Subdued house prices in the run up to the election are likely to lead to complacency when it comes to some much-needed tightening up measures

Subdued house prices in the run up to the election are likely to lead to complacency when it comes to some much-needed tightening up measures

By David Hargreaves

The first necessary step in a process? Or an exercise in futility?

Time will tell what the outcome will be on the consultation process on the Reserve Bank’s plans for Debt to Income ratios – maybe being launched as soon as next week.

My bet is it will be an exercise in futility.

After a cute manoeuvre by the Government the RBNZ has been left this time around with having to publicly consult first on the proposals and then go back to the Government seeking approval. One obvious thought is that organised resistance against these proposals, if say the banks choose to do this, may be able to influence the Government to say no.

That contrasts with previous such consultation processes on macro-prudential tools when the RBNZ already had approval for the particular ‘tool’ in question and then consulted about how it might be applied.

And of course the RBNZ will have to provide a ‘cost benefit analysis’ for DTIs, which sounds to this writer like potentially a sure-fire catch 22 get out clause for the Government.

There's some irony here that the RBNZ has helped to soften the housing market with its 40% deposit rule for investors because slackening house prices like those seen recently will remove at least some of the imperatives for action on various housing related issues - and will likely leave the RBNZ frustrated in its efforts to at least get DTIs available for use.

As we move toward the major political parties seem therefore to be prepared to boil the housing issue down to "we can build more houses than you".

It's easy to see why building houses appeals as a policy - because it looks positive and active. Efforts to rein in demand, however, look mean and restrictive. Negative.

Truth is the rising housing market, particularly in Auckland has never been all about supply.

But the demand-side issues don't look as relevant once prices are no longer skipping up by $1000 or more a week. 

For me, the key issues around the housing market, in no particular order of importance, are:

  • The Auckland market's inability to respond to shortages of new housing;
  • the distortions in central government policy that see housing as an investment given preferred treatment (especially regarding taxation) over other asset classes;
  • and the financially stretched position a lot of people are putting themselves in simply to buy a house.

As we can see, the political parties are reasonably keen on the first one of those - but now, with the pressure easing on prices, the second two issues are less likely to get tackled.

The trouble as I see it is that there is a window of opportunity at the moment to literally 'get our houses in order', which includes addressing some of the more underlying problems - such as the distortions in the investment playing field in NZ and the high household indebtedness.

I think we absolutely need DTIs - and the RBNZ was very remiss to not put them in its original macro-prudential toolkit.

It deeply concerns me that some people are horribly exposed in the event that interest rates move up, even modestly. I think official interest rates will need raising well before the RBNZ currently thinks.

DTIs are one thing that would help people save themselves from themselves. Right now, with the blocks this Government has put in the way, I can't see any chance we would have DTIs till at least 2019-20. And interest rates could be looking quite different by then.

And indeed, by that stage the housing market may well be moving up again.

So, there is some irony here. The RBNZ has helped to buy some time in the housing market with the 40% rule on investors.

The odds are, however, that our politicians - because they now have time - will do the very minimum.

Just throwing up more houses is not a solution to a complex combination of issues.

If we had gone into election year with the housing market still raging perhaps some of the more underlying issues would have been addressed.

As it is, we remain heavily exposed to the potential for over-exposed people to really get knocked around. And that's not good.

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David, you mention distortions in the investment playing fields.
Do you mean that you think that housing investment has got advantages over Shares, equities etc?
If that is the case how come we are told by many that Shares and equities give a better return than housing investment then?
On that basis then housing has not got an unfair advantage surely?

By your logic housing should continue to receive preferential tax treatment compared to other investments because returns are poor at the moment. Does you view change if the housing returns outperform them in the future? By your logic than means other investments should receive tax advantages to balance them out.

Have you considered that throwing around tax breaks everywhere might not be a good idea?

Distortions in that context looks to me like it means that the housing market is heavily over invested in due to various advantages taxation and otherwise the market affords. Level the playing field and it becomes less attractive/unattractive. Like the girl in the pub that by 11pm is Miss World, and you chew your arm off to escape waking her the following morning.

