Labour confirms demand-side housing policies are all go, despite no mention in coalition agreement with NZ First; Super Fund set to keep being taxed, even though Peters raised a fuss over election period

Labour confirms demand-side housing policies are all go, despite no mention in coalition agreement with NZ First; Super Fund set to keep being taxed, even though Peters raised a fuss over election period

By Alex Tarrant

Labour is sticking to its guns on demand-side housing policy, with plans to end negative gearing and extend the bright line test making it through the coalition negotiations.

Meanwhile, another issue that came up during election season – ending taxation of the NZ Super Fund – doesn’t look like it’ll get a hearing any time soon. 

New Zealand First leader Winston Peters as recently as 28 September called for the Super Fund to not have to pay tax on its earnings. But although a move to resume contributions to the Fund has been affirmed, there was no steer on the tax angle in the coalition document between the parties.

A Labour spokesperson confirmed: “The Coalition government will be ensuring that contributions to the fund recommence after nine years. The tax treatment of the Superannuation Fund has remained the same since its inception – the government has no plans to change this at this time.”

Negative gearing, bright line test

Labour campaigned on policies to end allowance for negative gearing by property investors, and also that it would extend the bright line test – a no-excuses capital gains tax – for non-owner-occupied property from two years to five.

But when its coalition agreement with New Zealand First was revealed – and its confidence & supply document with the Greens – there was no mention of either policy. 

Interest.co.nz was told that, if there was no mention of a Labour Party election policy in either document (ie that it would or wouldn’t go ahead), then the inference is that the policy would go ahead.

For example, Labour’s bid to roll back National’s tax cuts and introduce its own family transfers package isn’t mentioned, but has been confirmed as what the new government will do; The documents with NZ First and the Greens don’t represent the full policy prescription for the next three years.

Asked specifically about whether the negative gearing and bright line test policies would go ahead, the Labour spokesperson simply said: “Yes” to both queries.

A lot of interest

The negative gearing issue in particular garnered much interest when Labour announced it. In May, then-leader Andrew Little announced the practice would be phased out over five years, with loss deductibility reducing 20% a year over that timeframe. 

Expected savings from the move of $150 million a year would go towards a government insulation subsidy scheme.

Reaction at the time flowed thick and fast, with critics saying the policy would cause landlords to push up rents, and warn that house building would fall. Little responded by saying rents were at present being pushed up by speculators, who were raising them to cover ever-increasing house prices.

While at the time Little stuck to the line that Labour wanted its housing demand and supply policies to stabilise the market, his successor, Jacinda Ardern, on Saturday made the nearest acknowledgement that prices could continue to fall on increased housing supply. The comment was made in relation to Labour’s 10,000 a year house-building plan, dubbed KiwiBuild.

Ardern on Thursday said there had also been movement on Labour’s policy to ban non-resident foreign buyers of existing housing stock, saying work was already underway on the plans. She’s set to travel to the APEC forum in early November to try and convince trading partners to accept the policy, which goes against a number of New Zealand’s free trade agreements.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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79 Comments

21
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I'm a property investor and I don't have a problem with:
Abolishing negative gearing (I never have and never will buy a cashflow negative propery)
Extending the Capital Gains Tax to 5 years
Preventing foreigners to buy existing property

I'm a property investor too, and agree with those things too.

What about moving from income tax to asset tax.

Specifically land tax would have the best incentives for improving productivity and providing more affordable housing.

That would be a counterproductive move that could hurt business sentiment. We are world number one in ease of doing business and a new complication in the tax law would affect our standing.

Asset tax is absurd, it leaves us all serfs again in our own country. Its extremely complex as asset heavy start ups need exemptions and during flat economic times companies that have heavy exposure to land swing wildly. Its a tax that makes no philosophical sense as you should aim to tax profit because that profit can only be made by way of having a society to support profitable enterprise. Taxing what has already had tax paid is called double taxation or theft :-)

Regulations usually favour the existing businesses and help prevent those pesky new entrants with new ideas.

