By Bernard Hickey
There's a saying in physics that nature abhors a vacuum.
That saying is even more true at the point where economics meets politics.
Without hard data to fall back on, a debate about policy can slide off into dangerous places that lead to bad decisions.
We're at that point with a debate that could easily dominate the election campaign: foreign ownership of homes in Auckland.
The Labour, Green and New Zealand First parties will all campaign on the need to restrict or block non-resident purchases of homes and land, arguing it is inflating prices beyond the reach of young New Zealanders and forcing everyone else to pay higher interest rates and cope with a high New Zealand dollar.
The Government's response is there's not much evidence to say there is a problem to solve and the Opposition are basing their complaints on anecdote and prejudice.
It points to the only survey that goes anywhere near to the topic as 'proof' there is no problem. The BNZ-REINZ survey of real estate agents in March found agents thought about 6.4% of homes were purchased by non-residents and about 25% of the non-resident purchasers were from China.
Hence, the implication is that 'just' 1.6% of buyers are from China. But this is hardly hard data.
It is simply a survey of what agents think is happening. It is not a measure of mortgage or ownership records that looks at who owns what and where they normally reside.
Even the BNZ-REINZ survey acknowledges that the non-resident purchase percentage is well over 10% in Auckland and higher than 1.6% from China, although it's not a statistically significant enough number to be reliable.
So we're back to the vacuum.
This is not a situation that other developed economies and democracies accept. Australia records the residency of home buyers and also records whether mortgage borrowers are first home buyers or rental property investors.
Australia limits non-residents from buying existing homes, forcing them to buy new, unoccupied homes and apartments off the plan. But it still records the numbers and they are huge and growing.
Non-resident investors from China bought 18% of all new homes and apartments in Sydney last year and invested A$24 billion in housing over the last seven years.
Credit Suisse estimated these investors would pump a further A$44 billion into the demand for Australian housing over the next seven years.
It is a phenomenon sweeping property markets in the developed world. Data collectors in Britain, Canada, Hong Kong and America all report massive increases in demand for property in their most popular cities from investors from China. The Hurun Report published in January found 64% of millionaires in China had either already obtained residency in another country or planned to migrate.
Boston Consulting Group has estimated that investors from China had pumped US$450 billion into property markets outside of China, including in cities like Vancouver, Sydney and Auckland.
Something is going on in Auckland, but no one really knows how much is being invested, where, or by whom.
Any government wanting to understand what is actually happening would start collecting and analysing the data. New Zealand First want to create a register of ownership, but the Government has only said it is watching the situation and has no concrete plans for more concrete analysis.
This vacuum is dangerous and needs to be filled with carefully collected data analysed by officials.
An election debate based on gossip from auction rooms or the musings of estate agents is no substitute for proper policy analysis.
The Reserve Bank should also be involved in any analysis. It has recently started to deepen its understanding of mortgage borrowing as it rolled out its high LVR speed limit.
It is expected to release data later this year on how many mortgages are for first home buyers and rental property investors. That would replicate figures collected and published in Australia.
But more is needed to understand exactly what demand factors are driving Auckland house prices higher, especially as the rest of the country's interest rates and access to high LVR mortgages are determined by those factors.
The early success of the speed limit shows limiting demand can help tame house price inflation.
It may be too late, but a well documented study of the demand stimulus from non-resident investors would avoid a vacuum that creates an ugly debate before September 20.
94 Comments
Granted so that must mean that some sort of taxation may be another answer ie capital gains. I knew someone would say what you did, but it still poses a huge problem, doesn't it?
But dollars to doughnuts it is an indicator of foreign purchases as it is anything else, as it could be the foreigner buying up the multiple houses, and I think we all know what we strongly suspect it is, don't we?
Even 50/50 there gives us a whole lot more than current guesstimates
Transaction tax, yes, that may be simpler and more difficult to avoid, forgot about that one. But again those figures, I believe actually do point to what is really going on.
I think we all know there are plenty of foreign landlords owning NZ properties, I just want people, especially the welfare bashers out there, to think about how their tax dollars is going to pay foreign landlords. I actually think that is downright criminal and if you were someone on the dole then beggared off out of the country for a while without letting WINZ know you would be done like a dinner when you got back, so how having foreigners receiving benefits is okay, is beyond me.
raegun. Even if Asians are buying 42% percent of houses now selling it will still take a few years for that to catch up to 42% of total ownership. Because ownership is only slowly influenced by current sales. There are all the houses where people have lived for years, not buying and selling.
