KEY POINTS:
Columnists Brian Rudman and Tapu Misa have put forward thoughts on the housing issue.
You can read their columns by clicking on the links.
This forum debate has now closed. Here is a selection of your views on the topic.
PC
Both your columnists suggest making things harder for property investors/landlords. As an existing property owner I think this would be great. Mostly because it would reduce the number of investors, reduce the number of properties for rent and hence drive up rents and prices! Don't worry about things like councils lifting building consent fees by 4.9 per cent to 31 per cent and other ridiculous government policies stifling the housing supply. Every time you socialists attack - prices rise. Well done!
Kiwi developer in London
Forcing developers to set aside a percentage of their development for affordable housing is a proven method of providing housing for those on lower incomes. It works in London where Westminster City demands that any change of use requires an affordable housing component. It works in Hawaii and other places in the USA where 35 per cent of all new housing developments must be "affordable". I have lived in both places ( and currently live in London) and been involved with these criteria when planning developments. Developers survive these criteria and also the imposition of a capital gains tax on property profits. A capital gains tax and an affordable housing criteria is the only way New Zealand can ever hope to house those in need. It's time companies producing goods and services and providing jobs for the community were a more attractive investment than property. Once this happens, the entire community will be better off, rather than those in one sector. I urge the larger local authorities to study the affordable housing models overseas and regulate for this as soon as possible.
Lloyd Stevenson
Tenants have enough "rights"! What seems to be forgotten here ( or deliberately left out) is that for every 'right' there is a corresponding 'responsibility'. 90 days, that's three months, to find somewhere else to live is plenty of time. After all the only reason they would be evicted is if they didn't live up to their responsibilities like paying the rent on time every time, keeping the property clean and tidy and not damaging the property. Without some form of incentive like tax breaks there would be fewer landlords, therefore fewer properties available for rent and more people "homeless" than the 11,000 that Housing NZ currently have on their books.Remember that there is a symbiotic relationship here. Without landlords there wouldn't be any rental properties, without tenants landlords wouldn't have rental properties. Instead of 'bashing' the landlord, who has taken a huge risk in investing his money, the two need to work together and fulfill their responsibilities rather than demanding their rights. For every bad landlord there is at least one bad tenant but the percentages of both are small.
Colin England
We, as a nation, need to realise that housing is not a suitable "investment" and that it needs to be reduced. Rental housing is a drain on those who can least afford it lowering living standards and increasing poverty. With an increase poverty and the lack of a secure home to live in we will see a continuing rise in crime. If we have a look at other nations we can see that capital gains don't stop housing bubbles caused by speculators so obviously that isn't going to help. A national rating system set to a minimum 3 per cent of income per residence, though, will. Owning multiple properties and/or apartments are going to very quickly become uneconomic. This will bring a flood of properties on to the market as almost all rental properties will be sold and the only people who will be in a position to buy them will be the people who are presently renting them. That means that the prices will have to come down so that they can afford them. As for the housing shortage - well, we also have to realise that the home on a 1/4 acre section is not sustainable and start building up rather than out. It really is time we started building high rise apartment buildings.
Freedem
The US had such rules for many years and it had a terrible effect. When buying a house one would do the arithmetic, and after all the calculations if the cash flowed the right way it was good and if not it wasn't. There was one variable, that at the time made a huge difference. With progressive taxation those with high incomes and high taxes would receive more money than people with lower incomes and lower taxes, as a result a house that would be profitable for a high income would not if ones income was not as high. The result was that people with high incomes bid up the prices as noted, and since job incomes did not keep pace, and rents were much lower than mortgages, home ownership dropped. Then President Reagan all but eliminated progressive taxation, and at the same time eliminated most of the tax subsidies that the above calculations were based on.
John Lai
I totally agree Brian Rudman who suggest those simply ways. I have this idea few weeks ago. I think most of the people who doesn't own the house would have the same thought. Depend on who raised it fist and how the government to treat this suggestion.
Steve
Just an idea...everyone keeps saying that introducing a capital gains tax would be political suicide for an incumbent government. Well we've just seen that Key and Clark can work together and agree on what could be a sensible amendment to the smacking legislation - so if they're really serious about trying to do something about runaway house prices and the over-generous incentives currently offered on property investments, how about both major parties (and hopefully all parties) simply agree now and announce that irrespective of the next election result, whoever becomes government, they will introduce some sort of scheme for taxing profits on investment properties? No more timewasting with select committees or shared equity schemes that will use public money to simply push prices further up. Suddenly capital gains tax becomes a political non-issue and neither party needs to worry about it come election time.
