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Why the young will increasingly have to rent and pay high taxes
What will happen to our younger generations if New Zealand doesn't change the way it taxes property and savings?
What will happen to income taxes and home ownership rates if we leave the retirement age at 65 and keep our pay-as-you-go and universal pension system? Can we keep growing our economy and have a socially healthy population if we 'set and forget' our current taxation and pension settings?
These are questions I have begun asking myself a lot lately. I returned to New Zealand in 2004 after 10 years overseas building a career to make sure my two daughters grew up in New Zealand and eventually raised their kids here. My dream is to help build a country (in my own little way) where I can watch my grandkids grow up here.
But I'm beginning to worry this may not be possible, given what has happened in the last decade and what our current bunch of politicians have been saying (and doing) lately. My nagging fear is that my children, and the many other youngish New Zealanders entering the workforce in the next 20 years, will decide that after-tax wages here are too low, that home ownership under their own steam is an unaffordable dream, and there are better options overseas.
My nagging fear is that I'll have to watch my grandkids grow up by facebook and Skype because they'll vote against this plainly unfair and crushing inter-generational transfer of wealth by emigrating. Or worse. But it was only a fear based on my general observations about what happened in our housing market and our economy in the last decade, coupled with an intuitive set of views about what might happen next.
These general concerns lacked any great underlying rigour or academic backing. My outlook fit into a small (but growing) general world view that the ageing and developed world faces an epic clash of the generations in coming decades as a generation of young and poor tenants rebel against an entrenched group of old and rich landlords. It was only a general and academically unsupported view.
Many have criticised it as the rant of a envious loud-mouth. Fair enough. Until now. Andrew Coleman at Motu Economic and Public Policy Research presented a paper this week in Auckland that provides some intellectual rigour behind these concerns. Coleman's paper, "Squeezed in and squeezed out: the effects of population ageing on the demand for housing." is presented below in full and can also be found here.
I have also interviewed Andrew Coleman and the unedited Youtube interview can be found below.
Related Topics
Coleman's conclusions are startling and liberating at the same time. They are startling because they are counter-intuitive to most people's views of the housing life cycle until now and liberating because they suggest a way forward that might stop or reverse the trends. He has modelled what happens to the home ownership rates of the young and the old in New Zealand as the population ages.
The paper demonstrates that the young face rising income taxes and will increasingly have to live in ever smaller rental properties, while the older generations stay in their large houses and invest in rental properties. This is counter-intuitive to the traditional 'life-cycle' that is assumed by policy makers and voters alike.
The assumption is that students leave home, graduate, rent, buy a house, start a family, raise that family, buy a bigger house, pay off the mortgage, kick out the kids, save for retirement, retire and then downsize to a smaller house or unit to free up cash. But Coleman's conclusions are that as the population ages and the inherent biases towards property investment keep driving house prices and saving behaviour, the young will be forced to stay renting and the old will stay in their big houses.
If this happens, New Zealand risks becoming ghettoised into two groups: apartment dwelling young and middle-aged renters and villa-dwelling old landlords. Either that or no one ever leaves home. The social costs would be corrosive. It would mean sicker, weaker families and a less cohesive, more transient population. Coleman's conclusions from the paper and the model are best expressed in the haiku that accompanies Motu's research papers: "The young pay taxes So the old live in mansions They wanted when young."
So why will this happen?
Coleman has set up a model that takes into account: * the forecast doubling in the proportion of the population over 65 to 25% by 2051, * the way choices about renting and buying are dominated by tax, retirement income expectations, healthcare expectations, interest rates, bank lending constraints and inflation, * an assumption that governments will run balanced budgets where the current pay-as-you-go universal pension system is unchanged, health care costs rise and income tax rates are increased as a result, and, * an assumed increase in house prices because of population growth and an inflexible housing supply.
The results are profoundly depressing if the retirement age is not delayed and taxes are allowed to rise to pay for higher healthcare and pension costs.
The outputs from the model are aligned closely with what has happened since 2000:
* the proportion of young people owning their own homes has fallen,
* the speed of those moving up the ladder to home ownership has slowed,
* bigger and higher quality housing is increasingly owned by older near-retirees,
* older New Zealanders are spending longer in larger houses rather than downsizing,
* older New Zealanders are choosing to invest more in rental property than other asset classes, in turn pushing up house prices and making home ownership for the young even more difficult in one of several negative feedback loops. One of the biggest drivers towards the "Apartment dwelling renters vs Villa-dwelling landlords" scenario is the taxation system that incentivises rental property ownership.
