

         /  May 15, 2017

        Sorry some of us work for a living. year 2

        Reply
        • Blazer

           /  May 15, 2017

          so the law at present allows you to run this investment at a loss for 2 years only?Yes.Nice of you to help wifey on ‘her’ investments ,does she help you on…yours?

          Reply
          • David

             /  May 15, 2017

            The IRD have never allowed tax deductions for constant loss making investments there needs to be a path to profitability, the law was tightened after Key stopped people claiming depreciation that Labour had allowed and got rid of LAQCs. I think this change has resulted in over a billion dollars extra in revenue and was a substantial and as a property investor a fair move albeit a painful one.
            Labour just dont bother thinking things through and if they want to stop relentless rises in property prices (which I agree with) they need to make harder choices, National are the same btw.

            Reply
  3. On RNZ now Bill English says that just at the time when building more houses is necessary Labour’s policy risks doing the opposite, stifling housing development.

    Reply
    • Blazer

       /  May 15, 2017

      this govt has zero credibility regarding addressing a crisis they can’t even bring themselves to acknowledge…..because they stood by…and caused…it.

      Reply
      • Andrew

         /  May 15, 2017

        “because they stood by…and caused…it”

        What complete and utter horseshit! Here is an idea, go and look up the average house price in NZ from 2001 to 2008 and then check from 2009 to 2017. I’ll give you a clue, it won’t show you what you think it will.

        House prices in NZ doubled between 2001 to 2008. Now, house prices have indeed doubled “again” in “Auckland” only, but house price inflation in the rest of NZ is NOWHERE near that of the previous government.

        We are now reaping what previous governments have sewn over the past 30 years in terms of under-investment in housing and over-complicating the process of land use for housing. Metropolitan urban limit and bollocks like that that have strangled the release of land for housing.

        This government has done more to limit house price inflation than any government of the last 30 years.

        Get a clue will you.

        Reply
        • Blazer

           /  May 15, 2017

          I have a clue,thanks,you are regurgitating Nick Smith ‘logic’,and the tedious ….’Labour did it too’,and also conveniently forget Keys stated aim in 2007 not to let the bubble …inflate.

          Reply
  4. RNZ: Labour denies investor crackdown would worsen housing crisis

    The Labour Party is defending its crackdown on property investors and rejecting claims its latest housing policy will drive up rents.

    Labour housing spokesperson Phil Twyford said the top 20 percent of income earners were reaping 60 percent of the gains from the current tax rules.

    But the head of the Property Institute, Ashley Church, called the party’s policy a direct attack on small-time investors.

    “They actually perform, to a large degree, a pretty important public service in that they provide rental accommodation for the market.

    “If those people weren’t providing that accommodation then it would almost certainly fall back on the taxpayer because if the government has to build additional houses it is the taxpayers that pays.”

    Mr Church said the policy risked making the country’s housing crisis much worse.

    Mr Little said most so called “mum and dad investors” did not use the loophole now.

    “Most of those one-house property investors are in it for the long term, they’re not there to make a loss.

    “The people we are going after are the multiple property owners who deliberately set up their property portfolio to run at a loss and demand the taxpayer subsidy.”

    Mr Little told Morning Report it was unfair to have first home buyers having to compete against speculators who had a tax advantage.

    http://www.radionz.co.nz/news/political/330768/labour-denies-investor-crackdown-would-worsen-housing-crisis

    Reply
    • David

       /  May 15, 2017

      Logically most of the tax losses will accrue to Mum and Dad investors because they have jobs and income to offset the tax loss against. Bigger investors dont buy loss making investments because they will go bankrupt very quickly and certainly wont get more funding.

      Reply
      • Blazer

         /  May 15, 2017

        how do you account for landbanking and thousands of…empty houses?Hardly mum and pop investors.

        Reply
        • Alan Wilkinson

           /  May 15, 2017

          A prime reason for landbanking is the uncertainty of obtaining resource consents and the conditions and costs that will be exacted by them. Very many thousands of dollars regularly go up in smoke in pursuit of them.

          As for the empty houses, competent analyses show that normal life events such as travel, maintenance, renovation, deaths and tenancy issues account for them.

          Reply
  5. Blazer

     /  May 15, 2017

    quelle…surprise!

    ‘But the head of the Property Institute, Ashley Church, called the party’s policy a direct attack on small-time investors.’

    Reply
    • Brown

       /  May 15, 2017

      And if its not why? Because Andy Capp says so?

      Reply
      • Blazer

         /  May 15, 2017

        fumigation is a direct attack on parasites…..the measures mooted…are much more…humane.

        Reply
  6. From across the ditch:

    Reply
  7. Property investors are primarily buying existing houses so for every house a property investor buys it means a potential first home buyer now has to rent. That means greater rental demand, so from that point of view property investment pushes up the costs for renters, not the other way around.

    Reply
    • I see a lot of new rental property development in Dunedin to cater for tertiary education staff and students.

      Reply
    • Alan Wilkinson

       /  May 15, 2017

      That assumes constraints on new houses which is the source of the whole problem.

      Reply

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