What is your point, mine is that there seems to be a large percentage difference between the Asian resident population and the Asian purchaser numbers, and what I am saying is that must be an indicator that there is substantial non-resident foreigner purchase and given that some of that will be non Asian, well I think anyone can see where this leading and I seriously think something needs doing, PDQ, like yesterday
Hey Factboy, you better cool down, or you will burn out quickly. Have you not got it that change ISN'T coming?
Demand side issues wont change. People will keep buying houses because its easy money when you get massive capital appreciation as well as reducing your tax bill with negative gearing. And immigration levels won't change. All governments haven't asked NZ what we want, they just keep the door open to keep the house prices up and the economy ticking over.
Supply side issues won't change. More land won't be made available to any great degree, and it sure isn't going to be cheaper if it does.
You keep talking about the 'average kiwi'. It is the 'Average Kiwi' that is to blame for this mess!! The majority of Kiwis are benefitting from house prices doubling every ten years or so. They love it! It is only a minority of people, mostly those under 30, who are facing the housing crisis!
I too was fired up like you... for about 5 years... But it is bad for your health. Eventually I gave up and bought a house. I want the market to correct, but it isn't going to happen. The MAJORITY of kiwis, you 'average kiwis' won't let their built up equity erode.
Change will come, but not for at least 10 years. The group of youngun's under 30 need to realise they are doomed. Then, change will start happening, and parties will start making policies for the new majority. Look at Duncan Garners radiolive show. He (mainstream media) is only now just talking about things we have known at interest.co.nz since 2006. And still, in 2014, it is just talk....
".foreign speculation in the NZ hosuing market."
IT'S NOT HAPPENING.
IT'S NOT SPECULATION.
redo your calc's and reply.
Answer this question: With foreign access to cheap funds and a rising NZ property market....when is the right time for "speculators" to exit???????????????
Seems Australia has the same problem we do with the Chinese... http://www.businessspectator.com.au/article/2014/3/28/china/chinese-homebuyer-alarm-case-deja-vu
Fact is Fact Boy,
These are some of the people who help compound the problem, 4% however, cannot stand it when someone else horns in on the act.
Add them into the equation, along with your other observations.
http://unconditional.co.nz/griff/2014/03/26/the-battle-for-online-reale…
Another fact,
If you want to shout at anybody, beware, others have been banned for that small attention to detail.
I'm actually quite surprised how little data is collected on foreign investment. The laws in Australia are a step up but non-residents can still buy existing through resident family and friends. A good analysis would be to correlate domestic credit growth data with house price growth. This would give some indication as to the quantity of funds flowing in from overseas. If the data could be split into two series, say, 2000-2007 and 2008-2013 we could do a comparison of the composition of credit growth v house price growth.
Of course without that information it's all wild speculation. The government are using this lack of data to their convenience. To suggest a $15 trillion Chinese credit expansion has had little effect on property values of major Western cities is naive.
Perhaps non-resident foreign buying cant be stopped due to the FTA with China, & the political power of banks who need to keep their asset securitisation up.
Politically, on one hand older NZers want house prices lower for their kids, but noone wants their own home value decreased - so policy change in this area is risky for any Govt.
China has some authoritarian rules which are applied even to their own people. Domestic rural residents cant migrate from the countryside into the major cities and buy property in those cities. They are also blocked from obtaining welfare or education or health benefits
.... it doesn't matter one iota who owns the properties , as long as the costs of construction , compliance fees , GST , and section costs are artificially pumped up to insane levels , then houses will remain unaffordable for most FHB's ...
It isn't just nature that abhors a vacuum , Bernard .... Gummie's gotta go hoover the rooms ....
... .( ooooops , another 4.0 aftershock in Christchurch !!! ..)
.. zaijian !
http://www.stats.govt.nz/Census/2013-census/data-tables/meshblock-datas…
I am waiting for the more computer freindly format due out in the coming week ("by the 4th of April"), so I can run database style queries on it, but for those who want to painfully manually use Excel, go for it.
