Bishop details National's new MDRS-lite housing policy, but with some new twists and some old problems; I include my highlights, lowlights, cliffhangers & a suggested alternative
Bernard, your idea of 0.5% levy on owner occupied houses is interesting. Who would decide the paper value? Would it also apply to retirees who might have no income to fund such a levy? Taxing an unrealised value appears to be a dangerous precedent. Will you be able to offset losses if the value drops on the previous year? We can all agree that tax on a realised capital gain is relatively easy to administer. I’m not sure taxing unrealised gains will be seen as a fair tax.
May 29, 2023·edited May 29, 2023Liked by Bernard Hickey
How would the value of a property for the 0.5% be calculated? This is obviously fraught already for local body rates which is at worst placing you as a pegging against the base (ie your % of total rates collected) as opposed to an absolute number which this would require?
On a related note, I can't understand the carve outs for primary residences for CGT which seem to be taken as read in the wider discussion? The argument is often 'you buy back into the same market'. All that says to me is people think they are more entitled to buy their neighbour's house because they already own their current property, compared with the renters on the other side who have to save via wages.
It also doubles down on the perverse incentives in the residential market - rather than putting money into the productive economy, just buy a bigger and bigger house until the kids leave home, you hit 65 and sell your $2m house which was much more than you needed anyway, buy a nice $1m home and take your tax-free gains to retire on.
1. how much public money / time has now been wasted by councils across the country planning on implementing the standards? Not a great look by National who supposedly cares about how each dollar is spent
2. National say that councils must make 30years worth of land available immediately for development. What does immediately mean? The day after the election result is confirmed? In five years once they have 20 rounds of consultation?
Luxon owes Bishop a beer. That interview was an truly impressive political feat. I'd put him up there with Sepuloni for how well he managed that Jake Tame interview.
If National actually did the things in this policy then that'd be great. A value capture tax and an explicit growth target would be huge! The thing is it's not credible. The key bit of Bishop's interview was when he said that it comes down to who has the political courage to follow through. And that's not National or Labour.
We all know that the political subtext at Birkenhead was "I know you don't like 3 story houses and I want you to think that I don't like 3 story houses either". That does not look like political courage to me.
When you say the levy pays for infrastructure, what infrastructure is included and which is excluded? Councils no longer have to pay for power, gas, or telecoms, and in the future won't be responsible for the three waters either. Will the levy go to these providers or will they be adding their own bills on top of that?
I've always liked the idea of a land tax, and prefer your tiered version to (what we currently know of) TOP's - primarily because their flat 0.75% version effectively punishes a residential home owner for their neighbour's empty section... Add a little extra tax in there for houses that are occupied for less than a couple of weeks a year and we'd be starting to address our housing problem I expect!
However it's already obvious that people have some issues with it, so probably needs a couple of other key considerations and clarifications:
- Clarify it applies to the unimproved value of the land only. And, it should also only apply to the unmortgaged portion of the land; I just can't see throwing an extra day-one $2000 tax on a first-home buyer with an $800k mortgage being popular
- Re-valuations should be done at least annually. In spite of the doubts expressed about the accuracy of these valuations, I expect a dedicated department could do this easily with modern analysis and tools. And, ideally, if we started fixing our housing cost problem, the tax should also reduce.
- Payment should be able to be deferred (without penalty, but perhaps with inflation-adjustment) until the property is sold...or passed on as inheritance.
- We desperately need more mixed-use zoning (for climate, community and infrastructure). We need to think carefully about how/if we tax a 3-level townhouse with a barbershop or florist on the bottom floor.
- We should simultaneously bring back (ring-fenced) interest deductibility for landlords and encourage them (including the mum-and-dad ones!) to start operating as a viable business, or sell. Otherwise, a land tax will just turn into a rent increase
As an aside, for those questioning how unfair it is to use 'unrealised gains' to value someone's wealth, it's worth pointing out the (highly-profitable) banks don't care about gains being 'unrealised' when they offer homeowners low-cost mortgage top-ups and platinum credit cards... If it's good enough for bank shareholders, it should be good enough for us!
Keeping coming back to the certain way of building lots of well designed houses with well designed public space and community facilities is for the state to build them.
A Ministry of Green Works for the building.
A revamped State Advances Corporation for low interest long term mortgages.
A reinstated family benefit that can be capitalised to help first home buyers.
Significant central government support for the necessary physical, social and environmental infrastructure.
What happens under National's policy when the marginal development trips a capex investment need and a new widget is needed, does the new development have to pay for the whole new widget?
perhaps they need to be discussing the impact of the recent amendments to the building code - Ive just built a new home - if it had to comply with the new code it would have cost $70,000 (15%) more to build and that is for a 120m2 build (plus garage and deck) -
Ive just had a conversation with one of the larger builders in our area and he reckons the code will add $100,000 to the cost of a 240m2 home. The new code will bring minimal benefits in terms of improved energy efficiency and there is no chance there will be a positive return on costs over the life of the building. I've put a wood burner in my home so generally have surplus heat when it is cold. For the cost of the new code I could have installed 10's of kilowatts of solar on the roof - now that would make a real difference!