Sharon
Spot on Brian Rudman. I have rented a property for myself and my thirteen year old son for two years. My rent has always been paid on time- in fact in advance, I keep the house and garden clean and tidy and cause no problems. On a whim, my landlady had an argument with the letting agency looking after the house and, as a result of terminating that contract decided she would kick me and my son out of the property using the 42 day notice situation. I contacted my lawyer and fought back- for the stability of my son. He is close to his school and his friends and he is happy and settled. More tenants need to fight back, stand up and say 'no' we will not be treated this way. Tenancy laws- as more and more of us rent, have to be strengthened to protect those of us who are in the situation of renting our 'homes'.
Mark Jamieson
Crisis? What Crisis? Anybody who has issues buying property in Auckland ought to try some other city for comparison. London, Sydney, Vancouver, try buying something there. Auckland is going the same way as any popular city: in order to buy anything you are going to have to lower your expectations, buy something smaller, like an apartment, or live further out. I wouldn't wait for the government to do something, or the revolution to come. Buy something now, even if it is not as grand as you would like, and get on the property ladder. Its only going to get harder later on.
Andrew
Housing like any product is supply and demand based, and yes this will push up prices, however the bottom line is the rapid increase in housing prices is not fair and causing many people who genuinely require housing to miss out. This is what needs to be addressed. 1 house to live in and 1 as an investment, that is enough, anything else is greedy. The absence of capital gains tax makes property a very attractive investment but also forces those who need it out.
Jason (Auckland)
Having been to many of these seminars and then wishing I had enough money or equity to invest in the recommended eight rentals the speakers talk about I can see the backward nature of allowing so many tax deductions for homeowners that dont live there. The deductions are so great that financiers are now advising people to setup a family trust to own their home and rent it back to themselves to claim all the deductions.
Jeff H
Rental housing has become a speculative game and as a society we are probably a lot worse off for it. Tax brakes on investors need to replace tax breaks for them! A former landlord myself, (1998 - 2004, positively geared, returning tax)I find it interesting to observe the behaviour of recent investors. Most invest nothing; borrow 100 per cent, buy an overvalued asset, run at a huge loss primarily through interest being deductable and hope for capital gain. What other business would you run like this? This isn't even pure capitalism at work - it's a Government subsidised so no wonder its popular! All New Zealanders deserve a level playing field in the house market between investors and owner occupiers. Declining home ownership is not good for any of us ultimately. It really is time that some of the run down rental houses I see become affordable and loved family homes.
A tip for young lifestyle renters who don't like 'burbs and gridlocked traffic, follow the metro lines and make a new Ponsonby for yourselves. Just don't let the investors beat you too it!
Dave
Your correspondent "Auckland"'s calculations are a bit atypical. Thanks to fiscal drag many (perhaps most) property investors are in the 39 per cent tax bracket, and they can claim back not only depreciation but also actual losses because their mortgage interest and other operational costs are often higher than their rental income. This can often take them right back to the 19.5 per cent tax bracket and the tax saved from this negative gearing is not clawed back by the IRD when the property is sold. This changes the equation drastically and makes the effective subsidy from taxpayers to property investors much larger over the long term. I would think most rentals are held for much longer than 5 years too. Andrew Atkin is correct to say that constrained supply is a major part of the problem, but if investors exit the market the remaining buyers, especially first-time buyers, do not have the wherewithal to bid up prices nearly so high.
Ex-landlord Auckland
I have owned a single investment property that I rented for a period of about 12 years. . My property was a new well insulated and maintained initial home, in a reasonable suburb. The tenants stayed an average 18 months and moved on only because their circumstances had changed. Each time they gave me 3 weeks notice or less of their intention to leave. I have to give 3 months notice if I wanted them to leave. 80 per cent of all rental housing is operated by private owners, with a vested interest in the properties they manage. Penalise those private landlords by removing their ability to operate their business will only result in a collapse in the housing stock available of rental properties. There may be a short term drop in the price of houses, but longterm there will be a massive reduction in the number of houses for rent, this will actually force up rents. There is no guarantees that large housing organisations like housing New Zealand will ever be able to provide houses to cover the shortfall nor will a faceless organisation be able to provide the same quality of service tenants presently enjoy.