Capital gains in rental property are tax free and savings invested in housing do not have to pay high withholding taxes on interest, including the inflation component in interest. Coleman suggests a few things to close this widening gap, including:
* moving towards a taxation system that exempts the inflation component within interest earnings on savings, and,
* changing the current system of a universal pension at 65 to reduce the future tax increases. See the paper below and the interview. I welcome your thoughts and comments.
I think New Zealand needs to have a debate about our taxation system, our pension system and the looming clash of the generations if we do not change these systems.
Hopefully this paper from Andrew Coleman gets people thinking and talking. At the moment, the Prime Minister John Key has tried to shut down this debate by only tweaking the property taxation system in the budget and refusing to debate the idea of delaying the retirement age or changing pension entitlements.
His threat to resign if these things change has deliberately taken them out of the debate. If the main opposition party won't raise these issues, maybe both young and old people who worry about these trends should start the conversation themselves. Off we go.
Here is the Powerpoint presentation Andrew presented in Auckland on Tuesday. Grandma is My Landlord Long Version May 2010
84 Comments
Interesting! Curious on "they’ll vote
Interesting! Curious on "they’ll vote against this [...] by emigrating. Or worse." - what is the worse here, emigrating to Australia?!
@MatH Perhaps Voting in Euthanasia
@MatH
Perhaps Voting in Euthanasia
Thinking of something from the 1970's - no not Bill Birch - but Logan's Run.
[...] Blogging On Interest Rates,
[...] Blogging On Interest Rates, Economics & Business in New Zealand [...]
[...] Blogging On Interest Rates,
[...] Blogging On Interest Rates, Economics & Business in New Zealand [...]
Bernard, Your analysis is spot
Bernard,
Your analysis is spot on.
We have our eldest son in Australia - now an Aussie citizen with grandchildren and the differences between the two countries are remarkable and the wealth gulf is growing.
What is also amazing is the number and prosperity of Maori in Aus.
They succeed very well as soon as they get away from the tribe on a day to day basis - Just as Adam Smith said !
I am afraid the die is cast - we are fast on track to becoming another poor pacific state.
Means testing in 2051 and
Means testing in 2051 and no univeral pension are a given.....
In 2051 nearly every baby-boomer
In 2051 nearly every baby-boomer will be dead (they are late 50's to 60's now). So who will own the rental properties? I thought all the baby-boomers did? Massive intergenerational transfer of wealth from older generation to youger generation through their estates???
But how old will there kids
But how old will there kids be.
They'll be keeping it all in
They'll be keeping it all in the family. From Landlord to Landlord.
Banker: 'As I understand things, you wish to buy a house, is that it?'
Customer: 'Yes, that's it.'
Banker: 'And do you have you property portfolio with you?'
Customer: 'My...? Uh?'
Banker: 'Your property portfolio. I can't even begin to do anything until I've viewed it.'
Customer: 'I'm sorry, I don't understand. What do you mean by "property portfolio"?'
Banker: 'Your property portfolio! With all the details of your current properties and mortgages and so on. We shouldn't even discuss a new acquisition until I've viewed the portfolio.'
Customer: 'The thing is, I don't actually own any property yet. This will be my first house.'
Banker: 'I'm sorry, is this some sort of joke? Look, please tell whoever it was who put you up to this that I'm a very busy man!'
Customer: 'No, no! I wish to buy a house! And I've been a customer of yours since I was nine - all my savings are in this branch!'
Banker: '"Savings"! What on EARTH are you doing with savings? Why haven't you invested it in property? Really, I can't be teaching you basic economic fundamentals, I have customers waiting! Good God..."savings"!'
Customer: 'Wait, all I want to do is apply for a mortgage to buy a-'
Banker: 'How on Earth do you expect to be eligible for a mortgage if ytou don't already own property? You're, what...37? Surely your parents have property already?'
Customer: 'Well, my father passed away last year, and my mother is thinking of moving into a home, so we thought about selling her house, but I have three brothers and sisters who all-'
Banker: "Do you mean to tell me your parents only owned one house? A single property? But good Lord man, what were they doing with their lives? Without property you're as good as dead, financially-speaking! Unless you can get the old bag out of that shack and signed over to you, there's no possibility we can go any further at all. And even then...ONE property? I wouldn't have thought it possible! EVERYBODY who is anybody owns at least a dozen or so houses, surely you're aware of that?'
Customer: 'Did you just call my mother "an old bag"?!'
Banker: 'Ah, well, look at the time. Thank you for your enquiry, and I wish you all the best. Good luck, and all that.'
Customer: 'Now look here-'
Banker: "Mrs Crighton, will you kindly ask Sione to escort this gentleman to the door? Thank you.'
hmmm... Bigger houses...Q here....my experience
hmmm...