In the meantime the manufacturers of triple glazing cant believe their luck - I bet they have all gone out and bought a Dodge Ram or an F250 and new jet ski just to celebrate their windfall.
This increase in the cost of a new build will flow right through the housing market as if the cost of new build goes up by 15% the cost of buying an existing home will follow. It seems lost on everyone in Wellington when they express much consternation at the spiraling cost of housing that an existing home is still generally cheaper than a new build plus you don't have to wait for a year between purchase and occupancy and most people do not have the time or the financial resources to build. What is also ignored is that growth in household income has been depressed relative to the cost of building or buying a home and that is because successive Governments have had habit of chronically understating the real rate of inflation as a means of suppressing wage growth. If wages were inflating at the same rate as property we wouldn't be debating whether a capital gains tax was necessary.
Bernard, re your excellent suggestion of a new state agency to take responsibility for installing green infrastructure, housing development, etc you would have seen that the 2023 budget established Rau Paenga as a new cross-government infrastructure delivery agency with $100M in start up funding. Rau Paenga was previously the Christchurch rebuild agency Otakaro Ltd which is now renamed, retooled & funded to expand nationwide. Thank god a Labour government is finally using the power of the state to start addressing our infrastructure deficit.
I don't know much about any of this stuff, so don't really have an opinion one way or the other, but just wanted to mention that I really like that your plan clearly articulates the consideration for the long term effects of migration and climate change.
Where is that stuff from either of the main parties? I feel like long-termism is something that modern democracy does not encourage or enable
To fix the issues the whole monetary system needs to be changed and govt needs to transition to MMT.
My proposal is that govt funds the required growth requirements and the councils continue to collect rates aka property taxes as one form of income to fund council.
The issue of raising taxes and levies on the general population is a no go there is nothing creative in raising taxes in all forms and disguises we are already taxed to death with the effective tax rate at somewhere near 60%.
There needs to be a huge change in monitory policy as my feeling is we are way over peak tax.
The problems we are experiencing today is a lack of planning and foresight if the chinese can do it why can't we here in NZ.
More creative thinking is required not more added taxes on top of all the many other taxes that are stealing funds from hard working people and pushing costs up.
If anyone is interested in my proposal that we should have a tax free NZ and fund by using other creative methods.
Bernard, your idea of 0.5% levy on owner occupied houses is interesting. Who would decide the paper value? Would it also apply to retirees who might have no income to fund such a levy? Taxing an unrealised value appears to be a dangerous precedent. Will you be able to offset losses if the value drops on the previous year? We can all agree that tax on a realised capital gain is relatively easy to administer. I’m not sure taxing unrealised gains will be seen as a fair tax.
How would the value of a property for the 0.5% be calculated? This is obviously fraught already for local body rates which is at worst placing you as a pegging against the base (ie your % of total rates collected) as opposed to an absolute number which this would require?
On a related note, I can't understand the carve outs for primary residences for CGT which seem to be taken as read in the wider discussion? The argument is often 'you buy back into the same market'. All that says to me is people think they are more entitled to buy their neighbour's house because they already own their current property, compared with the renters on the other side who have to save via wages.
It also doubles down on the perverse incentives in the residential market - rather than putting money into the productive economy, just buy a bigger and bigger house until the kids leave home, you hit 65 and sell your $2m house which was much more than you needed anyway, buy a nice $1m home and take your tax-free gains to retire on.
Two questions come to mind
1. how much public money / time has now been wasted by councils across the country planning on implementing the standards? Not a great look by National who supposedly cares about how each dollar is spent
2. National say that councils must make 30years worth of land available immediately for development. What does immediately mean? The day after the election result is confirmed? In five years once they have 20 rounds of consultation?
Luxon owes Bishop a beer. That interview was an truly impressive political feat. I'd put him up there with Sepuloni for how well he managed that Jake Tame interview.
If National actually did the things in this policy then that'd be great. A value capture tax and an explicit growth target would be huge! The thing is it's not credible. The key bit of Bishop's interview was when he said that it comes down to who has the political courage to follow through. And that's not National or Labour.
We all know that the political subtext at Birkenhead was "I know you don't like 3 story houses and I want you to think that I don't like 3 story houses either". That does not look like political courage to me.
When you say the levy pays for infrastructure, what infrastructure is included and which is excluded? Councils no longer have to pay for power, gas, or telecoms, and in the future won't be responsible for the three waters either. Will the levy go to these providers or will they be adding their own bills on top of that?
The announcement doesn't seem to include tax/investment measures to end the treatment of housing as a speculative commodity. So same old, same old.
I've always liked the idea of a land tax, and prefer your tiered version to (what we currently know of) TOP's - primarily because their flat 0.75% version effectively punishes a residential home owner for their neighbour's empty section... Add a little extra tax in there for houses that are occupied for less than a couple of weeks a year and we'd be starting to address our housing problem I expect!
