Sorry to butt in on this topic, but interesting to watch the Herald at the moment. Terrified of losing their big real estate advertisers, they are giving truckloads of room to some amazingly emotive stuff on the line of "landlords are there to provide a social service, if you take it away there will be mayhem" .

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1062...

I'll give you an idea. It starts with "As the vitriol builds against property investors it's becoming increasingly clear that there will be many innocent bystanders injured by the mooted changes to tax law."

And the even more amazing:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1062...

This is solely composed of landlords being given free rein to squeal like stuck pigs about how our society would crumble if subdidies weren't paid to them. I hadn't realised, but they are operating from purely altruistic motives at the end of the day. No critical analysis from the Herald at all. I'm amazed they don't rein Brian Gaynor in.

The interesting thing is, their wailing and gnashing of teeth is obviously timed to influence Key's speech next week. Will they succeed? Or have they left their run too late?

Casual observer: I'll give you some quotes from the Herald article, it is real laff-aloud stuff

"Why should we be penalised for investing in property? We're providing a social service" [The Mother Teresa's of the investment world]

"The often-mentioned tax loss of $150 million occurred in 2008 when interest rates were at their peak. With lower interest rates, rental property will once again contribute to the tax take again in future years". [D'oh! & just how many economists are forecasting interest rates to decline from now on?]

"People will literally have nowhere to live and the Government will bankrupt itself trying to house them". [Double-d'oh!! So when all the landlords supposedly pull out, those houses are going to somehow disappear? Just how many new houses do landlords provide?]

@Philly, Les, it'll be something indeed if a Nats government actually address this issue. Perhaps it'll have to wait for the next Labour government, after all they are supposed be more socially just, so I'm told. Which I guess is why they never addressed this problem in their last nine years in power. Funny that .... ?? It'll be interesting to see how much of a hue and cry they'll put up when Key does jack-sh*t of any real consequence about this.

Dave - "The fact is that without so many investors, rents will rise."

As I see it, the fact is without so many investors, and without the subsidy cructhes that facilitate them as "investors" - PAYE, corp taxes can be reduced and affordability can improve, re. my 8.05am.

Why wouldn't "investors" want that?

Cheers, Les.

Les@8.42 - I agree entirely.

"Back in late 2007 almost 90% of home owners had fixed rate mortgages because for the previous 8 years the rates had typically been lower than variable rates. This contrasts with the situation in Australia where more than 90% of home owners use variable rather than fixed rates because variable rates are typically lower there."

Bernard I believe the changes go far deeper than your rather superficial report.
NZ has been out of wack with the rest of the world for many decades...With variable higher than fixed....and variable approx 1/3 of the OCR higher.
The change was slow but I believe it started with the change in the banking 1990s regulations when they where not required to maintain the approx 1/3 deposits to loan ratio.
It is interesting to note these regulations are in effect (different label same ting) being reintroduced with the approx 25/75% ratio increasing over several yrs

I THINK NZ was in 'in wack' pre 70s with mortgages predominately on variable, then for some reason we went out of 'wack' with the rest of the world mid 70s.
Post 2007 ..,. we have slowly gone to floating...removing the deposit/lending ratios.
This is a very short time, so will we stay in wack with the rest of the world here on in, or will we return to fixed when the bank lending ratios fully kick in.
The other regulation, which was also scrapped was the requirement of deposits on high item assets..ie homes...and banks have reintroduced voluntarily.
I believe this also greatly influenced the deposits, over leveraged levels, the swap around of variable lower than fixed....I would not be surprised to see this regulation reinstated in the budget???
I havnt seen any commentators or any discussion on this.
It would certainly be an incentive for home buyers, and return to savings, shave a bit more off affordabity, and maybe even influence a return of house values closer to long term values.
Be a bit of a shock for the interim, but it would have the most effect around the the next election.