Bunny Auckland
If all the people who own rental property pulled out of their investment the government would not be able to house the huge number of tenants left homeless. It is far cheaper for the government to allow a tax incentive to get more rental properties available than for them to provide adequate large scale housing. There is also a tax claw back when you sell a rental property its not all quite so clear as you make it. I own a few rental properties; yes the tenant pays part of the mortgages as a rent to the owner and I also put in an equal amount as the rent does not cover all the outgoings. You will find that this is the usual scenario. I am also resposnible for all the maintenance and rates and also for any damage that irresponsible tenants cause. I also carry the burden of a huge loan and those repayments.I have saved for many years and adjusted my own lifestyle to own these properties as a way of investing in my retirement, but am considering selling up as I can get a better return for my money in the bank on a term deposit and no hassles. The only incentive in rental housing is the capital gain but you must own it for around 10 years before you see that. Its a long term commitment. I know my own tenants appreciate my endeavours as they can afford to live in an area they want to be in with no maintenance costs and a warm comfortable home to live in with their families.Your article addresses only one side of the story- what would they do with all the homeless people if the law changed on rental properties and everyone sold up? I think its a sour grapes story from someone who is not able to get into a home of their own. There is always two sides to every story.
RD
This government is totally clueless and actually inept to figure out the cause and cure for the housing market. What else can one expect from them when in the last two terms their main bills have been the civil union, prostitution law reforms and now anti smacking ( also not counting dog tagging etc etc). They have only one solution, raise the interest rates, screwing all businesses and exporters and farmers and all existing house owners along the way. They simply don't get the point that it's only recently New Zealand is catching up with the rest of the developed world where house prices are concerned and will level out once there. Take note Helen and Cullen, get your heads out of the ground and look at bigger issues like exports, government spending, the rampant bureaucracy, lack of saving etc. You cannot talk about lack of saving and raising the interest rates in the same breadth. Also someone tell Bollard it's not the reserve banks job to control the housing market.
Hatfields Beach
I think the introduction of Capital Gains Tax would help in keeping house prices down. If an individual sells more than one property per annum they should be charged tax on the sale.
Nelson
To reduce the cost the new housing it would help if Council fees were not so high. In Nelson, each new section has a $7000 (approx.) roading fee, $8000 septic fee, a $9000 water fee, and a parks levy of 5.5 per cent of the value of the new section ($11,000 for a $200k new section). So that's around $35,000 in fees alone. This does not allow for all the reports required - or even the cost of developing the section! It's not just interest rates that are driving the price rises. Blame the Resource Management Act 1992 for creating all this extra cost.
Andrew Atkin
I think both Brian and Tapu missed the basic problem. If you have an undersupply of houses, and a market made up people that will spend whatever they possibly can to not be one that misses out, then house prices will rise to whatever is the maximum of whatever people can (generally) afford. In turn, if you give people a subsidy, in whatever form, then that will just drive up the market price because, again, market price is based on buyer maximum-affordability. If you make second-home investment properties less attractive to own, then they will be sold off to some new home buyers (at a high price) and then you will still have a major gap between the number of would-be buyers and available houses, leaving us with the same fundamental game. Speculators only speed-up the inevitable inflation towards maximum-affordability - again, it's a competition amongst buyers, all not wanting to be the one that has to miss out. This is why I believe that if we are not going to take aggressive action to bring in more supply, then we might as well reduce effective affordability by capping lendable bank-loans - if people just don't have access to the money to pay for current silly house prices, then the market-price must fall. Market value is defined by whatever people can and will pay.
Auckland
Upon sale of the property at a profit, depreciation claimed to date needs to be repaid. I personally this year have reversed approximately $100,000 of depreciation after selling three properties I have owned for some 11 years. Yes, there may have been tax benefits in early years while the properties were operating at a loss but the depreciation has now rightly been reversed giving rise to a $39,000 real money liability back to the IRD. This in turn highlights the fact that in many cases the depreciation reversal places the vendor into a higher tax bracket and subsequently leads to a higher tax payment than the refunds previously made. For example say the owner was earning $40,000 per annum, any annual tax loss over $1000 would have place him into a 19.5 per cent per tax bracket. If a claim of $10,000p.a depreciation was made over five years the cash benefit would be around $1950 per annum. If after that five years the property was sold the vendors income would be $90,000 ie $40,000 salary plus 5 years x $10,000 depreciation reversal. The $50,000 reversal would attract tax of $18,300 against the annual gain of $1950 x 5 = $9750. Thus overall the IRD gain $8550. Everyone of course is different but my experience with clients indicates this is a very usual occurrence.
