By Alex Tarrant
A capital gains tax imposed on the New Zealand housing market at present would put upward pressure on prices as owners held onto properties and developers were less likely to build, exacerbating the current housing shortage, BNZ chief economist Tony Alexander says.
Alexander’s comments are at odds with warnings from Prime Minster John Key, and the theoretical argument from the Tax Working Group last year that the imposition of a capital gains tax on property would cause prices to fall as houses were sold off, and demand for purchases of investment housing declined.
A capital gains tax would mean fewer investors would put property on the market for sale, opting to hold the asset for longer, Alexander told interest.co.nz
“I think people will a) be disinclined to move out of that asset, but b) mainly, and I’m talking the long-term here, mainly the decreased incentive [would be] for investors to build properties for renting out,” he said.
Alexander estimates a shortage at the moment of about 45,000 dwellings in New Zealand, which would take years to rectify.
“Each month it gets roughly a thousand worse – we’re not getting as many consents issued as historical trends would suggest [were needed],” Alexander said.
A housing shortage was an incentive for property developers to build houses for renting out or selling.
“That incentive was there, before the capital gains tax change announcement. After [if a CGT were imposed], the shortage is the same, but the incentive for the investors to build is less,” Alexander said.
“At the margin for some investors a capital gains tax certainly doesn’t increase the incentive to build - it decreases the incentive to build. So it would lead to some immeasurable decrease in the number of properties likely to be supplied to the market,” he said.
6 Comments
Kate, I find it easy to believe he would make such stupid statements. 1, his only goal is to boost demand for borrowing and 2, he's an economist and his ilk need to keep the wool pulled over the sheeples eyes.
What I find hard to believe is that he does not understand our tax system and how it is applied. Even harder to believe is that he doesn't seem to understand the decision making of the developer/builder and the "investor".
A developer/builder will develop/build spec homes on the basis of demand for their product and profitability. They are subject to income tax in the ordinary course of business.
A PI may purchase one of these properties as an "investment" property. I do not believe that they build properties for the purpose of renting it. Either way they are also subject to income tax in the ordinary course of business. The difference is they can usually survive financially without making profits and are not subject to tax on any capital gain.
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