Mario Says:
"I think J.K will implement big changes..Why? Because feel he genuinely cares for NZ, .Two terms will be enough for him (hopefully he will be re-elected), He has enough private income for he and his family to live happily ever after..So far he has smiled and joked but is quietly arranging changes to NZ structure without at this stage causing too much bloodletting/trauma.. The changes to the Housing etc is a good start( I am a LL) He was not called the Smiling Assassin for no reason"¦"

"Smiling Assassin"...exactly Mario...
look at his change to education..national stds...mentions imcompentant teachers....
And yes I have seen that too often in classrooms as an IT person ..fly on the wall.
Mentions too many leaving school and arent even educated to take on basic appreticeships...and that is where he is heading..or should I say going back to.
Previous Governments have 'patched up with spending money on post teriary coarses to upskill these kids.... that are just a big rort.
Turn out educated kids . as they are meant to be, directly from the schools and scrap the post usless money spent on the coarses.

He is not one to jump up and down make a big sciene, just states the obvious, that we all know and lets the cards fall where they may... be it in his own cabinet or outside.

Key has made his money, all that is left as an ambition is to run a country and put his name in the history books along side some of our other great PMs....
It is interesting to note he is doing it in the same manner as those guys.

You are onto it Mario....the fat lady hasnt finished singing yet..by a long way.

Dave - "Why would affordability improve?", because, " .... the only reason homes would drop in value is because of a sudden over-supply as landlords leave the market." Which is likely in the FHB/rental/ex-rental segment of the market, if/when the "subsidy crutches" are removed. Also, a more balanced tax system improves the denominator of the ratio (relatively higher incomes):

http://www.interest.co.nz/news/bernard-hickey-talks-alison-mau-tvnzs-bre...

Cheers, Les.

Dave - "You really think prices will be lower if people's incomes rise???" Relatively higher incomes will mean affordability will improve, especially with less of the subsidy crutches enjoyed by SPIs presently. It's affordability that counts, and improving that (and the things that drive the denominator) will mean the young and FHBs might be able to get ahead and actually want to stay in NZ.

Who cares about blips, prices drops or indeed, prices. I guess it's clear some care, about their prices, hence all the noises against these improvements.

Cheers, Les.

Well I don't quite get it: isn't the ARMs debacle what will bring down the US and with it the world economy for good and soon?

Dave Smyth,

"Why would affordability improve? It won't change the cost of building a house. "

hmm - but it mght change the cost of the land the house sits on.

@ Ben

If you check, you'll see I've already said a few times on here that prices will drop should any tax changes come in. Short term drops will help people in the short term.

Many people on here, who have no experience in property investment apparently think they understand how it will be affected.

What is even more incredible is how they think that tax changes that are already in force in other countries will avoid property bubbles, when they didn't help one bit elsewhere.

You're referring to inflation reducing real prices. Well, good luck with that prediction.

Affordability will not be assisted by reducing rental property availability. Rents will increase, meaning deposits will be harder to scrape together.There was far too much emphasis on reducing tax toward the peak of the recent boom. Too much credit created it, not LAQC's or "tax breaks". That's a fallacy perpetuated by the uninformed.

Also, investors are being specifically targetted, which is foolish, when a huge amount of debt went on consumer borrowing and private home ownership.

@ jimmy
- I think that's already happening. There's massive over supply of sections in many parts of the country, especially Northland, where I am. If land values are to decrease, then it would be better to improve access to it.

les and ben.. you are obviously not involved in any way with property .... do you really think that if houses drop 5-10% all these tenants will buy... dont make me laugh .. different investors will buy knowing how much that have to charge thus making rents go up and up...or is the government going to put restrictions on that aswell??houses are so cheap in nz .. yes thats right cheap.. land will not come down ,maybe a few sections but after that no one will sub divide and as for the cost of building your dreaming .. wake up!!!!! ... people from overseas are buying with small change these homes ... you pay more for a parking space in some eurpean cities( also used as investments ) than you do for homes here in nz .. kiwis are poor in the big wide world and you are now becoming poor in your own country... prediction ... houses keep rising and kiwis become tenants in there own country which will be owned by people outside nz

To float or not to float...that is the question! Why is Bollard going to raise the ocr and to what extent does the ocr adjustment impact on the contracts between borrowers and a lender. Let's have the explanation as to why a low ocr can ensure floating rates would stay low!!!!

pedro - "do you really think that if houses drop 5-10% all these tenants will buy" - If their relative purchasing power is improved because the warps are removed from the tax system, because their net income improves, because their gross income improves - why not? As I understand from the Herald article quoted above by Philly:

'Landlords fret over possible tax hit'

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1062...