It does down to the level of the census meshblock, so while we don't have individual information, that is a pretty small geographic zone.
The big thing it is not going to tell you is anything about the demographics of who owns the rentals, but there is a lot of information on demographic characteristics of people living in owner occupied houses vs rental (including things like languages spoken in the household, length of residency in NZ, household income, etc), and information that can give a fairly fine-grained view on population pressure for housing.
Doing a quick bit of trival stuff on the Excel Sheets, at an area unit (basically suburb) level, averaging each suburb, Auckland has gone from 2.86 people per dwelling to 2.98 people, or if you perfer it has gone from an average of 0.84 people per bedroom to 0.95 people per bedroom. Manukau Central and Bays-Waiheke island are the places with the biggest drop in people per private dwelling (have prices come down?), Highbrook and Ormiston have the biggest increase in people per dwelling. Conversely, Wymondley and Orewa West (though Mission Heights is close) have the biggest drop in people per bedrooms, suggesting the homes are much emptier. Baverstock Oaks and Greenmount have the biggest increases in people per bedroom, but you would need to look at the age demographics to work out the why on that one.
Let us get one thing straight!
Even if overseas buyers are only 5 % and they are not also 5% of sellers! then there is a net movement toward higher overseas ownership.
The answer is a ban on further overseas buying and a tax on selling that applies to all except locally based owners paying local taxation to our IRD. Make that tax 25% of the sale value and it catches all the sellers of previously purchased property.
Add to the above a sell by date for all existing buyers who do not meet the residential rules.
Get off the grass, GBH and cowboy
As soon as a tax comes in the fast money will want to get out. Last man standing and all that.
Add into it all an incentive like a tax planned to increase in severity over a relatively short time and you won't see them for dust.
Taxes can be designed to do anything given the will to do so.
... nah , you're wrong , they'll just hold onto those properties forever and a day ..
Taxes just slow progress and velocity ...
... you're seriously in ga-ga land if you believe a tax can be designed to do anything .... Sir Mickey Cullen's taxation failures demonstrated impeccably how taxes can be thwarted , twisted , and legally avoided , when greedy politicians attempt to target a specific group in our society ...
Basil Brush is onto it.
Ok so a GCT will cause investors to hold onto properties? Hang on, they are already holding onto properties as they expect prices to continue to rise!! Without that expectation there isn't a yield to be had.
Property prices are determined at the margin....introduce a GCT and property investors might decide that property isn't the best place to funnel excess funds. Less demand for property and whoops prices are now falling significantly. Yield matters as baby boomers enter retirement because a loss making property doesn't work without an income (free hold is a different story).
Same goes with foreign purchasers, take them out of the equation and whoops the demand at the margin is gone.
Introduce a CGT with an effective from date of 1 April 2015 (but applied retrospectively to any current property owned excluding the family home) and watch the market crash this year.
A CGT is not a magic bullet but don't pretend it won't affect the market especially if applied retrospectively starting about a year from now.
No you are WRONG
Do you even own any property???
introduce a tax on sales you will see LESS SALES.
"prices falling significantly"? How often do proeprty prices fall significantly???
As long as they can afford to hold, scarcity of sales will hold there values up, a CGT ADDS to the final price - people who already hold because of the price of sales commission will just hold longer with cgt, in order to not make a loss. Those with portfolios won't sell much because to have one "price fall significantly" would cause all their properties to devalue, which also means they would have less security and their rents might be out of line with the property value. Are they going to exit in such circumstances????? NO!!! And reduced supply does what to the prices? that's right it makes the prices go UP more. Which is what the property owner wants (not so good for tenants!)
Oh it will effect the market alright!
Less properties will come on the market, those that will will be higher priced.
The only ones who are pressured to sell cheap are the motivated buyers eg those wanting to move out of the area and not build a rent portfolio.
Do I own property, what the heck does that have to do with anything? I don't live in New Zealand does that mean I can't comment? Does one have to have been through a major crash like the US, Ireland or Spain to comment on the downside risks in property?
I personally know of property investors who have sold properties in the past 12 months in Auckland due to their concerns a CGT would be introduced. If a CGT is introduced starting today applying to all purchases from TODAY onwards, yes, there might be less sales, I agree.