Profitable times ahead for you, well done.

Oh, the irony of do-gooder policy.

R W, why do you say:
"Profitable times ahead for you"
I'm curious ?

Because the new government are dramatically reducing demand for building new houses, whilst "Kiwibuild" has been knocked back until 2020.

Competition eliminated.

So anyone who buys an investment property from roughly now will have 5 years to wait to have their taxation claims tested ( NB: The 'intentions' clause isn't getting replaced by the Bright Line Test - it's still there, but a blanket "Prove it!" to get a rebate will be there for 5 years) and suffer progressive deterioration of their cash flow breakeven.
Question: Why would anyone buy an investment property today, at today's prices, then? Answer: Ignorance of what's coming......

Investors should be piling in before the bright line changes from 2 to 5 years.

But many can't get funding

Do tell me whats coming @bw...

Interestingly the original 2 year bright line test was introduced exactly... 2 years ago. Will we see a spike in listings between now & Xmas ?

Not so sure now that its become more difficult to get finance.

A freeing up of China's capital controls would more likely cause a spike. Who knows when or if that will happen.

In the meantime I'm happy to keep the powder dry over the next couple of years in anticipation of higher interest rates and dropping property prices and share prices.

I think you misunderstood me Delboy, I was talking about a spike in LISTINGS due to the original 2 year bright-line test being introduced 2 years ago, i.e. people wanting to sell. Your comments about getting finance and freeing up China's capital controls refer to buyers, not sellers

I stand corrected. Indeed listings could spike.

If you sell after 2 years you will be asked to explain yourself and if you dont have an unforeseen material change in personal circumstances that could at least somewhat plausibly cause financial harm you may be subject to tax.

for many prices are pretty much the same as 2 years ago, so 2-year bright line capital gains tax is a bit moot, particularly after RE commissions are paid.

Yvil, activity like this would be keenly watch by IRD. If a house is purchased with the intention of selling for gain then it is subject to tax regardless of the 2 year bright-line.

The ringfencing won’t affect us as all our properties are positively geared.

The 5 year brightline test is a bit of an anomaly as if you hold the property for 5 years then the IRD can’t say that you bought the property for capital gain, therefore no CGT able to be charged, so bit weird really!
Seems a bit unfair on investors that are negatively geared and bought knowing that they can offset losses and now a rule change has altered that?
Clearly there won’t be many investors buying property and providing homes for people that can’t afford to buy!
On this basis I beleive rents will definitely be going up in many locations!

13
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A bit unfair? They bought something knowingly that they could not afford, what's unfair was allowing that to happen in the first place and then giving them a get out of jail free card in the form of ring-fencing losses. Somewhere in the region of 50% of property "investors" are interest only mortgage holders, that implies they had no intention whatsoever of repaying that debt, nor could they repay that debt, just hoping that tax free capital gains would continue forever.

No the reason most investors use “interest only”is because the interest was fully tax deductible!

Rents going up??..rather my landord continues to installing thermal drapes, heatpump, double glazing.. and no mention on rent increases (over a year). My advice MAN keep good tenants who look after the place. We have a large deposit but see no sense in buying now ..rather wait as finally a do something government is in power, helping ordinary kiwis rather than the 1%

Graze of course landlords should keep the maintenance up on the property, not just to keep a tenant happy but also as it increases the value of the asset!

I would advise doing maintenance, so that the property maintains its value in whatever the future market is.
I have seen houses with cv 650k be sold for 530k and 550k, because maintenance upgrades (hpump, nice kitchen, nice bathroom) are assumed in market valuations, but not happened.
The wheeze is using driveby valuations the bank thinks its worth 650k for a remortgage.
Happy dazz.

Anyone in business should understand all potential risks and has to expect changes in markets conditions and govt policies so no I don't believe its unfair.