4.5% of the population would be directly negatively affected by any changes, whereas the upside to many of the rest of the population would be neutral to quite positive - lower PAYE, corp taxes, better home affordability for FHBs.

Trudy - lower corp tax means value-add exporters might be encouraged to invest and expand, hence higher incomes. Plus, such changes would translate to less upward pressure on OCR and tighten as aggressivley in future, thereby having a reducing effect on exchange rate level and volatility - good for all exporters, and in terms of vol., importers too.

Why is it considered such a bad thing to change and level the playing field here:

http://www.interest.co.nz/ratesblog/index.php/2009/06/26/bernard-hickey-...

Why?

Cheers, Les.

Which raises the point...has BH provided some guidance on how to deposit cash in an aussie account and get the better returns...I may have missed it?

Trudy - noted. It's about changing the structure of the framework, to re-balance the economy, for the medium to long term, that is, as John says:

"Until the policy framework changes to provide better stability for the traded economy investment is on hold, ... "

Sure, so the tax changes being discussed, if implemented would improve, "stability for the traded economy", and see my point also about the longer term follow through effects on exchange rate. That said, more will need to be done, particularly on the monetary system/policy side to get the full benefit of re-balancing the tax system going forward.

Cheers, Les.

pedro,

Bingo, you have touched on some important points.
There are just too many things to tackle. It is a challenge to get things working. A "second dip" may come earlier than expected.

pedro - "well IF my auntie had balls she would be my uncle" And I suggest your uncle wouldn't be too happy? Nice one, must remember that. As for too many IFs, well let's just make sure they are not and do the changes required.

Trudy - "There are just too many things to tackle. It is a challenge to get things working." So here's a plan then - let's just leave things as they are, things are bound to change for the better then - well maybe for about 4.5% of us, and 60%+ of parliamentarians .... (I Think you SPIs got nowt to worry about really - look at the stats.)

Cheers, Les.

Trudy : SPI are the Singapore Paranormal Investigators . Les may be suggesting that you need to be one , to understand him , 'cos he is so enigmatic and spooky . ( I may be off beam with this , but it was meant in the right spirit . )

Dave Smyth,

"- Affordability became an issue due to debt inflated demand that pushed prices up, not property investors. That's another oft-repeated fallacy."

hmmm - you are right about the debt bit. But how much more debt can an investor take on when they know they can offset the debt v rental shortfall at the end of the year? I woudl say quite a bit more.

To all above

I wouldn't necessarily jump too hard on the NZHerald. I've been writing columns for nzherald.co.nz and Herald on Sunday being (very) critical of landlords for months. You could argue this weekend's story evens up the ledger (somewhat) I've never had any comments from editors at the Herald telling me to tone it down or rejecting columns. It's easy to accuse the media of being influenced by advertisers, but I see it very rarely in NZ.

cheers
Bernard

Dave - "Tax changes will mean less investors but once the market has rebalanced, it does *not* mean less people living in homes and therefore, no less demand for property." - Correct, but once rebalanced more who would have rented will be owners of homes they could otherwise not have purchased in an uneven competition against those who had an advantage because of the warped tax system and treatment of property.

"If you increase the amount of money people have in their pockets, they spend more and push prices up. Remember the first home buyers grant in Australia "“ that made property more affordable right?" - Oz FHB grant just lifted the floor price, kind of the same effect we get with our tax bias toward property. As you've recognised, remove the effective subsidisation and that floor price will drop. Affordability would increase.

"Affordability became an issue due to debt inflated demand that pushed prices up, not property investors. That's another oft-repeated fallacy." - See above, because of the tax treatment SPIs could take on more debt than without, hence effectively raise the floor price.

"If property investors are such a key source of affordability problems, why now? Why weren't they a problem in 1999 or 1989? Hint: The answer has nothing to do with tax." - I think it has a lot to do with tax, after 1999, in particular once Cullen moved the top rate to 39%, more smart people simply became smart property 'investors'. It's a well analysed and reported dynamic. Bernard recently did an article on this, one of his summer reports I recall. (Have a search for it.)

Trudy - apologies for an ill judged attempt at a little friendly sarcasm. I'm certainly not for leaving things as they are. SPI = smart property investors, RT was not even close. (Roger, "meant in the right spirit" - a single with a peaty finish I imagine?)