Bigger houses...Q here....my experience is that when looking to buy or build many builders developers were squashing as big a house onto as small a plot as possible in order to get as high a return as possible on the land. We only needed 2~3 bedrooms....yet all the new/newer houses tended to be 3~4 bedrooms, fancy shapes (more expensive naintenance), bigger floor plans on tiny sections, (kids on street playing), and far from public transport and schools so were not really that suitable...so we bought a late 1960s house, on a quiet raod close to main road (5min walk ~ 7 to school).
I guess what I am saying here is the comment was NZ is "younger building bigger house"s may not be totally correct/true...it maybe more pull driven ie by the developer/builder as opposed to push by the buyer...generally unless a buyer gets a house built they buy a plan or just completed...
?
regards
Pressure on big houses...in the
Pressure on big houses...in the model?
Guess I have to read it
;]
Which I will do hopefully today....
Other Qs, what allowance for council rate increases over time which are usually based on m2?
ditto energy.....
The first is pretty easy to look at for us in 10 years the rates have doubled easily...
Energy is harder and quite nasty........
For instance there is a triple whammy on a large new house....1) Its bigger so its heat losses are bigger....2) energy looks to be very expensive in the future....we have 65%? renewable electric and our houses are mainly electrically heated....and even cooled....I expect electricity prices to climb way above the inflation rate, probably double maybe treble....
3) Transport costs to and from things, mostly fossil fuel....if not well our electricity usage will be even higher....
Yes I know Im on the Peak oil bandwagon again....but so many economists ignore this, its a game changer, paradigm shift....etc etc all those naff over-used words....
Oh and I expect we will be growing more of our own food on our plot...so a big house with no growing areas? hmmmm....
gtg
bye
regards
A wiser thing BH would
A wiser thing BH would be to educate the young Kiwi to help them grasp the reality of the Kiwi property ponzi scheme, with the intention of helping them understand it is their behaviour which the banks are relying on to keep the ponzi scheme alive and very profitable for the banks. That they would be best to rent and to leave for overseas when better options open up. If English Key and Mob are being honest in wanting to keep the doctors and engineers etc in the country then it is up to the govt to bring an end to the ponzi madness. That means a conflict of interest for the govt with on the one hand a desire to keep the banks in fat profits and the ponzi scheme running....and on the other hand a wish to keep the young skilled Kiwi in Noddyland.
It is interesting to see how so many young Kiwi are quick to grasp the need to protect the environment and to act accordingly....but they are so slow to recognise their own group power of action when it comes to the market place. They remain easily conned by advertising and are quick to gorge themselves on consumer garbage. If as a group they were to tell the banks to shove the credit you know where..the slap across the face of the banks would be heard across the country.
@Wally, If English Key and
@Wally,
If English Key and Mob are being honest in wanting to keep the doctors and engineers etc in the country
and on the other hand a wish to keep the young skilled Kiwi in Noddyland.
And you believe them? Ha, ha, c'mon, get real, they couldn't give a rats arse and neither did the wastrals before them.
‘Landlords likely to be biggest
‘Landlords likely to be biggest losers – National – NZ Herald News
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10645660
“It would be nice to see the first-home buyer on the same footing as the landlord when they’re competing to buy a house. At the moment, the landlord has all the tax benefits and the first-home buyer can’t compete.”
Agreed. Maybe he was there?
http://www.interest.co.nz/ratesblog/index.php/2009/06/26/bernard-hickey-...
“We are down to the last two bidders now, and we are on the market.”
The bidders are the Boomers and the Ybothers.
The Ybothers have saved hard towards a deposit for their first home.
The Boomers have phoned the bank and accountant to discuss the purchase of the next rental.
The bidding starts, with great hope on one side and self-satisfied assurance on the other.
The bidding ends – not long after the Ybothers can’t match the purchasing power associated with tax subsidies enjoyed by the The Boomers.
The Ybothers are back at square one, they are renting a place owned by the Boomers. They are paying the mortgage on that place for the Boomers, but given they are tax payers too they really would like to know what tax subsidies the Boomers enjoy and just how much they are subsidising the Boomers themselves – can anyone help them?
@steven You not take into
@steven
You not take into account that the city councils are forcing the developers to build these McMansions. Most of the houses we have seen have been zoned to be min of 3 car garages and a min of 250 sq m. Why? The zoning rules are screwed and are making house very unaffordable for no apparent reason but to lock new buyers out of developing areas.
Personally I want to see councils rising rates by 30% and adding a capital gains taxes to all secondary dwellings or to any sales under 24 months to prevent flipping.
From the Herald article: Predictions:
From the Herald article:
Predictions:
* Rental housing investment incentives abolished.
* Housing a less-popular investment class.
* Depreciation rules likely to be changed.
* Rental housing's ability to lower PAYE axed.
* Landlords' cashflows could be hard hit.