However it's already obvious that people have some issues with it, so probably needs a couple of other key considerations and clarifications:
- Clarify it applies to the unimproved value of the land only. And, it should also only apply to the unmortgaged portion of the land; I just can't see throwing an extra day-one $2000 tax on a first-home buyer with an $800k mortgage being popular
- Re-valuations should be done at least annually. In spite of the doubts expressed about the accuracy of these valuations, I expect a dedicated department could do this easily with modern analysis and tools. And, ideally, if we started fixing our housing cost problem, the tax should also reduce.
- Payment should be able to be deferred (without penalty, but perhaps with inflation-adjustment) until the property is sold...or passed on as inheritance.
- We desperately need more mixed-use zoning (for climate, community and infrastructure). We need to think carefully about how/if we tax a 3-level townhouse with a barbershop or florist on the bottom floor.
- We should simultaneously bring back (ring-fenced) interest deductibility for landlords and encourage them (including the mum-and-dad ones!) to start operating as a viable business, or sell. Otherwise, a land tax will just turn into a rent increase
As an aside, for those questioning how unfair it is to use 'unrealised gains' to value someone's wealth, it's worth pointing out the (highly-profitable) banks don't care about gains being 'unrealised' when they offer homeowners low-cost mortgage top-ups and platinum credit cards... If it's good enough for bank shareholders, it should be good enough for us!
Keeping coming back to the certain way of building lots of well designed houses with well designed public space and community facilities is for the state to build them.
A Ministry of Green Works for the building.
A revamped State Advances Corporation for low interest long term mortgages.
A reinstated family benefit that can be capitalised to help first home buyers.
Significant central government support for the necessary physical, social and environmental infrastructure.
What happens under National's policy when the marginal development trips a capex investment need and a new widget is needed, does the new development have to pay for the whole new widget?
perhaps they need to be discussing the impact of the recent amendments to the building code - Ive just built a new home - if it had to comply with the new code it would have cost $70,000 (15%) more to build and that is for a 120m2 build (plus garage and deck) -
Ive just had a conversation with one of the larger builders in our area and he reckons the code will add $100,000 to the cost of a 240m2 home. The new code will bring minimal benefits in terms of improved energy efficiency and there is no chance there will be a positive return on costs over the life of the building. I've put a wood burner in my home so generally have surplus heat when it is cold. For the cost of the new code I could have installed 10's of kilowatts of solar on the roof - now that would make a real difference!
In the meantime the manufacturers of triple glazing cant believe their luck - I bet they have all gone out and bought a Dodge Ram or an F250 and new jet ski just to celebrate their windfall.
This increase in the cost of a new build will flow right through the housing market as if the cost of new build goes up by 15% the cost of buying an existing home will follow. It seems lost on everyone in Wellington when they express much consternation at the spiraling cost of housing that an existing home is still generally cheaper than a new build plus you don't have to wait for a year between purchase and occupancy and most people do not have the time or the financial resources to build. What is also ignored is that growth in household income has been depressed relative to the cost of building or buying a home and that is because successive Governments have had habit of chronically understating the real rate of inflation as a means of suppressing wage growth. If wages were inflating at the same rate as property we wouldn't be debating whether a capital gains tax was necessary.
Bernard, re your excellent suggestion of a new state agency to take responsibility for installing green infrastructure, housing development, etc you would have seen that the 2023 budget established Rau Paenga as a new cross-government infrastructure delivery agency with $100M in start up funding. Rau Paenga was previously the Christchurch rebuild agency Otakaro Ltd which is now renamed, retooled & funded to expand nationwide. Thank god a Labour government is finally using the power of the state to start addressing our infrastructure deficit.
I don't know much about any of this stuff, so don't really have an opinion one way or the other, but just wanted to mention that I really like that your plan clearly articulates the consideration for the long term effects of migration and climate change.
Where is that stuff from either of the main parties? I feel like long-termism is something that modern democracy does not encourage or enable
To fix the issues the whole monetary system needs to be changed and govt needs to transition to MMT.
My proposal is that govt funds the required growth requirements and the councils continue to collect rates aka property taxes as one form of income to fund council.
The issue of raising taxes and levies on the general population is a no go there is nothing creative in raising taxes in all forms and disguises we are already taxed to death with the effective tax rate at somewhere near 60%.
There needs to be a huge change in monitory policy as my feeling is we are way over peak tax.
The problems we are experiencing today is a lack of planning and foresight if the chinese can do it why can't we here in NZ.
More creative thinking is required not more added taxes on top of all the many other taxes that are stealing funds from hard working people and pushing costs up.
If anyone is interested in my proposal that we should have a tax free NZ and fund by using other creative methods.
2021
Confidence And Supply
How MP Nicola Willis orchestrated a radical shift in National’s housing policy.
By Hayden Donnell
https://northandsouth.co.nz/2021/06/16/nicola-willis-housing-national-party/
What the GOVT needs to do is pay off all councils debts and start a fresh with new rules put in place.
A royal commission needs to be set up to investigate why councils are so in debt and why there is so much mismanagement.
How ever the financial problems are huge and can only be solved at the GOVT level.
A complete change in how Govt monitory policy is structured need to happen asap.
Sounds familiar https://www.interest.co.nz/property/69450/nick-smith-says-has-told-government-target-housing-affordability-four-times-income