But if it were scheduled to be introduced in the future AND applied retrospectively there would be an increase in sales. Every baby boomer sitting on freehold investment property who is planning to sell at some stage in their retirement, even if that is was only 10% of boomers, would be thinking 'oh crap' that $300k capital gain is looking like $150k if I don't sell before the CGT is introduced. But fear not I don't think we'll get the chance to see what happens as National should win the election. Like the LVR rules everyone thought it wouldn't make any difference, look back at what the 'experts' said, turns out it is having an effect.
As for taxes, I agree more taxes are not a good thing for society, but neither is the growing generational wealth gap. I would prefer to see a complete freeing up of land zoning and a ban on foreign purchasers and there be no CGT at all.
I think prices will fall significantly myself, ie 60 to 75%.
In terms of scarcity of sales, there is a big speculative component in houses at the moment IMHO that once the profits for now work ends will see bailing out. Those who want homes dont or shouldnt care about such gains.
CGT wont apply toe the buying and selling of the family home....so its a dis-incentive to speculators not FHB.
regards
The speculative component is not as high as people say...because the spread cost of sale is so high, unless some form of improvement is also done then it's very difficult to get a decent yield from speculation. Also speculation by agents is now being watched for.
The resultant rising price is enough dis-incentive to FHB.
Speculators are already minimal.
Leaving the property bankers/moguls....... how does your CGT stop the damage they do?
I would like to see what kind of quick-turnaround figures are out there to justify the "speculator" claims.
We'll start with the CGT and move onto tax in general.
The CGT will not apply to the family home, so for homes as opposed to assets being specualted on, it makes no difference.
Otherwise a CGT achieves a few things,
a) It supposedly taxes income/profit that isnt otherwise taxed, a broader and flater tax base. Personally I think we should have a CGT on all houses but the PAYE (or equiv) should be reduced, ie tax neutral.
b) It takes away the incentive to defer tax, ie you purchase a property to make a "tax loss" that you can eventually cash out to make a tax free gain.
c) It helps dampen the market, but yes its no fixer.
Tax in general, well we aim for a society we want and economics and tax is the method of having it in the form we wish. In terms of taxes, if you look at the 50s and 60s the top rate was a lot higher than today and in fact grew a lot. So we have aprogressive tax system that shares the prosperity, I'd argue that actually it has actually made a more prosporous and equitable society.
regards
(a) is a double taxation, if there were a way to separate market (improvement) value from effects of monetarian devaluation then a small CGT would make sense. But if that were the case it would be an asset tax, as per having to declare change in share or animal values.
(b) that is same for any investment, why are you separating out property for punative treatment
(c) it doesn't dampen the market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! The hold results in scarcity, it creates a higher "spread", that pushes UP the ASK price!!
To put it in more generic terms: You're mixing up the buy and sell parts of the transaction.
that is to say, taxation as control (which is a REALLY dumb idea in the first place) is done to reduce that particular behaviour. A CGT charged on sales....will not reduce house buying or prices...it would reduce HOUSE _SELLING_. creating less supply, higher prices, high service and recovery costs...higher rent...and for those able to buy in higher income for debt servicing to pay the extra loan needed to pay the higher prices.
Re: tax in general.
ahh the royal "we". It's a bit like the one law for rich and poor alike.
It is not a society that I want. I find it and many of its socialisms utterly repugnant and it's real-world ignorance and over education sickening. Yet *I* am expect to pay more.
Even punatively so (as the earlier poster was trying to influence property trade with extra/higher taxes)
So it's _NOT_ a society WE want. It's a society YOU and others want. But you don't want to pay for it yourself. If _you're_ not willing to pay for what you wany, why should I who doesn't even want it, thinks it's bad, and doesn't even want it offered as an option, be expect to pay for it... oh yes...it's because "we" agreed. yet I clearly don't and won't.
In the 50's and 60's NZ had just got over the return of troops from WW2. Women in the workplace hda become acceptable. Communications and transport/fuel techniques had gone ahead leaps and bounds due to the war. Much of NZ's infrastructure was undeveloped, especially by the technology of the time - it took days to trvel from Gisbourne to Wellington, or from Dunedin to Alexandria!. Compare that to the rest of the developed world. UK, US, Europe. even parts of Africa and USSR.