* Door opened for more first-home buyers.
.... Excellent....
@ Steven - "For instance
@ Steven - "For instance there is a triple whammy on a large new house" - Regarding electricity usage & heating, I am not sure there is such a big difference, unless you mean a large new house as opposed to a small new house? We were in a small OLD house and moved into a new big house. I was amazed to find that our electricity bill was higher in the small old house. Reasons: we made use of passive solar heating when designing our new house; it is all double-glazed and the walls, ceiling and slab are insulated; we have a log-burner (24kWh) with a heat-transfer kit going into the children's bedrooms; we made sure to install a wetback to heat our water when the log burner is on; the piping is there for plenty of solar panels to be installed (not on yet due to waiting to save for them first!) etc. We have had a few very cold nights (2 degrees or so) yet it was around 18 deg in the house when we got up in the morning with no heating on (except log burner previous evening). The only electric heater we have used is in the baby's room during cold nights because he doesn't seem to want to stay tucked under his blanket... We still only have one living area, so no difference in that respect compared with previous small house.
Regarding "all the new/newer houses tended to be 3~4 bedrooms", I agree, we couldn't find anything other than 4 beds/2 bath....but we were after 5 beds and it turned out impossible to find (or rather all we could find was old and patched up, ie extended, and way overpriced and we found it'd be cheaper to build ourselves). Regarding the small plot, I agree and we found this depressing. Since we were going to build we also purchased a 4ha block (with maybe subdivision potential in a few decades). We do have a lot more commuting to do right now, our petrol bill makes me cry, but we are planning to start a contracting business before the end of the year (we are both engineers and since this was always our plan we built an office as well, while we were at it!). So the commuting should be sorted out soon and we can be back on our bikes :)
The way I see it
The way I see it is that adding a capital gains tax on houses will have a minimal effect on the price, the economy will have the exact same amount of money flowing around in it, and sooner or later that tax collected on the capital gains will probably make its way back into whatever people feel comfortable investing in. The main factor that drove house prices up was easy money from the banks, with that now changed property prices will have minimal capital gains, until its easy to get credit from banks again. The only real way to have a balanced economy is education, then it won't matter if theres easy money because people won't just blindly invest in the next craze. The government should focus totally on health and education, in my opinion these are the two main things that will build a happier more balanced society.
Bang on Jacko. It's all
Bang on Jacko. It's all a game of play the voters for suckers and let's be owning the pig trough for anohter 3 years.
Model as always is just
Model as always is just that.
Three model assumptions which won't survive this decade (whoa, a big leap of fiaith here):
- no means testing of all benefits (pensions included)
- retirement age stays as is
- land supply remains constricted and housing builds remain plateau'ed
Two new model assumptions not mentioned
- effect of trusts and other non-natural-person ownership - very widespread. Core aspect: cui bono? Who are the eventual beneficiaries?
- changes in living arrangements - blendeds, extendeds, boarders, waifs and strays, and other intergenerational or cross-familial deals which effectively increase housing density and make better use of housing capital. Field-tested in South Auckland.
Models are just that, BH, don't despair. Our monkey genes have a default setting of Family/Tribe, and you don't ever discount default behaviours.....
And as for Land being necessary to Grow Stuff, chaps and chapesses, get a grip - spuds in plastic bags filled with bought compost sitting on concrete are burgeoning as we speak, which reminds me, better water them...
@waymad I agree, our inner
@waymad
I agree, our inner monkey all have a great built in pre loaded morality software including a strong sense of social reciprocity and cooperation.
I can be 'like the
I can be 'like the lechorous landlord Rigsby , in 1970's Brit show " Rising Damp " . Buy a big old weatherboard mansion near the university ............ Get lotsa students in as tenants ......... And waddle around as an interfering , oogling , old lard-arse ....................... So cool , can't wait !
Thanks Bernard , finally you give some prognostication to gladden our doom & gloom weary souls !
Sounds a bit like Wally
Sounds a bit like Wally to me, ( read this as my attempt at humour on Budget Day, sir)
http://www.naturalnews.com/028803_psychiatry_disease.html
@nicholas arrand Now that I'm
@nicholas arrand
Now that I'm diagnosed...Where are my meds??
Can I suggest a name for this "condition": Libertarianism
Wally @ 8.26 --very wise
Wally @ 8.26 --very wise thinking. I like your comparison to environmental thinking / action.
Cripes Bernard your a stirrer....tee
Cripes Bernard your a stirrer....tee hee.
Bernard the freeze shot of
Bernard the freeze shot of you looking at that guy's suspenders just about says it all....ha..!
The rich will get richer
The rich will get richer and the poor will remain poor.
There's an obvious course of
There's an obvious course of action for the young here:
Rent room in large house with older owner who can't look after it any more.