Richard Z
For the last 25 years the ordinary person in this country has been told that they are responsible for providing for their own retirement, because the politicians, baby boomers and no hopers will have taken all the loot for themselves. Now that we are doing this, we are all of a sudden the cause of the problem?
Kyriak
Giving tenants greater security is not going to solve the housing shortage. While I support tenant's rights, I believe enforcement of existing tax legislation that taxes capital gain from sale of property intended for the purchase of re-sale. Instead of the IRD having to prove "intention" which is likely to lead to a plethora of appeals, etc., intention should be evidenced by resale within a period of, say, five years unless circumstances, such as death, relationship break-ups, illness, etc., have made the sale necessary. We also need more housing... and pro-active planning to provide it including a reduction in bureaucratic charges. NZ Tax legislation already provides for tax on capital gain with respect to property purchased for the purpose of re-sale. Unfortunately, as with so much other legislation on the book, (e.g., dog control) this legislation is not enforced. It is totally inequitable that earnings from savings (which is capital) is taxed while earnings from highly-levered investment in bricks and mortar is not. This distortion in tax treatment in turn has led to a distortion in the housing market.
Elle (Auckland)
Ok, personally I think this article is extremely biased. being a landlord and having tenants destroy my property completely how dare you say that the rules are all in landlords favor? And as for your Robin Hood theory of "Take from the rich and give to the poor", well it's going to backfire on the very same people that will support it. Why don't you address the issue of people being unable to save properly and nagging about not being able to afford a house while still going out to buy a brand new car of a plasma TV? A bit of education for the youth would do much more good than telling them that the rich are bad! Your article is clearly targeted to appeal to the stupid lower-class that think Robin Hood is a hero and all rich are bastards.
Leslie
A reduction in interest rates would obviously make housing more affordable.
CF (Wellington)
Brian does have a point on trying to control speculation, investment in property (rural and urban) is currently very attractive due to the capital gains. However, the point about protecting tenants' rights needs careful consideration. Too many protections may reduce the supply of rental housing. The NZ housing market for renters is largely provided by small scale property owners with 1-2 rental properties. Some of the turnover in this market is due to landlords fears or experience of tenant damage or nonpayment, and fear of emotional confrontation, losses and an inability to protect their investment.
In addition, if you have rules which say a tenant continues to have the right to occupy a house indefinitely, even in the event of sale, you create a situation where some houses become permanent rentals and prospective homeowners have their options further reduced (and the tenant may be trapped into not purchasing to maintain their tenancy). Any controls need to consider how to address a potential withdrawal of investment in rental housing that could reduce the choice for those who cannot or do not wish to buy a house.
Dave (Gulf Harbour)
I think that Mr Rudman is confused. Nowhere does the tax act stipulate that selling a property within 2 years is taxable. He is referring to section CD1(2)(a) of the Tax act 1994 now changed to 2004. There are also 6 or 7 other sections on the Act which could make the property sale taxable. Intention on one off sales id difficult to prove however patterns of similar transactions, bank diary notes and finance applications are the way to go. I used to investigate for IRD. Instead of capital gains tax which would be avoided by most through duff sale and purchase agreements, how about reviewing the depreciation rules on investment properties? Depreciation is supposed to be claimed on depreciable property. Generally a house with land very rarely depreciates. If no depreciation claim then that would put off a lot of investors as unaffordable.
Alan Wilkinson
I have only seen Rudman once write something that made economic sense and that great surprise was not repeated today. The many landlords who have been ripped off and/or had their properties trashed by bad tenants would find his proposals to strengthen tenant's rights bizarre. Furthermore, rents are already far below economic viability so the rental market is highly competitive. Good tenants are in a position to seek good terms and conditions. All that is necessary is for the law to enforce such contracts rather than impose a lowest common denominator on everyone. Building costs have risen faster than inflation for the last decade and land costs even faster. The Government needs to address these fundamentals, which inevitably control the long-term rent and housing prices. Tax increases as Rudman desires even if successful would simply drive up rents after any initial short-term impact so long as the fundamental costs of building new houses are not reduced.
Toby
This article shows both the ignorance and small mindedness of someone who stands on the sideline cheering and booing. The housing market is principally supply and demand based. Simple. If the demand is high, increase the supply. Surely this means that we should be encouraging property trading rather than trying to quell it. Make it easier and more profitable for developers to supply more housing and there will be more housing available and hence less competition.