That is _huge_ potential for growth. The loosening of monetary control (public loan systems, land gifts, government subsidies). And ready supply of foreign equipment and developed technique. And recipe for enormous boom times.
Yet when Muldoon came to power the country was on the brink of bankruptcy!
Is that your "more prosporous and equitable" society.
A reduction in taxes and interest would have seen higher money velocity. more jobs, better pay (although in the era you bring up MANPOWER was the controlling bottleneck). It would have seen more money re-invested into NZ in the public space and less in the public-servant spaces. in fact a negative taxation amount would have been more beneficial, and would have freed up all those prosporous people needing state housing............. (would would allow them to enter into property, and preserve a working asset for the generations to come...and give security for loans to NZers by NZers.)
I'm not the guy you want to spout half thought out slogans at steven
...name one government spendup (Keynesian style) that couldn't have been achieved by a large private collective. And then we wouldn't have the government selling them out from under us either....
Tax is not taking something from you which is yours alone.
In obtaining the income someone else has not had the income. You have all of the advantages of society assets to allow you to get a return. The oil of society allows your wheel to turn.
Using the desert island idea, it would be impossible to obtain any income because there is no other person to sell your product to.
Some of the highest taxed countries (Denmark?) have the most cohesive and beneficent to live in. New Zealand once had but recent regimes have squandered the advantages and try to sell out what is left.
Nice hype but incorrect.
Those "advantages of society" exist independent of my actions.
My income has been created from my efforts and on-sold to elective buyers.
As I've said I have no issue with 10% total contribution to common good, but using your desert island example, Where do you get any advantage throwing 40+% of your produce into the sea to appease the sea gods?
It certainly doesn't make on the island any better. Re-investing that 40+% of produce strategically DOES.
I'll be busy landbanking to sell to the Chinese....
But I've got a better idea.... just stop asking me to pay for stuff other people want and get them to fund their own projects.
Then they can have what they want and I can afford to pay off my bills, and continue to invest in lower overhead lifestyle.
By allowing collective private ownership, I can buy what services I require, and pay those who have invested their resources in providing them. Main difference being is being able to choose my priorities to fit my budget, not some third party lining their pockets making my choice for me, yet they don't have to do the work or funding.
my preference is lower taxation, lower interest cost and higher NZ ownership of collective assets. the higher dividend comes from a marginally higher use cost from those who choose to use the services, which is somewhat offset by those who are poor being able to choose not to pay for theings they choose not to use. Prudence and thift being the way forward, higher prices for electives being the income.
Not even in Govn, if labour is looking like losing (and sadly that is looking more probable by the day) then the speculators will sit and hold their gains, aiming for another 3 years of "profits". If labour and the Green's look like winning I think we'll see cashing up take place over the winter. Right now I think greed is winning out.
Taxes, agree given the context.
regards
Good article, but this article could be about any number of important issues the Nats are avoiding.
It should be pretty clear to all that the Nats are using an avoidance technique to deal with any issue that they are weak on. Housing is but one example, add to that immigration, the high dollar, lack of engagament in climate change and the ongoing trashing of our environment. They are masters at diverting attention to frivolous and non issues (eg the flag). Smile and wave...all is wonderful in godzone.
Hmm I wonder what your comment would have been if I had have suggested something that looked a bit more like the Stars and Stripes.
Just because China is China does not mean they should not stand up to scrutiny and questioning like anything else. Anything else is forelock tugging cowardice.
That is an authoritarian, void of human rights regime that has got China where it is and I believe we can question their motives as much as we can those of American coporations where the TPPA or spying where the GCSB goes.
Relax - just the other side of the current account deficit.
Funding options are only debt, asset sales or command P. We have rejected one and three so it's asset sales into the never never as we become share croppers in our own country.
You can't spend more than you earn or invest more than you save for over 40 years without consequences.
There are some foreign buyers with up to $10,000,000 to spend. I have heard of one buying 6 houses so far all around central Auckland.
1. Do you think that is fair?
2. How many NZ citizens would have the ability to do that?
3. How many of these types of buyers would it take to distort the housing market?
4. How long would it take for a NZ Citizen to earn that much money?
5. Would it even be possible?
6. When every other country has restrictions on non citizens buying property, why don't we?
How about houses for NZ citizens first no matter what race they are.......