This change to negative gearing has been touted for years now so shouldn't come as a shock.

"Clearly there won’t be many investors buying property and providing homes for people that can’t afford to buy!"
Thus homes will become cheaper and evermore people will be able to afford their own home. Furthermore, it has been very evident for a growing number of years that owning more than one home is having a very negative effect on the well being of our younger generations and lower paid workers. This was short sighted selfishness and/or ignorance. Those that get caught have only themselves to blame. Having shelter is a basic human need and to EXPLOIT that need is very wrong.

...and investors provide a shelter to people who don't want to buy a house. People who don't want to commit to having a mortgage for 25 years, people who want to be free to move whenever they want or go on an OE etc...

Let's all sing a song in praise of property investors and what they do for the good of humanity. Oh brother..

The reality is that Govt is removing the incentives for people to be landlords.
We are moving back to another era where the govt builds suburbs of state houses which forms concentrations of low socioeconomic people like Otara in the 1970s. All the anti landlord people need to be careful what they wish for as they the taxpayer will be paying for it.

I suggest that creating a society where ever more persons are forced to pay maximum rents is in itself producing ever more lower socioeconomic enclaves. It is not a one or the other situation, it's a matter of balance between the two.

Northland hippy. There isn’t anything wrong with , state housing, FHBers, mum and dad investors , home owners and definitely not flippers if they are doing up very run down housing. The thing is to find the right balance between all of them. Definitely NOT making buyers frenzy’s and definitely not at the same time taking away all the state housing. Now thats plain stupid

Do you think the proportion of property occupied by renters today is more appropriate than in the past when home ownership was higher? Is adding another investment property at the expense of an owner-occupied property a net good for society at the moment? For sure, it's a useful service, but clearly there's a balance to be struck and increasing investor activity is not benign.

Sorry to call you out but I hate this argument. Sure there are some of these people but I think if you took a poll a majority of people who rent do so because they can't afford to buy. I don't have hard data for this but the correlation between rising house to income ratios and falling home ownership rates give a pretty good clue. If the opposite were true you'd be telling me prices go up because less people but want to buy.

"a majority of people who rent do so because they can't afford to buy." Exactly, and housing speculators are a principle reason why increasingly more persons cannot get into our housing market. Like it or not, it is now a parasitic investment. Of course investing in new builds is not.

Heaps of people will want to stay renting right now, as they expect house prices will drop and want the freedom of not being in negative equity. So thanks landlord for subsidizing my living costs at your own personal loss (rent is way less than mortgage interest for an equivalent house) . Meanwhile I'll keep my deposit in internationally based productive assets while I wait.

There you go tgcam4

"... if you hold the property for 5 years then the IRD can’t say that you bought the property for capital gain..". Actually, the IRD can! The 'Intentions" clause is still there. The Bright Line test is just a clarification at the short end. Hold a property for Capital gains for 10 years, and the IRD can prove it? You pay income tax ( or CGT if it comes in). It just depends on whether any particular vendor wants to run the gamble of lying to the IRD and getting caught.....

not a lot of logic in that - houses dont disappear when an investor sells it. What will happen is that prices will fall until they can be bought by FHB's or provide an appropriate post-tax investment.

@ THE MAN 2 CGT can still be charged as the rules allow for IRD to charge you CGT after any length of time (but in practice if sold within 10 years), if you didnt have an unexpected material change in personal circumstances that could plausibly cause financial hardship.

labour policy below, you can still claim the losses but only against the property so once you start to make profit you can use those losses to offset the tax payable,
i dont see a big problem for an professional long term investor only short term ones that were in it for CG
http://www.labour.org.nz/levelling_the_playing_field_for_first_home_buyers
Losses from rental property investments will be ring-fenced. Speculators will no longer be able to use tax losses on their rental properties to offset their tax on other income

China's interest in NZ property is waning!!! nzherald article..