I agree with 'modern', here:

http://www.interest.co.nz/ratesblog/index.php/2009/12/17/have-your-say-w...

Plus the comment above it is worth a read too, IMO.

The more I think about, the more I'm inclined to believe SPIs might actually have something to worry about, and JK and BE could well pull the triggers. The stats may be more in their favour than agin them, as while SPIs might make up 60%+ of parliament, they actually only make up a much smaller proportion of the electorate (180k) and I doubt many of them would run to Labour if JK/BE piss em' off anyway. Especially as it looks like the worm has turned on that side of the house and PG/DC would deal to this as much as it looks like BE wants to, but HC/MC never had the grit/vote margin for. (Know wot I mean RT?) Plus more of the remaining electorate stand to gain more from the proposed changes. Who knows, I'd not want to bet, it's politics after all. Let's wait and see what JK has to say.

This is worth a read too:

http://www.stuff.co.nz/sunday-star-times/opinion/3300364/Tax-reforms-vit...

Anyway it's Sunday, so Roger, over and out, Les.

@ Les

from the Stuff article: "...the tax system is one of the primary means of redistributing wealth and minimising that gap between the haves and have-nots."

Argh! Yet more welfare payments they mean. Our economy is already grossly over-burdened by welfare. It undermines people's motivation to provide for themselves, encouraging them into inaction. They become dependent, or to use a word so often repeated on here... unproductive.

Dave - "how will the inevitable higher rents help people get into their first homes after that?" - I agree with analyses quoted above that refute this, I'll not bother to repeat it at this stage. (Also applies to your last point.)

"Easy credit and naive investors changed that recently" - Yes, it raised the floor price.

"They're not buying and the market hasn't dropped." - Sure, but as you acknowledge when the appropriate changes to the taxation system are made the reduction will happen, which will simply be evidence that the tax system has favoured property investment.

"you've just provided the solution!" - Amen to that, bring it down, which is purpose of rebalancing the tax system.

"Higher tax rates might have been an incentive but it was lending that allowed it to happen." - Here we go, banks being blamed again - if there were no demand, they'd not have lent what they did.

"This was a global problem"¦ there was a global cause." - Agreed, easy credit availability and capital adequacy risk weightings that naturally favour property - add in extra bias such as seen in our land supply and tax system and you end up with the unwarranted affordability levels/problems we experience. As acknowledged, change the tax system, prices to drop. Cause and effect. Change needs to happen.

Cheers, Les.

Brian Fallow makes some useful points about the topic we've been discussing, here:

'Tax rules bad for economy'

http://www.nzherald.co.nz/best-of-business-analysis/news/article.cfm?c_i...

@ Les

I'd love to know what "analyses" you're referring to? I can't see anyone that has said rents will go down after there are less rentals availabile.

"Yes, it raised the floor price."
- It raised prices more or less proportionately across the whole market and 67% of properties are owner occupied.

"... when the appropriate changes to the taxation system are made the reduction will happen, which will simply be evidence that the tax system has favoured property investment."
- The reduction will happen as a one-off. The tax system doesn't favour property investment - I'd be grateful if you could show me how it's treated any differently to any other business? The IRD have already publicly stated that property has no tax advantages.

"Here we go, banks being blamed again "“ if there were no demand, they'd not have lent what they did. "
- Banks are businesses. They weren't *forced* to lend money to anyone. Demand increased because banks started lending 100% and buyers pushed prices up. It's called inflation! Sometimes defined as an increase in the money supply. This by the way, is the answer to why we didn't have this boom under the same property tax laws earlier. The supply of cash wasn't increased at the same rate.

As usual, this is another example of dealing with the symptoms and not the cause. Memories are short and within 5-10 years people will be complaining about how high rents are and how difficult it is to save for a house deposit.

The report by Brian Fallow reveals a sad fact.

First he says... " It [property investment] diverts capital which might otherwise flow into businesses..."

And then..."The wealth effect as homeowners saw the value of the equity in their properties climb turbocharged consumption and stoked inflation..."