Inveigle your way into their affections. Much easier if they're going gaga and all their children have emigrated to Australia.
Convince them to change will in your favour.
Smother them in their sleep.
I think that rents will
I think that rents will be controlled by income rather than what the landlord can charge, if they charge to much people will leave. The Germans are quite happy to rent all their lives so there is no big deal here.
Secondly if more people rent then there will be less unemployment as people will have no problem moving away to get a job elsewhere thus filling holes in the labour market.
TumTeTum had it pretty right
TumTeTum had it pretty right when he/she noted that at some stage there will be a transfer of wealth from the baby boomers to their children. My wife is obsessed with making sure that we will have something to leave to them in due fullness of time - I want to spend it! So whatever debt they may have will most likely be taken out by our legacy to them.
Is this factored into the modelling?
May be children rent from
May be children rent from parents, rent beats the bank interest payments on mortgage + INHERITANCE = win win :)
To continue Wally's comment about
To continue Wally's comment about environmentalism and economy - both things are so heavily affected by consumerism. If we bought less clothes and electronic gadgets, or at least bought them less frequently, we would most certainly be better off, and thus be able to save for a deposit for a house; we would also be helping the environment.
My partner and I have just bought our first house (about 6 months ago), and have been saving heavily for a few years - since starting to save, one of our big changes was to just make things last a little longer, and put off purchases a bit to see if we can "survive" with what we have. Anything we have been buying has usually been 2nd hand from TradeMe. For food, we've been putting the extra effort in to go to the market and get cheaper fruit & veg than you get from the 2 big supermarket chains; for booze I've been brewing my own beer. A couple of things happened, we saved money (which was the plan in the first place), but we've also been producing very little rubbish - we put out a wellington council rubbish bag once a month, and recycling every 2-3 weeks.
Back on topic though, housing affordability will continue to drop, partially to do with "growth", but also the ageing population...the other thing is standards; I grew up in a 4 bedroom house with my parents, 8 kids and my grandmother...in winter I undressed in bed and shivered to warm the bed up; understandably, my standards are now pretty low, but a lot of people will look at the standard of house they can afford to buy and the standard they can rent, and choose the (usually) nicer rental (without the finanical stress of a mortgage).
It would be as funny
It would be as funny as if the X and Y and Z generations told the banks to keep their credit. A wave of advertising would flood the goggle box and radio aimed at encouraging the generations to "go for property" ...."buy it now"...."enjoy the lifestyle"...and similar crap. There would be a flurry of late night visits to the 9th floor of the Beehive. The candles would burn all night. Tolley would introduce a whole new demand on schools...."teach them to love debt"...
... and yet as we
... and yet as we look into the abyss we all merrily carry on our way, safe in the knowledge that the government will make it all better.
As the Tui signs say ".......... yeah right".
For now I will enjoy my cheap rent (only gone up $50 in ten years) and continue to plan for the escape to a country offering better opportunities later this decade (unfortunately I believe in honouring commitments, or we'd be looking to leave now).
I'd like to hope some government will one day have the balls to address these fundamental issues, but I'm going to ruin my wife waiting for the "tooth fairy", as it's so often said "turkeys don't vote for an early christmas", but I'd add they are still turkeys, and are still going to end up in the oven eventually, it's just a question of when.
@steven Says: May 20th, 2010
@steven Says:
May 20th, 2010 at 7:19 am
Renewable electricty - closer to 73%
http://www.guide2.co.nz/money/news/business/73-percent-of-nz-electricity....
And growing - big jumps brought on by geo-thermal recently
Agree with your points re housing and energy matrix, and also about the push / pull component of new housing.
Still most houses in NZ are absoultely woeful in their design for passive solar gains. Think attached garages on the North side of the house facing the street. That design mistake will be around for the next 80 years at least. Not sure they will be housing cars in 80 years. Tragic built mistake.
@Elley - Wise decisions in the planning of your house. My wife, a registered Architect, absolutely despairs at the design and build houses that make poor use of space - all misplaced garages and houses that are full of hallways that show poor planning and circulation space.
@Wally - I think they are already teaching ' debt is good' at school's now. via the Gen X and Gen Y teachers that are saddled with useless consumer debt and the easiest and cheapest debt - Student Loan Debt
Oh too true BR..I was
Oh too true BR..I was thinking they might start with 'debt love' on the new entrants...you know...get a head start. By year 9 they could be owing tens of thousands...what a waste...get onto it Tolley...don't waste a moment.