Anyone can buy houses for rental and accordingly the returns are poor, especially in certain parts of the country where people are leaving for better pastures and rents are dropping. Not everyone is into shares because you do need to do your homework before you buy them. Also many New Zealanders were both foolish and greedy around 1987 and they lost some money and they swear they will never buy them again. Funny how the first and second most wealthy people in the world own shares.

Gordon what is funny about it?
Overall though Gordon the richest people in the world have made their money thru property.
Each to their own though!
Offer still there Gordon for you to take up?
Just say yes and I will arrange it all!

"Overall though Gordon the richest people in the world have made their money thru property." And the very reason that residential property should be segregated away from such investment, because housing is such a basic necessity in life it is absolutely and utterly wrong to have a few people creaming it off it and many being kept suppressed by it. Stick to commercial I say.

That's one reason PocketAces, but the other reason is that residential property investment is an essentially unproductive activity - it generates nothing, creates no employment and is no doubt one of the reasons for NZ's low productivity.

You are so wrong as always The Boy. Have a look at the top 50 in the Worlds Rich List . Full of equities , shares and business people. Not many property people if any. You stick to your portfolio of as is where is properties in your town. Leave the big returns to us equity boys.

If I have just " as is" properties Gordon, take me up,on my 100k offer or less if you Want!

By omitting to challenge my response about the top 50 just shows again that you were wrong The Boy. You consistently exaggerate when you comment. I suspect you might have an average home in Christchurch and the rest is just hot air. Anyone who has to use a name to puff himself up is usually a fraud.

Stop being disingenuous, you know what he means (because he's explicit in calling out tax treatment). If housing is such a great investment, why should it get a leg up via tax?


DTI - National has no intent in its implementation that is one reason that John Key agreed to it about a year or two back (delaying) and also mentioned that it is up to RBNZ to decided and that they have no problem but when the actual time came and RBNZ went for approval - National did a U turn / delaying tactics as national is looking at short term gain and is only interested in supporting and promoting this housing ponzi. The only reason that they are not able to support and promote their ponzi is being election year.

Any solution has to and will start with change of government.

I don't believe National will be able to block DTI rules for much longer. Apart from the fact a cost-benefit analysis was a stupid way to assess DTI rules (how do you assess the cost of a possible housing market crash against the benefits of pumping the ponzi for a little bit longer??), the RBNZ will surely ensure benefits well outweigh the costs.

All of the cries from the vested interests won't stand up to scrutiny given there are multiple other countries who have already successfully implemented them.

The whole situation is ridiculous, the horse has already bolted and we're weighing up the costs of shooting it with a rifle vs. letting it run towards a cliff.

There is no need for regulated DTI's at this stage? The Banks are already doing it. Ask anyone who's been in for a mortgage/top up recently and see if they were asked to have their salary/income credited to a current account with the lender before they advanced any more money. RBNZ DTI's will have some merit when the banks stop doing their tightening, and the RBNZ/Government will be well placed to act quickly at that time. It's all about keeping the horses calm at this stage.....

In the meantime we are letting this clown sell our public reserves

To implement DTI or not, to support foreign buyers or not, to impose fair tax system or not is national prerogative being in government and everyone can argue if their policy is right or wrong.

Question is why lie and manipulated which has been the hallmark of the national government. They had no intenet to implement DTI than why Lie, they had no intention to declare actual overseasy buyer data than why manipulate.

Check any policy or statement that comes from National and you can attribute it to either Denial, Lie, manipulation and if nothing works pass on the blame.

Do support change of government. Anyone but national as can just imagine if given another term, what the arrogant national can and will do.

I’m sorry David, but you have to stop saying that property investment has preferred tax benefits over any other asset. This is completely wrong, there are no benefits over any other asset whatsoever. If you think there is, can you please name them? I guarantee that you will not come up with one because there are none.


..prey tell then why you invest in property? Answer that and you have anwsered your own question.