... we could shout at one another ... and we could blame foreigners ( 'cos they're always an easy target for feeble minds ) ...
Or we could look to our own councils and government an ask " hey , how come an average section costs $ 175 000 ... if it was a more acceptable $ 50 000 , then the average price of a house package in NZ would be $ 125 000 cheaper ? "
Great point. This is yet another duck lined up.... waiting... but no shots have been fired in the war to make housing affordable in NZ.
Lets see:
-section prices are astronomical
-Building supplies 30% over priced
-people encouraged to own housing for tax reduction
-cities not allowed to grow out
-increasing number of lifestyle blocks is somehow allowed to use productive land, but residential housing isnt.
Isn't the problem that the solutions are all known, but there is ZERO action?
... yes bob , if we acted decisively on each of those factors you listed , house prices would be one half of their current prices ....
We are wasting money , indebting ourselves to Aussie banks , on unnecessarily overpriced houses ....
... whilst the rest of the world focuses on growth assets , business & innovation , here in NZ we're playing a daft game of musical chairs with each other , over stoopid houses ...
GBH, Let us agree that the overriding influence is Supply v. Demand
We all know Supply is a slow change factor
Demand can be altered very quickly by several ways
Immigration cuts, stop non-resident buying, tax changes (whether you agree or not is irrelevant) RBNZ (maybe?) , market sentiment.
There are lots of ways and our hopeless Government is completely out of its depth.
Of course foreign buyers are an easy target, after all it IS likely them who are skewing the market, in Auckland and probably Christchurch mostly, but I have seen plenty of houses that show all the hallmarks of absentee owners here in Hamilton.
I am not at all sure why someone would consider another whose prime concern is their own country folk not being able to afford to house themselves, to be unintelligent but what I do know is that name calling was always to considered to be a sign of lazy and unsophisticated minds
GBH, nothing to do with foreignors being an 'easy target'. Auckland is having it's heart sold out to cash rich Chinese 'investors' as we have no rules or regulations to stop them. And National is playing that game where everyone sticks their head in the sand. Period. There is no level playing field.
I guess what some of us would like to happen and what will happen are two different things. I'd like the government to ban foreign investment in housing, or at least apply a hefty stamp duty. I'd like them to allow home owners to claim interest payments as a tax deduction, a privilege currently only afforded to property speculators which should stop immediately. I'd like the government (to be able) to wind back the accommodation supplement. Of course none of that is going to happen and I'm screwed like the rest of my generation misfortunate enough not to own an overpriced Auckland house. The government will continue to hemorrhage money to lost tax revenue and housing benefits. Foreigners will continue their panic driven buying frenzy as the financial crisis continues. What little money savers are able to accumulate will be vaporized, either by inflation or worse..
those home owners need to put the property into a Trust, the interest and repairs are then deductable. There are extra rules involved in doing this but it is available to homeowners.
And its not speculators (speculators need to be able to dispose of their aquistion
Cowboy are you saying that home owners should put the houses they actually live in into a trust and rent them back and then claim interest and repairs as a deduction against the rent. If so I thought the IRD had clamped down on such arrangements. Just wondering what your point was here.
They clamped down on it being used unreasonably.
Hence the comment about there are more rules.
From memory, one of several conditions, is the the owners weren't the only beneficiaries in the Trust, nor could the owners be the only Trustees. As that would effectively make them Trustees making personal descisions for their own personal use. Which is violation of Trust laws.
Likewise, as you say, if those benefits you've listed are the primary (or only) reasons for setting up the Trust, it would be tax avoidance. While tax avoidance is not illegal, IRD has the right to "see through" such arrangements and claim what taxes to which they would otherwise be entitled.
My point being is that many private people can set up such Trusts, and the restrictions are similar to business owners. But just like business owners there are restrictions which apply.
Usual caveats apply: Don't trust your business and financial advice to crazy people on the internet. And they're ALL crazy...
Hmmm I think it works out neutral doesn't it.? I mean if the trust settlor or beneficiary is living in the trust owned house and claiming Interest / rates / mortgage / repairs etc as a tax deduction, then what are they deducting the tax against.? They would have to pay rent to the trust. Perhaps you could pay rent on paper but surely the IRD would hammer them for scamming the system. They certainly couldn't claim the deduction against their personal income could they? Its silly anyway, where does that get us. A nation of overpriced houses with people gouging tax from the government. SO unproductive. Total misallocation of capital. I could tollerate that domestically, but it's the rent seeking foreign capital which really annoyes me. IMHO It does nothing for the country or it's people apart from create inflation.