@Wally - "It would be
@Wally - "It would be as funny as if the X and Y and Z generations told the banks to keep their credit." Fat chance of this happening I reckon. "A wave of advertising would flood the goggle box and radio" - my mailbox and inbox already overflow with advertising about other things (mainly electronics etc) telling me how much I'm gonna save by spending on the latest gadgets (I call a flat-screen TV a gadget, nice, but still a gadget). I'm not sure whether to laugh or cry at that, it is just so pathetic. It seems all life is about these days is consuming, consuming, consuming. And all this for stuff we don't actually need in 90% of the cases.
As for financial education at school, I am not counting on it so I have started hammering the message (save before you spend) to my kids a while ago. They are 1, 3, 4 and 5 but I reckon the earlier I start the more likely my blabbering will have some sort of long-lasting effect on them (I hope!).
Oh bang on Elley...them first
Oh bang on Elley...them first five years are the time to get with the languages and the beliefs...hope you have them all going hammer and tongs with the French?
Hmmm, I have a question:
Hmmm,
I have a question: what happens to all that "wealth" built up and held on to by the baby -boomers when they're all dead?
Won't there be a flood of larger properties on to the market, driving down prices?
......<b>hefkll</b> : Ever heard of
......hefkll : Ever heard of Charles Drace ? That has been his theory since .................... well , long before the current property bubble began , truth to tell .
@hefkll shhhhhh! you'll spoil all
@hefkll
shhhhhh! you'll spoil all the fun for the Chicken Littles!
So assuming you are worried
So assuming you are worried about your children having to pay for baby boomers retirement, I am assuming you voted for a party that:
a) Had a slightly higher tax rate for high income earners (but still less than most countries) and put this extra money into a fund that is earmarked for baby boomers retirement
b) Set up a retirment scheme where 4% of your savings is matched by your employer
c) Paid off public debt
Or did you vote for a party that:
a) Gives small tax cuts which it has to borrow to fund
b) Cuts the retirement scheme from 4% matched to 2% matched
c) Stops contributions to the superanuation fund
You voted for the first party, right Bernard?
Seems to me the banks
Seems to me the banks would make more munnymmmmmmmunnnnny if they owned the properties and rented them out. No need to sell mortgages or borrow or take in deposits. Just milk the rent to pay the refi deals and squeeze the market for rent rises. The councils would come asking for development to happen and the banks would own the market. Total control.
TumTeTum hits the nail on
TumTeTum hits the nail on the head - New Zealand's immaturity is most apparent in its lack of an inheritance tax.
@Wally - Well, baby is
@Wally - Well, baby is still limited to papa, maman and "chaussure" ("shoe", don't ask me why) but yes, the other 3 are fully bilingual and, I might add, apparently have a perfect Kiwi accent (which is more than I can say myself!). Btw, thanks for not pointing out to me that I have contributed to the world's overpopulation and how irresponsible I am. It is much appreciated indeed (and if we/our parents/extended families are anything to go by, they'll be the kind of people contributing positively to society in 20-odd years, and we sure do need more people like that).
Totally agree, though renting is
Totally agree, though renting is not bad per se - depends on how much rent you pay and that I guess depends on house prices.
What I would add is that the current universal super at 65 set up is also unfair on the oldies. While the fit and able can tuck into super at 65, those 10 years older might be having their extra bit of home care axed or the hip op pushed further out into the future because the government says it can't afford it. Not sure if many oldies see the connection.
Sorry BH, but your kids
Sorry BH, but your kids will leave you behind no matter how much they earn in NZ. They will travel and see the world then decide where they want to live and settle down and have 1 child by IVF in their late 30's or early 40's.
You look like an older father anyway so doubtful your grandkids will be an issue as they won't have arrived by the time you move on.
Get away Elley...4 is nothing...bet
Get away Elley...4 is nothing...bet your great great grans had on average a modest 12.
Think of the WFF on a brood that big!
Elley Shoe!, that could be
Elley
Shoe!, that could be haruspicial, My daughter (now wanting to be a vet) said 'Cat' and my son (want to be an engineer like his Dad) said 'Car'
Neven
@Wally - My grandma, who'll
@Wally - My grandma, who'll turn 100 in August (!), also had 4. Not sure about her parents or grandparents though! I'm not thinking about WFF btw, but about our next business venture which I sure hope will give us not only flexibility with our schedules and place of work, but also the possibility to go and spend the NZ winter by the sea in my hometown in France whenever we feel like it.
@Neven911 - hmmm, maybe we'll
@Neven911 - hmmm, maybe we'll have a cobbler (?) in the family then?! That'd be a change from mainly engineers and a few teachers.
@Kakapo! That's not very nice.
@Kakapo! That's not very nice. Time to invest in prisons I think.
I suspect we will see
I suspect we will see a rerun of what happened in 1970s when plenty of elderly who wanted to stay living in their houses (partic in inner cities) simply converted parr of them into a small flat to help eke out their retirement.