As he inadvertantly points out, Mum and Dad home owners tend to spend instead of invest. There's a huge number of what I'll call "marginal" property investors who will be the ones to sell off their properties after any tax changes. If you think they're going to rush out and buy shares, start businesses or put it in KiwiSaver, you're dreaming! I've seen it happen over and over. They will pay down their mortgages and then gradually, as they feel more secure; boats, holidays and new cars start to look more appealing.

@ Simon
- For many over-leveraged investors, yes, it's probably a good time to sell. However, for those who are lower geared, if they can hold their properties and weather the tax changes, they can look forward to higher rents and continued capital growth. Generally, property prices will double over a roughly a ten year period and rents will continue to climb, so why sell if you don't have to?

"- The reduction will happen as a one-off. The tax system doesn't favour property investment "“ I'd be grateful if you could show me how it's treated any differently to any other business? The IRD have already publicly stated that property has no tax advantages."

Right Dave, that's why I guess the IRD now have new investigation powers around property investors I guess, because they see no problem with it? Keep dreaming. For the record, 'PI' is NOT a real 'business' at all. You produce nothing!, you only suck from society! Real 'businesses' produce something, jobs, products, exports, imports. PI's just live of those that do that.

Justice-yr dreaming. Materials and labour are used to constantly upkeep rentals, just look at how many are in the service industry related to property. I bet those owning a mowing or mainainence franchise are not looking forward to any changes. Bet hardware stores arn't either. Lawers, accountants and even IRD employees look after property.

Philly, thanks for pointing towards those articles it was very insightful learning how compassionate landlords really are. I would suggest that from an investment base of $200B a proposed $2B of tax take is but a 1% return on investment and not nearly enough to compensate our younger generations who struggle to find investment for their toil.

Personally I think that the fundamental issue is a means to pass the countries wealth from old generations to the young ~ in NZ the figures are something like, people over 50 years old have 90% of the countries money.

These aged people also wont to be cared for in retirement through pension payments paid for by the toil of their grandchildren yet the aged are not investing in new businesses ideas which create international revenue, instead they encourage a "wealthy" immigrant policy and foreign exchange borrowing by our young to boost their property values.

It is hard to see how the proposed tax take will effect the echo-system, for instance students aren't suddenly going to have extra money in there pocket so rental prices wont change at all. Also, landlords aren't going to have to sell there investments creating a housing crash because from what is reported most landlords are concerned socialists and not negatively geared.

I would suggest that the changes being implemented (not including a GST rise as reported else-where), will do what they are suppose to and create a fairer tax system while at the same time making investment in things other than property (our youth for example), more viable.

oops I mean exactly Roger

Justice you're dreaming!

"to cover insurance, lawyers, accountants, lawnmowing, plumbers, electricians, handymen,"

"the pockets of the property managers,the accountant, the lawnmower guy, the handyman guy"¦"¦"

What is the export fraction of these activities?

Melting, fast, hence the spin, bluster and scaremongering.

Splish, splosh, splash. Melting fast.

Nicola 11:26, that's my point, the majority of the aged plan to pass the wealth of their property investment on to their children only when they die. In a way locking up the inheritance and limiting it to the wealth gifted them as a dead legacy, a testimonial to the struggle you and many of the elder generation personally made.

In the mean-while our children borrow money from other countries wealth and resources to fund the housing extortion of limited supply of land when our country has but 250 people per square Klm.

The aged are indirectly robbing NZ born Peter with housing inflation if he stays here, forcing him to commit to 25 years of bank interest payments at 65% of his salary. So what price do you charge for the freedom and lifestyle of your children while they are still young enough to enjoy it?

@Nicola, what great spin, fuss, bluster and scaremongering, you got it bad. Some sectors do operate as support, but many in the white-collar area might be considered more parasitic than supportive. It would be good to see many of the trades you mention busy making stuff, particularly constructing new homes to further improve things - I bet it'd pay better than what you pay em. As for contracting all services out to India, and importing tradespeople like the imported service workers in Qtn, oh puleeze, get real, ditch the fuss - let's stop the landbanking and constricting land supply and get building more new homes. Just think, more cheap rentals for you to acquire.

As for how come the PI is "sucking " money out of the system while the homeowner is just "buying a house", same money from the same bank." - BUT, with a tax break the homeowner can't enjoy, hence falsely elevated prices, particularly in the small end of the market. They are "sucking" money from other tax-payers, some of whom are the very people that could not compete in the market against them, to buy the same home they will end paying a mortgage on anyway - probably for an SPI also enjoying the subsidy benefit of the tenants' taxes, as well.