That waning is likely to increase. The herd mentality of markets, regardless of the reality of impacts of policy change, 'Chinese whispers' will widen on NZ not being a friendly place for offshore property investors.

Then to that I raise a glass of.. Of.. Whatever they hell they drink. Tsingtao maybe.

The Herald article re Chinese interest in our properties.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1193...

All rules and policies are subject to change by legislation, That is the hope as well as the curse of Democracy.
Each such change benefits some, affects some. Grin and bear it.

Good to see the contributions being made again to the Super Fund.

Dollar Cost Averaging is the most simplest, yet safest form of investing and National missed a trick with that although with a Finance minister who failed economics at the end they weren't that sharp.

On the supply side, I was very disappointed that the government intend to rely on the likes of Fletchers to solve the housing crisis. The sad fact is that Fletchers can barely run it's-self. It is a lazy monopolistic company that tries cornering the market by it's-self or in concert with an other duopolist. Then they are free to jack up prices at will and are a big part of why building materials are so expensive, and why we have a building crisis. In markets that have become competitive they struggle to survive because their whole history is one where they have milked the favour of the government. They barely know how to compete. In fact their vertically integrated structure that builds increasingly powerful barriers the closer you get to their core resources, is specifically designed to eliminate competition.
So handing our housing problem to Fletchers will yet again just prop them up, perpetuate the monopolistic situation that is a big part of the problem and do very little for creating a competitive efficient building industry. What the government also needs to do, is invite a very large and highly efficient overseas house producer into the country and dismantle the artificial building regulation trade restraints that make it difficult to import good and far cheaper overseas materials. If Fletchers can learn to survive and prosper in that world, we will be doing them and ourselves a big favour.

agree but they also have mike greer homes and i hope they add others to the mix

The trouble with Mike Greer homes is that they are buying from the building material supply cartel. The closer you are to the ultimate customer the further down the vertical integration ladder you are and the more competitive your business will have to be. Fletchers will be very even handed and supply it's own building division and Mike Greer with products at the same price and in a perfect world the building companies will compete fairly. This will not worry Fletchers and their co conspirators because the lions share of the profit will accumulate further up their vertically integrated supply chain where is is safe from any of the forces of competition. And that profit will be made regardless of which competing house builder is building the homes. We need totally free and fair competitive building material suppliers from overseas to try and clean up the NZ mess.

BEIJING, Oct 18 (Reuters) - China will maintain the principle that houses are for people to live in, not for speculation, President Xi Jinping said on Wednesday at the opening of the 19th Communist Party congress.

Good intention and move from both China Communist Party and New Zealand Labour party on curbing residential property prices.

"China will maintain the principle that houses are for people to live in, not for speculation," Exactly, a concept that should be built into a future NZ constitution.

Or as I have said before. The best person to own a house, is the person who lives in it.

I would say the world over, governments have realised that letting the housing market run wild has had a deteriorating affect on the economy.. as people have no money left to spend on anything once they have paid they weekly mortgage..
so they are now try to back track gradually!!!

Awesome. I look forward the implementation of the new era of socialist ideology with Chinese characteristics. Thank you China Communist Party and New Zealand Labour party

There is nothing surer than the way this newly elected government has started out, will ensure that in 3 years at the most, they will be gone!!!!!!
They are going to be the most unpopular Government this country has ever had!

11
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It will be interesting. They're obviously not popular with property speculators or investors so much.

Mind you, National has to learn how to navigate MMP too. Wonder if Labour would look at putting in place the Electoral Commission's previous recommendations to do away with coattailing, and lower the threshold to 4%.

On the other hand, there have been more and more people becoming unhappy with National's reliance on pushing house prices and immigration volumes up as far as possible, as a pseudo-engine of "growth".

Ask the key question. Is investing in far too much already built housing adding to any increase in our population's well being? Such investment is surely better aimed at ways of increasing our national income. Restrictions that permitted owning two or three properties per married couple may be enough to ensure an adequte supply of rentals, especially alongside an adequate supply of social housing. This would ensure greater security for those that use an additional property as a retirement income. Currently such small time mum and dad investors could be badly burnt.