Lived in two such former grand houses on The Terrace in WGTN in that time with the 80s couple having the tenant downstairs and bought my own house which had previously been owned by a woman in her 80s who split it into two apartments for similar reason.
I have neighbours who have done just that and continue to live in their houses because they are "home" and they love them and have been there 30-40 years. Others
may simply divide and the strata title big houses - sell part off and use proceeds to
help retirement and stay put.
Thank you very much for
Thank you very much for the cool post, will keep the info in the back of my mind ;). If you followed my advice and assembled a portfolio based on asset values (P/E, P/B), rather than on current price movements, so-called "performance" or "expert opinion", you will not own ETFs that force you to sell at a loss.
Where does this guy think the
Where does this guy think the money will come from for all these new houses?. Our economy must FIRST BE PRODUCTIVE
Bernard, Mr Coleman is
Bernard,
Mr Coleman is putting 'house inflation' in a seperate universe too 'commodity inflation' which is NOT the case in the real world. Any savings whether in property under mortgage are STILL eroded via your rate of annual commodity inflation. Inflation is a universal killer on every component of an economy
savings invested in housing
savings invested in housing do not have to pay high withholding taxes on interest,
Which of course, they should. It's a kind of Land Tax in all but name. It would encourage (1)ownership of houses at a lower nominal level (to reduce the Capital Tax); prices of property would fall to equate to the commercial cost of ownership - the rent received, and (2) rebalance the equity/debt equation, squeezing savings out of housing into other ventures. In essence it would be -> Pay tax at the RWT marginal rate on the value/(purchase price CPI adjusted over time) and receive an offset for any interest paid on the debt.
correct
correct
They should also tax people
They should also tax people for owning TV's, stereos, cutlery, and clothing.
"They" do! We all pay the
"They" do! We all pay the same rate. GST. Savings on equity in a property is not taxed. It should be, if 'they' are also going to tax savings in other forms ie: bank accounts.
Weren't you proposing an
Weren't you proposing an annual tax not a one off. So why not just tax every asset you own every year forever to keep prices down. If you were talking about a one off then stamp duty would be much eaiser and cheaper to administer.
That's right. An annual tax.
That's right. An annual tax. Just like the annual tax on deposits in the bank. The money spent on consumables ( TV's etc) does not pay an implied interest rate, as does equity in a home; it's a rental substitute. So tax it...each and every year.. at the same marginal rate as RWT.
Stamp Duty? Yep. Let's have that as well. It will reduce the velocity of property turnover, and add to the debt repayment that the Government, your Government, has to repay.
What level would you set the
What level would you set the tax stamp duty Nic? $250K?
All sorts of views on that
All sorts of views on that 28y.o.. Me. I'm in the "lower,flatter," camp for any tax. So I'd be advocating S/duy on all property deals from dollar one. Rate? Say 3% flat as an aritrarary level. Tha't about 10 grand on the avaerage NZ property; not exactly too onerous!
.. .. More civil servants ,
..
.. More civil servants , employed by IRD ! .. .. Or a whole new bureaucracy to be established ?
Re-deployed, would be more
Re-deployed, would be more like it! Make taxation in NZ flatter and less complicated, and those employed to look for the rorts will have to find an other job within the IRD. Just imagine if property taxation was simpler. No negative gearing; no complicated company stucturing needed; just S/Duty and an annual charge on the equity in a home (as evidenced by the mortgage outstanding). You want to buy a house and rent it for less than the incomings? Feel free. But I'd suggest that those who do that will be fewer in number.
You seem obsessed with
You seem obsessed with reducing the value of property for no apparent reason other then getting more people to buy property - which is not productive.
People who don't own homes just keep renting and saving and investing.
In the current environment the opportunity cost of owning a home is potentially huge (i.e. $500K in the bank v $500K in a house) add to that the drop in values and the incentives are already there to put your money in the bank.
It seems like all you want to do is punish people who own their homes.
You don't get it. First,
You don't get it.
First, PROPERTY is not productive. Not even a little.
Second, you are so used to talking-up property that the thought of anyone not doing the same seems odd.
But here's the thing: When we discuss the likelihood of residential property prices returning to their historical norms, we're discussing facts. When you are cheerleading residential property, you base your promotional hype on nothing of substance.
Since around 2003, residential property prices in New Zealand have been talked-up to an unsustainable level. Only the willingness of banks to lend silly amounts to gullible people permitted prices to achieve the heights they did. There was no other reason for the residential property bubble to form.
Now that banks are no longer lending the way they were between 2002-2008, and now that people realise how deeply mired in debt they are, and now that everyone has finally seen the residential property bubble for the mindless pyramid scheme it was, nothing is supporting high residential property prices.