Ooh, sir, ooh, ooh, a perfect example of a Freudian slip! Prey/Pray. (chuckle)...

just because an investment delivers a better return does not mean it receives preferential treatment - why dont you answer the question ...

when interest rates were sky high, inflation rampant people chose bonds before property - currently property is performing massively better than bonds and also shares - hence the choice

I would sell the couple of investment properties i have tomorrow if someone offered me a 5 year bond with a 10% net return - but not very likely is it.

the rules are the same - income - expenses = profit which is taxed


Could you back up your assertion that the property market is outperforming(massively) the stockmarket? I have an equity portfolio and a rental property-no debt,good long-term tenant in a good area-and I know which is giving me the better net yield. In case you are wondering,it's not the property.Why? partly it's because over the past couple of years I have spent money on the property-something you never have to do with shares- and partly because my dividend income has been rising at a faster rate than my rent. For example,one of my bigger holdings is F&P Healthcare and they have just announced a 17% increase in the full year dividend.Furthermore,I don't pay rates and insurance on my share portfolio

I invest for income, nothing else, no different to investing in commercial fact it is a free service to the governemnt. Otherwise they would have to pay people to set it up and run it, costing billions.

Isn't the 'free service' thing the reason for negative gearing being permitted? Isn't that a tax advantage over other forms of investment? But the fact is the government do already run a public housing service, but it is small, when they could get economies of scale by running it at far bigger scale.

Earn yourself a tax break

By Diana Clement

The theory goes that you buy a property with the intention of making a long-term capital gain on it, which isn't taxable, says property accountant Michael McCook of AccountabilityNet. You then claim any short term losses (because the rent is unlikely to cover the mortgage and expenses in today's property market) against your day-to-day income.... if the property is turning a profit, it's possible to withdraw capital from the rental property and use this.....Interest payments on your rental property mortgage are tax deductible, whereas on your own home they're not.
Of course setting up a business to make a loss isn't necessarily an intelligent idea in the long run for wealth creation.

Look to me like a few perks in there to me! Mind you, you have to lie to the taxman to get maximum advantage....."Honestly Sir, I didn't mean to make a capital gain, I am just a humble long-term investor"

You can negative gear a property that has been bought with the intent of achieving capital gains, then not pay tax on those capital gains.

Profit that's not a profit, for tax purposes.


You're supposed to be the property King. You mean you don't know how to get all of the tax benefits from your properties?

Ideally you should structure your properties so that the positive revenue generating ones are cancelled out of the interest expenses on the loss making properties. This means that any income you earn actually has no tax obligation. In fact it allows you to convert income into tax free capital gains. If your income becomes positive you buy some more properties to cancel out any potential to pay tax.

At the end of this process you sell off some or all of your properties and collect a tax free capital gain on top of all the tax write offs. Of course you've paid little or no tax for many years like a massive bludger, but a rich bludger. It's easy to get rich if you never pay tax.

Is that one reason good enough for you?

Agreed. Ponzi members claiming no special tax treatment are having a laugh. Please dont continue to consider it a secret, developer pump and dump advertising has been promoting this for ages. Not taking on stupid debt does not make one deaf and or blind.

All of these examples are the same with borrowing for shares and business. Please prove me wrong, I bet you can’t. There are no tax benefits compared with any other asset.

This is the equivalent of sticking your fingers in your ears and going "LALALALA" really loudly. Stop pretending you are interested in discussion when you are ignoring the massive tax advantage that you are receiving.

If you truly believe in what you're saying then you won't have any issue with paying capital gains tax.

I have no issue with a capital gains tax as I don't sell. Shares should have a capital gains tax too.

They do.round and round the Mulberry bush we go. Get you head out of the sand

"any other asset" - er, how about term deposits, term funds, PIEs, savings accounts.... tax treatment VERY different.

if the property is turning a profit, it's possible to withdraw capital from the rental property and use this.....Interest payments on your rental property mortgage are tax deductible, whereas on your own home they're not.

What rubbish, you cannot withdraw money from your capital of your rental and make it tax deductible, absolute nonsense. Only if you borrow more for another property...there are incredible lies out there on this.

I am going to point out that you are lying. You are the source of incredible lies.

either that or the worst property investor in NZ and does not know what he can claim for

Please tell me how property investment has a tax advantage over shares?

