Govt releases housing policy statement focused on affordability that doesn't say what affordability level it wants; Tax deductibility rules exempt new builds, but may limit supply & boost prices
A prebuilt home if release of subdivisions are mandatorily supplied and with State Advances loans for every citizen and with repayments capped to 25 percent would do the job on both supply and affordability. It’s been done before but needs to simply be made universally available this time. Way too long to get to this point and we see all the homes (Keith Hay Homes amongst them) in all areas and have parents who started off in these schemes in the 60’s etc. It’s also good for Treasury and Reserve Bank as money gets paid in and to NZ rather than to offshore profit driven private banks. I can see only one pernicious reason it hasn’t been done already.
So, writing as (a.) a home/property owner who doesn't feel rich (what are we supposed to do, sell up and live in a tent?), (b.) the father of older teenage kids who will be (hopefully, or is this why we used to read all those articles about 30 year olds living with their parents in Italy?) moving out and getting on with their lives and will need somewhere to live.
It seems to me that unless you have some real business talent there aren't many ways to accumulate wealth in Aotearoa...except leverage on house ownership to more house ownership etc. So what would be a way to give people a competitive alternative to that? I recall in one podcast you saying that the government in the late 80's "forgot" to put in a capital gains tax after removing some subsidy on savings (???) Was that when the fuse was lit?
Also, what to do about it politically. Seems like there is noone to vote for that has a chance of yielding any influence that is willing to do anything.
Great analysis Bernard. The complex and anomalous fiasco of subsidising new builds for investors with the 20 year deductible interest policy is what happens when you tinker with tax without a secure theoretical basis. You are right-if the goal is affordability there needs to be more to it than simply using the term 70 times. The fundamental tax settings must be revisited to accord with the principle that basic housing is a human right and income from all sources should be taxed. Currently housing is a riskless lotto ticket to tax free wealth accumulation. Correcting the income tax settings by including imputed income from housing (with a suitable exemption for a basic home) could help free resources to house the many thousands of New Zealanders, including children, who subsist in garages, motels or exorbitantly expensive, insecure rentals
I wonder if this is going to be the big thing that will shake up housing in NZ
'California Senate Bill 9, allows as many as two duplexes, two houses with attached units, or a combination — capped at four units — on single-family lots across California, without local approval.'
Only a significant investment in public housing will provide workers with secure homes AND bring down the current ponzi house prices. Of course we’d need a proper Ministry of Works and a Reserve bank commitment to public welfare rather than the present commitment to Disney Land financal speculation. Don’t hold your breath waiting for Ardern to go to bat for that package 🙄
And now 45 new cases in emergency housing. The knock-on effects go on and on. What's the point is making all the right noises about child poverty and mental health and well being etc., when a critical driver of all of these things is allowed to go completely out of control.
Let's imagine a hypothetical situation where the government is on our side. ( I know I know, but bear with me.) It would declare that housing is a human right and that the real estate casino is incompatible with democracy and equality and human rights. It would announce a 100% cgt on net profit on speculative real estate. Voila. This would wipe out speculation and the real estate "profession". Do it right, phase it in, whatever. No more making hay for doing nothing at the expense of society.
And speaking of doing nothing, how about those private banks? Contrary to popular fantasy, banks don't lend deposits. All of those billions in mortgage loans are printed out of thin air and introduced into the economy as interest-bearing debt. It wobbles my mind that not only are the banks printing the great majority of the NZ$, they're mostly foreign banks! Imagine if Kiwis became aware of what is being done to them.
Btw, if you didn't know that banks don't lend deposits, what the first two minutes of this short video from the Bank of England: https://www.youtube.com/watch?v=CvRAqR2pAgw
1. The Minister of Finance could drastically increase the funding of IRD's compliance / enforcement role. I can't remember the percentage from last year when IRD made an estimate of the amount of Bright Line Test sales that weren't reported in tax returns (40%?). The payback on the extra IRD spending to chase the cheats would be phenomenal.
2. I would suggest that many of the houses being built today are one building code change away from being substandard. Too many builders see the building code as being the maximum required, not the minimum. But to avoid affordability issues the gov't won't want to improve the building code as that would raise costs.
3. Yes to a CGT, imputed rate of return, land tax or whatever. Just do one of them (for starters).
4. Have a super-profits tax levy on banks if the cost: average annual income multiple exceeds the ten year average from say thirty years ago. Say back then it was 6 and it is now 9. That means the banks pay an extra 3% tax on their profits.
Nice work Bernard, I don't see the level of information elsewhere.
I was staggered to see how much investor money has gone into new builds. I am also surprised the the government has extended interest deductibility for 20 years. If the behaviour they want to incent is to get the property built, then remove all incentives for investors after the initial owner sells so that so FHB are on an even playing field. I have never seen such a frenzied land grab for anything that can be developed to feed the new build investor market.
Surely the big news here is this: "Emergency, transition, social, and council housing:
If your property is used for emergency, transitional or social housing when you leased it to the Crown (for example, the Ministry of Housing and Urban Development or Kāinga Ora) or to a registered community housing provider then you can still claim interest deductions." This is huge but the mainsteam media doesn't seem to have noticed. Imagine if a significant percentage of private rental owners booted out their tenants and signed up with a social housing provider. It would start to empty the motels but severely disrupt the private rental market.
