Key cites rent rises in anti-CGT view

Property

Auckland housing shortage, rent rises, one of the reasons I don't like capital gains tax, PM Key says

20th Mar 12, 8:35am by Alex Tarrant

By Alex Tarrant

Prime Minister John Key says the housing shortage in Auckland, which has led to rising rents in the city, highlights one of the reasons he is not a fan of a capital gains tax.

Key yesterday said he thought Auckland's housing markets was going to "take off" as the supply of new housing in the city lagged growing demand. Slow planning processes, lack of development finance and migration to Auckland were all contributing factors to rising house prices and rents in the city.

Interest.co.nz reported on March 12 that the median weekly rent for a three bedroom house in Auckland jumped NZ$55 in February to reach NZ$550, the highest since we started tracking data six years ago. Real Estate Institute of New Zealand (REINZ) CEO Helen O'Sullivan told the NZHerald that while the rise could be a blip, the city's housing shortage had not been remedied.

"It's getting harder and harder to find a place to live. We've got an increasing problem if we don't get more buildings soon," O'Sullivan said.

At his post-Cabinet press conference on Monday afternoon, Prime Minister Key said it was quite clear supply of housing in Auckland was lagging demand.

"The Herald’s been running a significant number of stories about shortages for people as they’ve looked for [a property to rent]," Key said.

“It’s one of the reasons why I’m not a great fan of capital gains tax," he said.

One of the changes of the government’s tax package - to not allow property owners to claim depreciation on buildings with an expected useful life over 50 years - had seen fewer people investing in rental properties in the short-term, Key said when asked whether the government would do more to help with housing supply issues in the city.

Government was working very closely with local government in Auckland to make sure the supply of land and supply for the building sector was operating efficiently.

“We’re looking at a number of legislative changes of things that we might want to do in other areas that would deliver greater efficiency in building. It’s more pronounced and isolated in Auckland than other parts of the country – we accept that," Key said.

The Productivity Commission's final report to the government on housing affordability is due on Friday. See our article on its draft report here.

Also see: All the Productivity Commission needed to say in its housing affordability report: 'Quit whining about tax; It's land supply, stupid'

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13 Comments

by bigblue | 20th Mar 12, 9:11am 1332187904

The government killed the new house industry with the GST increase.

Now they need to solve the problem by introducing a new house buyer scheme to encoourage building like they have just launched in the UK:

http://www.telegraph.co.uk/property/propertynews/9137248/500000-mortgages-backed-by-the-taxpayer-as-NewBuy-Guarantee-scheme-launched.html

Many years ago we had the Homestart scheme which gave buyers $12,000 towards the purchase of a home. In 2012 we would probably need a $50,000 grant or maybe an alternative would be to permit 100% finance with the government guaranteeing the first 15% of the loan until such time as capital gain lifts equity so that the guarantee is no longer required.

If the new home building machine is not cranked up soon rents particularly in Auckland will skyrocket.The building industry is crucial to the economy and must be kickstarted ASAP!

In Auckland City the Res 6a zone requirement needs to be changed. Currently a site of 750m2 is required before you could build 2 dwelllings on a Res 6a site - this needs to be changed to 600m2 ie 300m2 per house. Immediately that would free up thousands of sites in Auckland City, so many in fact that the land price would reduce as there would instantly be an oversupply.

Many years ago the limit for a Res 6a site to have 2 dwellings was 650m2 - change it back to that or 600m2 now! At the same time the ridiculous 1,000m2 limit for a Res 5 site needs to be altered also to 600m2 or 650m2.

Changing these two zones would mean more people living in the inner city rather than creating even greater traffic problems by building further out.

by David George | 20th Mar 12, 9:56am 1332190579

These government home owners assistance schemes have a terrible record for pushing up prices even further. The recent Aussie debacle just one of many where young famillies climbed into a market inflated by government handouts and now with more debt than they can afford. Forget about it, in case you hadn't noticed, the government are already borrowing billions a year as it is. Encouraging people to buy houses they can't otherwise afford makes no sense what-so-ever. Heard of subprime?

Otherwise, good idea to increase densities in areas that can handle it and where there is strong demand but I think the market will adress the issues over time. Business can and will move elsewhere if housing is unaffordable for their workers. What we are seeing is the efficiencies of the city, being negated by the counter forces of complexity and size and growth itself. Ports of Auckland a good example, they can't compete with Tauranga or Whangarei.

There really is no good reason for half the countries population to try and squeeze into a few square miles of Auckland city.

by Zoltuger | 20th Mar 12, 10:05am 1332191123

I agree - more houses on existing land will reduce land prices and encourage developers to build and employ.

I also agree that CGT is not a silver bullet. It doesn't raise enough revenue due to the exemption for owner occupied houses (two-thirds of all houses), and it meerly shifts the tax burden to renters.

A comprehensive land tax (proposed by the tax working group) is a better solution to raise revenue while tapping untaxed capital in housing.

by bob | 20th Mar 12, 10:50am 1332193849

Totally agree on Res 5 and 6 densities. Also need to remove the requirement for 2 parking spaces per house. One is fine for a small house as done in other zones - why encourage them?