@28/29yo, you don't have to be an exporter to understand that NZ needs to rebalance toward exporting and the productive sector, and away from the non-productive sector where you, Nicola, Dave Smythe and the small (but noisey) SPI brigade have interests. It's not about being self-interested, it's simply about being intelligent. While continuing on as we are might be good for the likes of the small proportion of you SPIs, it's not intelligent for the rest of NZ, particularly the young and future generations.

@Dave Smyth, let's stop the landbanking and constricting land supply - you must have missed that line. That would alter things and is also a change begging to happen as well. Why have you resorted to twisting and inappropriate labelling? Non-exporters should not be maligned as unproductive, nor landlords described as evil. Why play those kinds of games?

It's about being intelligent in how policy is changed to help rebalance the economy.

@ Jacko
- I think that costs to develop land are higher than they need to be but I don't believe landbanking is really a problem.
- I was emphasising your attitude with the labels. That's how you come across.
- Most property investors are doing it for their retirement because they don't believe that there will be a super there for them or that what will be there will be inadequate.
- Also, the main motivation to invest in property isn't tax breaks. If you really want to know, we're in it for the ability to leverage debt. Find someone who will lend me a $1m to buy shares with a 20% deposit and I'll be in like a shot!
- The focus on tax isn't going to change anything long term.

@Dave Smyth, no problem with people saving, investing for retirement. But not at the expense of others' opportunities, (the young and FHBs,) which is what happens when you leverage the debt - with the turbocharging of tax breaks - that others who will end up as your tenants, can't use.

@ Les
- I can't find any links to a post by "modern"?

@ Dave Smyth, I think removing tax deductability wouldn't stop PI (and PI shouldn't be stopped) but it would mean PIs have no more advantage than the young and FHBs who can't compete with their tax-break turbocharged buying power, who end up having to become the PIs' tenants.

Borrowing for PI shouldn't be banned, but when the tax-breaks associated with PI are having an such a skewing effect on the economy and negative effect on the prospects of the young, then yes, stop what have effectively become the related tax-breaks. If said tax-breaks were not available, fewer people would be doing PI and avoiding taxation as they. This needs to change.

Dave - drill through the link here:

http://www.interest.co.nz/ratesblog/index.php/2010/02/05/housing-report-...

Population pressures - I was just considering the effects of tax changes in the main, but, if you want to bring this factor in, then we need some Hugh P style thinking and meet that demand with appropriate supply. Affordability of owning and renting could be neutral or less.

Your point about price proliferation, sure, with the floor lifted, the whole lot lifts, it affects affordability across the whole spectrum.

PI, tax breaks and motivation, I agree with Jacko, it's something that has skewed the economy and that needs to be fixed. You, might have noble motivations Dave, but once Cullen did his envy tax thing to 39%, as I said before, many smart people, not surprisingly, became smart property investors. With the easy credit available it simply conspired to have more of an unbalancing effect on the economy as a whole than would otherwise have been the case, and it needs to be fixed. Taxation changes are part of the fix.

Cheers, Les.

Just out of interest, if the desires of most here are achieved, i.e. there are no landlords, house prices fall etc... where is the tax revenue going to come from for the PAYE tax cuts?

28/29 yo: Roll on tax changes, I can't wait, speculators and negative gears will be gone from the market, I thought I wouldnt be buying again until the next recession!

I suspect that many would agree this is enough of a goal. The property investment sector doesn't need to be taxed heavily per se, just ensuring it controls speculation/tax minimisation (which effectively go hand in hand, as you have to speculate on value to make a negatively geared property "work").

Dave - "My concern has always been that any changes will overcompensate for a problem that is already correcting itself." - I understand your reasoning if you mean the housing market, but what we should also be concerned about is correcting the systemic problems that meant the tradeables sector suffered at the expense of the remainder, which has left the economy unbalanced. We need PIs IMO, but having recognised the problem the priority needs to be system solutions that mean we don't repeat the same kinds of mistake, and I hope JK/BE are going to grasp some nettles in that regard.

It's been good yarning with you.

Cheers, Les.