Property King, I think you are starting to believe what Nick Smith and the National Government are telling us - porkies!

That property investment has preferred tax benefits over any other asset = fake news

Agree, the only reason property investment appears to have preferred tax benefits is that they can borrow so much against their asset. Other than banks themselves, no other business has the ability to borrow to such high leverage like property investment. The problem is the egregiously reckless lending to the property sector by banks, not the tax deductability of interest per se.

If banks lent to property investors as they do to other businesses there would be no negative gearing.

Banks already use DTI, it's called serviceability.

Then there shouldn't be any issue with an official DTI.

Be careful what you wish for with DTI's set at a certain per centage of income.
At the moment Banks do have a servicing requirement to ensure that the borrower can service any loan.
If the Banks tightened up,anymore then most first home buyers will not be able to buy, therefore enabling seasoned investors to pick up the affordable good returning rentals.

And that is precisely the "Cost benefit study" ... No one seems to look a bit further than the immediate problem or any consequences !! shoot and ask questions later mentality.

Regrettably, I find discussing the housing issues on this site is a waste of time - not only the writer has only presented a selective part of the problem and tried to simplify a very complex issue ( hopefully with innocent intentions) but most contributors have no idea of the ins and outs of property investments or the overall investment environment and history in NZ .. and that is obvious from some naive arguments ( albeit with loud tones) on this subject of late.

The people of NZ will elect the most suitable Gov they see fit to lead the country in the next 3 years of NZ history .. and that is our democracy.

As for the article, sorry Dave ... another disappointing one, incomplete and misleading focus. Could have come out much better and more constructive if you did some homework and covered this sensitive issue from all angles.

That just means that the DTIs need to be set at a reasonable amount. If they were set so that an average first home buyer could buy reasonably in Auckland, then it should also shut down investors by not allowing them to purchase more.

Rental income from a single property shouldn't be able to cover the lending requirements to buy the next.

I'm still waiting for someone to prove me wrong...can someone come up with one example of where property investment has tax advantages over any other asset? I'm still waiting...and waiting...

Make an appointment wit your accountant and he can tell you. I sure as hell ain't.

So to clarify, you are saying I can buy some shares, with 90% debt from the bank, write the debts interest off against my personal income tax (assumes some other paye activity), and then if I sell for a profit I can avoid the tax from profit on sale by claiming "I brought them not for capital gain"....?


Here we go. The "taxable" test is "intent". Anyone who buys a negative yielding property is clearly doing so with the intent to make a capital gain. Which should therefore be taxable. The reality is that IRD lets people buy a "business" that loses money-in fact is documented at the outset to make a loss- but somehow "accidently" makes a lot of money through capital gain.
It's just a giant rort. And since 80% plus of our politions are doing exactly that they aren't going to stop it. Conflict of interest anyone?

Haha, you can’t tell me because there are none. This is too funny 

Or how about maybe treating houses as "stock". A car dealer or a dairy farmer is taxed on the gains or losses each year on their stock. Imagine the squeals if taxation was levied on a landlord with 10 houses that went up a combined $2m in one year!

Back 8 years ago, property market was in the same situation, did you complain Labour?. I think the property market has been cooling down (soft landing) after 40% deposit applied, the policy has positively affected the market. The policy is on right track. It seems the author of this article wants to put DTI in place to create a collapse of the marekt. This is a good reason for voters to shift to opposition parties. I guess he is pro-Labour voter. Anyone in power needs to make sure the economy grows and financial market stabilizes. I am sure no other significant policies to property market will be introduced before the election. Even labour win this election, they will not do such stupid things after the election. Any policy against business community and economic growth will fail. Politicans can deceive voters in the current election but can't afford high unemployment and economic reccession and of course will lose in next election. Trump is a very good example of such deceit, look at what he has been doing and what he promised to voters!

Correct, I know guys who use margin accounts for this purpose and buy shares for capital gain. Others I know borrow off their house and buy shares, claiming a tax deduction from the interest. You can also run a company at a loss and your share price can keep going up. Take Xero for instance, don’t think they have ever made a profit.