A prebuilt home if release of subdivisions are mandatorily supplied and with State Advances loans for every citizen and with repayments capped to 25 percent would do the job on both supply and affordability. It’s been done before but needs to simply be made universally available this time. Way too long to get to this point and we see all the homes (Keith Hay Homes amongst them) in all areas and have parents who started off in these schemes in the 60’s etc. It’s also good for Treasury and Reserve Bank as money gets paid in and to NZ rather than to offshore profit driven private banks. I can see only one pernicious reason it hasn’t been done already.
So, writing as (a.) a home/property owner who doesn't feel rich (what are we supposed to do, sell up and live in a tent?), (b.) the father of older teenage kids who will be (hopefully, or is this why we used to read all those articles about 30 year olds living with their parents in Italy?) moving out and getting on with their lives and will need somewhere to live.
It seems to me that unless you have some real business talent there aren't many ways to accumulate wealth in Aotearoa...except leverage on house ownership to more house ownership etc. So what would be a way to give people a competitive alternative to that? I recall in one podcast you saying that the government in the late 80's "forgot" to put in a capital gains tax after removing some subsidy on savings (???) Was that when the fuse was lit?
Also, what to do about it politically. Seems like there is noone to vote for that has a chance of yielding any influence that is willing to do anything.
Great analysis Bernard. The complex and anomalous fiasco of subsidising new builds for investors with the 20 year deductible interest policy is what happens when you tinker with tax without a secure theoretical basis. You are right-if the goal is affordability there needs to be more to it than simply using the term 70 times. The fundamental tax settings must be revisited to accord with the principle that basic housing is a human right and income from all sources should be taxed. Currently housing is a riskless lotto ticket to tax free wealth accumulation. Correcting the income tax settings by including imputed income from housing (with a suitable exemption for a basic home) could help free resources to house the many thousands of New Zealanders, including children, who subsist in garages, motels or exorbitantly expensive, insecure rentals
I wonder if this is going to be the big thing that will shake up housing in NZ
'California Senate Bill 9, allows as many as two duplexes, two houses with attached units, or a combination — capped at four units — on single-family lots across California, without local approval.'
https://www.latimes.com/california/story/2021-09-22/skelton-sb9-housing-single-family-zoning
We follow California in almost every aspect of our lives, whether we realise it or not. will will follow their lead this time?
Only a significant investment in public housing will provide workers with secure homes AND bring down the current ponzi house prices. Of course we’d need a proper Ministry of Works and a Reserve bank commitment to public welfare rather than the present commitment to Disney Land financal speculation. Don’t hold your breath waiting for Ardern to go to bat for that package 🙄
And now 45 new cases in emergency housing. The knock-on effects go on and on. What's the point is making all the right noises about child poverty and mental health and well being etc., when a critical driver of all of these things is allowed to go completely out of control.
Let's imagine a hypothetical situation where the government is on our side. ( I know I know, but bear with me.) It would declare that housing is a human right and that the real estate casino is incompatible with democracy and equality and human rights. It would announce a 100% cgt on net profit on speculative real estate. Voila. This would wipe out speculation and the real estate "profession". Do it right, phase it in, whatever. No more making hay for doing nothing at the expense of society.
And speaking of doing nothing, how about those private banks? Contrary to popular fantasy, banks don't lend deposits. All of those billions in mortgage loans are printed out of thin air and introduced into the economy as interest-bearing debt. It wobbles my mind that not only are the banks printing the great majority of the NZ$, they're mostly foreign banks! Imagine if Kiwis became aware of what is being done to them.
Btw, if you didn't know that banks don't lend deposits, what the first two minutes of this short video from the Bank of England: https://www.youtube.com/watch?v=CvRAqR2pAgw
Ideas all over the place: -
1. The Minister of Finance could drastically increase the funding of IRD's compliance / enforcement role. I can't remember the percentage from last year when IRD made an estimate of the amount of Bright Line Test sales that weren't reported in tax returns (40%?). The payback on the extra IRD spending to chase the cheats would be phenomenal.
2. I would suggest that many of the houses being built today are one building code change away from being substandard. Too many builders see the building code as being the maximum required, not the minimum. But to avoid affordability issues the gov't won't want to improve the building code as that would raise costs.
3. Yes to a CGT, imputed rate of return, land tax or whatever. Just do one of them (for starters).
4. Have a super-profits tax levy on banks if the cost: average annual income multiple exceeds the ten year average from say thirty years ago. Say back then it was 6 and it is now 9. That means the banks pay an extra 3% tax on their profits.
Nice work Bernard, I don't see the level of information elsewhere.
I was staggered to see how much investor money has gone into new builds. I am also surprised the the government has extended interest deductibility for 20 years. If the behaviour they want to incent is to get the property built, then remove all incentives for investors after the initial owner sells so that so FHB are on an even playing field. I have never seen such a frenzied land grab for anything that can be developed to feed the new build investor market.
Surely the big news here is this: "Emergency, transition, social, and council housing:
If your property is used for emergency, transitional or social housing when you leased it to the Crown (for example, the Ministry of Housing and Urban Development or Kāinga Ora) or to a registered community housing provider then you can still claim interest deductions." This is huge but the mainsteam media doesn't seem to have noticed. Imagine if a significant percentage of private rental owners booted out their tenants and signed up with a social housing provider. It would start to empty the motels but severely disrupt the private rental market.
Bernard, does our membership of the trans Pacific trade agreement limit our ability to reinstsate big government agencies such as a Ministry of Works?