Fascinating to see the hubbub over the announcements today from Labour of a revised policy over housing sales. From the Nats there is a wild panicked squealing as their fat little piggies suddenly realise that perhaps they should not have all their spare money in property. Accusations of a new Capital Gains Tax from Ardern, despite there already being a “Bright Line” test in existence, which is now extended. Incidentally: anyone know what the bright line is that they are referring to? Seems a very murky dull line to me. Collins is having a field day – loving being the centre of attention as she says that Labour has lied. Ardern has lied. Robertson has lied. The nation has been lied to. et cetera….
So what is the actual policy that has happened? Stuff says:
“Some of the most significant changes come for property investors. Until now, they have been able to claim back the interest cost of a home loan against the rent received on the property, significantly reducing their tax bills. Put simply, if they earned $20,000 a year in rent from a property but paid $12,000 in home loan interest, only $8000 of the rental income would be subject to tax. Under the new rules, the whole $20,000 would be.”
“No deductibility will be available for properties bought after March 27, and the amount that can be deducted will drop for other properties until it is phased out in four years’ time. New builds may be exempt, but Cabinet is yet to consult on this. While this is a big change for investors to build into their calculations, with interest rates so low, the impact is more limited than it would have been at pretty much any time in the past. But interest rates will eventually rise and it could become more painful at that point. The bright-line test is also being extended, although new builds will be exempt.”
“If you live in a home that you own, you won’t be directly affected, although you may no longer see the value of your property shooting up at the 20 per cent-a-year rate of recent times. The bright-line test doesn’t apply if you used a property as your main home for more than 50 per cent of the time you own it, or you use more than 50 per cent of the property’s area. People can use an “own home” exclusion twice in any two-year period to avoid the bright-line test.”
“It’s intended that the changes will mean house prices increase less quickly, providing more opportunities for first-home buyers, and less competition from investors. There are also changes to the First Home Grant and Loan schemes. To qualify, buyers will now be able to earn up to $95,000 as single people and $150,000 as a couple. Price caps increase from $650,000 to $700,000 in Auckland, $650,000 in Queenstown and Wellington, $600,000 in Nelson, Tauranga, Western Bay of Plenty, Hamilton, Waipa, Hastings and Napier, $550,000 in Christchurch, $550,000 in Dunedin and $500,000 through most of the rest of New Zealand.”
Captain Nemo says: Let’s face it, it is not like we were not warned. It is a policy that is well overdue, and one that needs to happen. What interests me is whether it will work or not. Commenters on Stuff are battling it out on line, with typical comments being heard like:
“Destroying retirement plans of mums and dads and with their mismanagement of the economy and loss of jobs, many mums and dads will be struggling to live on retirement which is not too far away” (user: TaxHardWorking)
“All waffle. First home buyers effectively still shut out because of the need for a huge deposit. If the government had really wanted to help people into their first home, it could have legislated for minimal or no deposit. The caps limit is a joke. The reduction in investment properties will lead to a severe rental home shortage which can only be solved by affordable ownership.” (user: Mrs Doubtfire)
“I can’t but think that this will result in a significant reduction in rental stock as the mom and pop investors decide that renting their properties is no longer a sensible thing to do in terms of their return. Removing the depreciation provisions could be the final straw, especially in conjunction with the bright line test increase.” (user: Kentwood)
Hmmm. I’m not so sure. If people are discouraged from holding multiple properties due to tax bills, and if they put them back on the market and sell them, who are the buyers going to be? Well, assuming that there aren’t large amounts of property investors keen to pay tax – virtually all of those being sold will be going to people who currently do not have a house. That would be what we call: First Home Buyers. So, it should help to solve that problem. First Home Buyers will no longer be shut out of the market in bidding wars from multiple-property-owning investors. Prices should / will / come down. Probably not immediately, but definitely over time it will. Will the property market collapse? Probably not – although that has happened before and to be honest, it would be a good thing.
What about renters? On this, Stuff only has this to say:
“It’s a little unclear what this will all mean for renters.”
Hmmmm again. For the last several years property investors have been swanning around feeling virtuous, saying that by renting out their houses they are doing the world a favour. Meanwhile, people have been renting a house because they could not buy their own – so on the surface of it, there will be new chances for renters to become home-owners. Not everyone wants to own a home though – many people will still need to rent. And so there needs to be a structure where people can be a professional rental owner – making a business out of it and paying tax on it, same as any other business. I’m expecting more to come on this.