Sadly allowing private citizens to claim back interest payments would only result in higher compensatory bidding (unless other manipulation was put in place - which is not necessatily a bad thing).
What can be done is little or no rent, then rollover the loss until next year... do you understand the benefit there? Do I need to spell it out? (at risk of government and IRD destroying more of the financial/investment capabilities of NZers...)
No that doesn’t make sense. You're saying that allowing owner occupiers to claim interest would distort the market but somehow investors/speculators prudently ignore that tax break when investing? Of course investors factor it in, and it does distort the market.. “big time”. That’s why home ownership has dropped below 50%. I’m advocating a solution which doesn’t remove demand, just redirects the incentives. Nobody wants to destroy the housing market.
I still don’t really get what you’re saying about the trusts. If a trust makes a loss the trustees can’t claim that against their income. Perhaps you mean some sort of look through company trust arrangement. Sounds dodge, If the IRD comes after me I’ll tell them cowboy told me it was okay.
no thats not what I'm saying.
Go talk to your lawyer and then your accountant to explain Trusts and Family Trusts to you. Until you understand that there is no point explaining the technical details.
Giving owner occupliers interest deductions will allow them to borrow (service) more. And their real estate agent will be happy to show them how, as will their lender.
There is no "incentive". It's a standard _business_ practice. To deduct all expenses involved in generating revenue from the revenue to get a net profit. Interest is a legitimate business project expense so it can be deducted. Renting is a legimate business service to consumers.
There's no incentive-isation attached.
Thats' why in order to recover costs (Interest, repairs etc), the owner occupier has to move away from the personal ownership model to something else. My expectation is to transfer the asset into the core starting position of either a trading enterprise or a trusting holding portfolio that can be used for accumulation of assets and dividends for the ongoing benefit of the holders and their loved ones.
Bernard I was going say that your title is the basis of the second law of thermodynamics, but the saying goes right back to Aristotle and is quite an interesting little diversion. http://en.wikipedia.org/wiki/Horror_vacui_%28physics%29
Of course it raises the irony of using a quote in an article posted in interest.co.nz from the man that called interest immoral.
Ahh and it's a fun game too, I remember playing it at school when I was a kid. Yes it's fun ,,, until the music stops ,,,,oh then it's a mad scramble, a few elbows in the face. Some fall on the floor as they are pushed off a chair. Yep it can get quite vigorous in the tussle.
A catastrophic natural disaster would bring down house price in AKL; nothing else can.
I'm afraid that there is little that govt can do to bring down the price, or no matter what govt would do to bring down the price, the effect would be little.
WHY?
1. Govt will not control/restrict capital flow
2. Govt will not release large amount of land for residential development
3. Regional development needs a long period
4. NZ's economy ALWAYS needs capital injection from immigrants/external sources badly!!
RBNZ's check on NZ's financial system (debt/equity) has passed. The high price is not based on high debt but rather large capital injection. National party's voters are happy and more ppl will vote for them.
Now, you have both RBNZ and govt do not give a damn about the high price. So, it will go on.
I cannot agree with #4. Our net bank deposits of residents is more than net borrowings, ( I believe I read that here.) It is probably that the use of that money is sticky and not being directed to wealth promotion.
Immigration can be a drain on the country unless it is managed as to real benefit. The capital cost of absorbing each new immigrant takes years of their contribution to give nett benefit , if any. What use is an unemployable 50+ other than as a child minder?
Recent article on Zero Hedge. Chinese anti corruption officials seize ** 14.5 BILLION DOLLARS ** worth of assets. I wonder if John Key cares whether any of that money made it's way to NZ.? In fact I know the answer to that question.
http://www.zerohedge.com/news/2014-03-30/china-confiscates-billions-ugl…
"Hey, but let's just forget about it....eh."...says one of the biggest beneficiaries, would not want to cause any uproar.
Just so we know what we are dealing with. Same deal.
http://view.ed4.net/v/IOCBMM/GILW7N/LAZ95B/OJLB8J/?ftcamp=crm/email/201…
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