Well they have been in power for a week, so if you are this upset already than they are on the right course. Perhaps you and Hosking should go have a beer, although bring your vacum cleaner so he can sit down.

12
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Yes, "THE BOY 2" .....in your myopic, 'know-all', greedy, self-centered, "neo-liberal economics is the ONLY way", self interested tiny little mind.

Crazy Horse. You have a wonderful way with words.

I will take that on board and realise that jealousy is in your nature.

@ "THE BOY 2" .... Give me 3 reasons why you have deduced that I am "jealous" ....you don't know me from a bar of soap...... in fact don't bother, the mere fact you have bought up the "J" word says it all to me, just proves my previous post.

Have a really good weekend and enjoy playing 'digger operators' in the sandpit with your little mates.

You're making fun of him and calling him names like a kid would...

Because you make fun of him and call him names.

10
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Of course ... the most popular government in recent times achieved that popularity at great expense to the populace ... The current government is undertaking unpopular moves that are needed to unwind the most blatant consequences of the now opposition's small target do nothing "let the fittest survive" approach

Do it big, do it early, and do it hard

How unpopular the moves are depends on who you talk to. I'm loving it almost as much as watching the crowd who used to bemoan the "housing doom sayers" now claiming the sky is falling down about a week into a new government.

"They are going to be the most unpopular Government this country has ever had!" You are in the wrong profession. You should have been a comedian the MAN 2.

Highlights of the October / November QV report:
- Buyer Classification: Nationwide, first home buyers have increased their share to the highest level of activity (21.6% of sales) we’ve seen since Q3 2007.
- Rent: Nationwide gross rental yield saw a minor drop to 3.1% in September - the equal lowest (with September 2016) for at least 20 years.
- Values: In East Auckland, the suburbs of Cockle Bay and Mellons Bay have experienced steep drops in value in the last 3 months at -3.5% and -4.8% respectively. The North Shore’s Schnapper Rock has also experienced a similar drop (-4.7%).
- Looking to the South - the average property in Christchurch has fallen by almost $10,000 since November last year.

And rents are dropping in Christchurch also. No wonder the Boy is so angry these days. His so called wealth is diminishing by the week and so is his rental income. I told him to diversify but no he knows better.

Would you like to tell us what you do gordon ?

Apart from maintaining a petty feud in these comments?

Gordon our rents are Not dropping at all.
Just rerented a couple at the same rate and our commercial went up.
Will be a problem for many part time landlords who don’t take it too seriously and rely on capital gains.

Might suggest FHB's are higher as a percentage because investors are no longer there to reduce their representation not because all of a sudden 1000's of houses are selling to FHB's.

Exactly!

it was pleasing to see the mix of buyer changing more to OO, but i feel sorry for those that have borrowed to the max in the last two years to get on the ladder

I have had rentals for 11 yrs. I dont mind the 5 yr Bright line test, and I dont care whether they ring fence losses either. Rents will continue to go up gradually, and I can spend my positive cash flow on the rentals to ensure they are in good shape, so that my tax on rental income is zero if need be. My income from my job is taxed and I dont mind paying income tax just as everyone else is. "give to Ceasar......". This dip/flattening of prices will continue for another 2-3 yrs and then prices will take off again, whatever the government does.

I have had rentals for 11 yrs. I dont mind the 5 yr Bright line test, and I dont care whether they ring fence losses either. Rents will continue to go up gradually, and I can spend my positive cash flow on the rentals to ensure they are in good shape, so that my tax on rental income is zero if need be. My income from my job is taxed and I dont mind paying income tax just as everyone else is. "give to Ceasar......". This dip/flattening of prices will continue for another 2-3 yrs and then prices will take off again, whatever the government does.