People are trying to pay down debt and build up savings. The government is planning to kill off the accounting and tax rorts which made residential property investment appear attractive to the greedy. Houses are being seen to be what they actually are: wooden boxes on patches of dirt which keep the rain off your head.
There is only one place for residential property prices to go, and that's down. Fact. You may not like it, the very idea might seem utterly alien to those who have devoted the last few years of their life to whipping themselves into a slobberingly hysterical state of fervour about houses, but it *is* fact.
And don't forget point 1: Residential property is in no way productive for an economy. Not at all.
I thought I just said people
I thought I just said people should just rent and save - although rent is unproductive as well.
Most property owners are seeing the value of there homes decrease as buyers stay away so whats the issue? If they were to sell they would lose money and those that buy would have to dip into their savings so less money to invest. Better those that own just sit on their properties so others don't get sucked it.
If we take the productivety rant to it's logical extreme we would all be wearing overalls (cargo shorts and polo shirts are not productive) and workboots (jandals and sneakers are not productive) and milking cows or chopping down trees and living in tents on the side of the road (housing and rent are not productive) and working 24 hours a day (sleep is not productive)
"productivety rant"? That
"productivety rant"?
That seemed like a pretty decent summery of the facts, not a rant.
The rant was from the person whining like a little bitch because people are now refusing to play the property ponzi scheme.
Property bulls are like smokers. You're both hyper defensive about your sickly and destructive habits.
"You're both hyper defensive
"You're both hyper defensive about your sickly and destructive habits." Lol - the property game is over. Has been for the last 3 years. The damage is done, but apparently the answer is for all those who don't own property to buy it off those who do at a discount thereby taking their money out of savings and investments and putting it back into property, while those who sold will have nothing left to invest and no where to live.
News flash - no one is buying and most don't have to sell and everyone is repaying debt or saving. The disincentives are already there and most people are aware of them.
That 'smokers' comparison is
That 'smokers' comparison is really apt. My observation from the past few years of consumerism is that just as there were compulsive shopoholic shoe-buyers and compulsive shopoholic electronic-gadget-buyers there were compulsive house buyers, who were getting their addictive adrenalin kicks from the act of house-hunting and acquisition. It's not surprising that the compulsive subset of speculators would get twitchy about the prospect of supply being cut off.
After thought - rent isn't
After thought - rent isn't taxed either. Renters should be tax for not saving.
Rent is taxed. Rent is paid
Rent is taxed. Rent is paid for after PAYE; ergo it is paid from tax paid earnings.
Most people would purchase
Most people would purchase their home and repay their mortgage with tax paid earnings.
Wrong Nick. You can rent
Wrong Nick. You can rent anything, so the money spent on anything pays an implied interest rate. They are all rental substitutes. If you own a car, you don't have to pay taxi fare. Why pick out property for a special tax?
Much better not to tax the CPI portion of interest on savings. That helps level the playing field and needs much less administration.
Ah. We're back to the
Ah. We're back to the arguements that Andrew King tried forelornly to make some months ago. I've been through all of this over and over. Property an unequally treated asset in our society, that fulfills a non discressionary purpose. I have no problems with what ever regime is chosen, as long as all equally valued asset (say property and cash) are treated the same. Here, property investors, owner/occupiers and cash-on-deposit-holders are treaed dissimillaly within the same asset class. ( cash being a fundemental of property ownership). As I have pointed out, and others have. This is not my new view. It is done elsewhere in the world, for reasons that are seen as valid in those countries.
"equally valued asset" if you
"equally valued asset" if you paid $500K for a property today in would be worth less tomorrow.
That's my view equally. But
That's my view equally. But time will tell.
So doesn't that negate your
So doesn't that negate your arguement?
I'm at the age where all my
I'm at the age where all my friends are buying or wanting to 25-40 (gen y & x's), does your first home have to be a mansion, no, talking to my friends they want their first house to be 400-500k in great neighbourhoods near a coffee shop....thats the generation....why not work up to it, plenty of houses within budgets 200-300k levels in lesser areas that if u have a small deposit you can obtain and outbid the so called 'baby boomers'...want, want, want, give, give, give...work at it
A lot of the smart ones in
A lot of the smart ones in this generation group are buying. Many are still renting themselves and beginning to build a property portfolio. One that I know purchased a $350,000 home on the North Shore two years ago. Mortgaged only for 15 years, with 1st 3 fixed at 5.9% and is paying it back even faster. Once equity is down to 50% will purchase again.
That is smart!
"Once equity is down to 50%
"Once equity is down to 50% will purchase again." Yep. And that will be...oh....10 years away, at the very shortest. It will happen as a result of principal repayments, not magical revaluation gains.