A 749sqm Res 6A site with 35% site coverage gives 262sqm of house on 1 floor alone - 524sqm if it's all two floors. There's enough bulk under the existing rules to get multiple decent dwellings this sort of floor area. To have arbitrary density rule saying a site that can take 524sqm of housing is too small to subdivide is stupid.

Even more stupid are the Res 1 HIRTB rules that don't let you build a villa in order to protect the character of the area which only exists because of the villas.

by me | 20th Mar 12, 10:24am 1332192277

A CGT would create a further supply problem in the short-medium term as investors shy away from residential investment, which of courseis what such a tax is designed to do- an even tighter supply problem would loom, and people with existing investments would sit tight rather than sell and be hit with CGT.

And Labour has gone down the populist track (if it was serious of making a CGT a significant tax revenue item it wouldof course include all properties).

by Henry_Tull | 20th Mar 12, 11:33am 1332196415

Ok, a couple of things, aside do you trust a govt. to tax us. Are you up for the size of the tax act to be doubled.

A CGT would would be on everything, not property alone.

A CGT would introduce something called a tax-base/tax value for each asset. This is an adjustment for CPI (inflation) so tax is not paid on inflation. (This means the tax concentrates on gains such as something re-zoned or sub-divided where value doubles overnight).

A CGT should be at the same rate as company tax and top individual tax (which could be reduced), with no or few (say welfare related exemptions - eg means tested if selling property to go into aged care, have disabled kids etc.) exemptions.

A CGT would apply to assets that were acquired after the CGT started. (Family farms/houses/property assets etc would/could remain CGT exempt for generations).

On the property side:

Construction costs here in NZ are higher than they should be. GST just highlights the issue.

Buyers subsidies are false. The amounts are capitalised in the price vendors ask (they drive up the price). Line the sellers pockets.

Steady land release, sound council planning and approvals are the trick. Just look at sections in Christchurch to see how not to do it. Auckland is dealing with a wave of Christchurch insurance money that insurance Coys say must be used to buy.

We have no shortage of land, we only think we have.

by Philly | 20th Mar 12, 12:18pm 1332199136

From my observation, the threat of a CGT has practically a zero impact on housing construction.

I have various friends who own rentals. Not one of these has actually ever built a rental. They simply recycle existing homes.

So if landlords don't drive construction, why should the threat of a CGT on landlords make any impact on the construction or overall number of houses on the market?

Maybe its different in Auckland.....

Key is plainly simply protecting his property-owning mates, since his arguments are so spurious.

Cheers

by ergo99 | 21st Mar 12, 8:24am 1332271497

I build all my rentals.

by Philly | 21st Mar 12, 8:14pm 1332314086

The vast majority of OECD countries have a CGT. Some have had a housing bubble, some haven't. I don't see the slightest link.

eg, Germany has got a CGT & never had a bubble in the noughties

Cheers

by Essjay | 20th Mar 12, 12:40pm 1332200440

All the talk of opening up greenfields for development is great, problem is that the demand for housing is in central areas which suggests we need to be able to have more housing on the land that is currently available. I'm not talking Zest on Nelson rabbit hutches, but quality developments of a handful of units to cater to those than don't want or need a massive backyard or a 300 sqm McMansion.

Medium density housing done well with amenities, especially good transport connections (more than a motorway) nearby will be far more successful than expanding further outwards in car-dependent soulless suburbs as the infrastructure requirements are less and it can be done in areas where people actually want to live!

by Wolly | 20th Mar 12, 3:47pm 1332211627

The demand growth is mostly a consequence of migration to where jobs were and that in turn creates more jobs..the cycle spins faster until people are shot out the sides. That is what is happening.

Look for the causes....collapse of the building sector in the regions...made worse by the gst idiocy...it was dogma not good prudent tax policy...nobody bothered to think.

So the regions are dying but for the farm incomes and we know dam well where they are heading.

The action needs to be in the rural towns..not in Auckland....

by boofta | 21st Mar 12, 9:41am 1332276073

Keys is a hypocrite - its easy when youre at the top after making your fortune in a "capital gains enviroment" to then look down on those trying to climb the ladder and put his foot in their face.

cha cha

by shoebergen | 21st Mar 12, 12:18pm 1332285485

My husband and I own rental properties We have only purchased older homes and built minor dwellings on them, therefore two bedroom units., in order to increase the returns.We have not subdivided these properties as we do not intend selling them, however, if we did sell them we would not get our money back for this reason.The last property we built a unit on we had to pay $10k to the HCC for the building consents. We also have to pay alot extra rates each year for having an extra dwelling on the property. It is our intention to keep these properties but the councils do not make it easy for rental property investors to make the most of the use of land that is available for infill housing. Maybe the govt should be looking at council spending and why they charge so much for building consents. We are providing homes for those on low incomes who cannot afford to buy their own homes and would otherwise be living on the streets or in substandard conditions.