Property Institute warns the Government's moves to 'ring fence' property tax losses will have a 'disastrous impact' on the market and significantly worsen the already existing rental accommodation shortage

The country's facing the prospect of an "exodus" of landlords that will have a "devastating impact"  on the rental property market following the Government's moves to 'ring fence' property tax losses, the Property Institute of New Zealand is warning.

"[The moves] will have a disastrous impact on the market and will significantly worsen the shortage of rental accommodation in our largest cities," chief executive Ashley church says.

Church’s comments follow the release of an issues paper outlining a proposal to change the rules around the tax deductibility of losses associated with the ownership of rental properties

The effect of the changes would be that the costs associated with owning a rental property (interest, rates, insurance, maintenance, etc) could no longer be offset against other income as has been the case for many decades. Instead, these losses would be ‘ring fenced’ and could only be applied to profits made on the property against which the costs were incurred.

The Government is claiming that the moves are “an effort to level the playing field between speculators, investors and home buyers” but Church says this is nonsense and shows a continuing misunderstanding of the difference between ‘speculation’ and ‘property investment’.

"This Government continues to have a blind spot when defining these terms. ‘Speculators’ are people who are in and out of the market very quickly – sometimes within just a few weeks or months – and who seek to make money through renovations or quick capital gain. ‘Investors’ are Landlords – people who are often in the market for decades – and who perform an important social service by providing accommodation over long periods of time.

"Treating the two in the same way demonstrates an unacceptable ignorance of how the property market works."

Ring-fencing tax losses will be the ‘final straw’ for many investors and will largely have the effect of pushing them out of the market – further compounding an already serious rental crisis, he says.

In encouraging feedback on the proposed changes Revenue Minister Stuart Nash has said that the “persistent tax losses” that many property investors declare on their investments indicate that they rely on capital gains to make a profit. But Church believes this is "woolly thinking" and demonstrats a lack of experience by the new Government.

"Yes, most investors make a loss on the day-to-day operation of their property in the early years – but properties do eventually become profitable at which time tax is paid on that profit just like any other business activity. So the ability to claim losses early on is offset by an eventual return to the taxman later on – and without the ability to claim those early losses many investors would abandon the market, or wouldn’t enter it in the first place," Church says.

Private Landlords provide the lions share of rental accommodation in New Zealand – and in doing so they have saved the State billions over the past few decades, he says.

"Scaring them out of the market is foolhardy, bloody minded, and will constitute a massive ‘own-goal’ for the Government.".

Church notes that Nash has said in conjunction with the recently announced extension to the bright-line test, ring-fencing losses from rental properties would make property speculation less attractive and level the playing field between property investors and home buyers.

Church disagrees, saying that the extension of the ‘bright-line’ test to five years already means that speculators – the group the Government claims to be targeting – will now be paying their fair share of tax.

However, further moves "will punish a group who are performing a public good".

“Given that price competition has now largely disappeared – those who are in a position to buy are already doing so and an exodus of landlords will make little difference to that.

"What’s far more likely is that residential rental accommodation will go the way of farm land and our larger companies and will end up in the hands of handful of ‘corporate investors’ who will own the bulk of our rental property.

"Is that really what we want?"

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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249 Comments

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What a load of trash, going on about "public good" and all. Property Institute have a vested interest in keeping the status quo (obviously)

If "good" landlords cant make a profit from day one they're doing it wrong.

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Less landlords does not mean less houses. It means more owners and less renters.

It will be positive for the housing shortage, and positive for the economy when former or potential landlords invest in something productive instead.

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entirely agree

Landlords exiting the market will not result in a change to occupancy numbers, the new buyer will either occupy it or rent it. With capital gains a thing of the past for now, I cant see many buyers leaving a property empty.

You're both forgetting that the average rental has 4 occupants but the average owner occupied house has only 2. If 1,000 house transition from rentals to owner occupied you now have 2,000 extra people looking for a home.

As I mentioned below, I think those stats exaggerate the scale of the problem. The relevant stats would be the average number of occupants of the margin renters able to purchase property in the near term, not the total average. I'm sure that there will still be an imbalance, but not as large as the simple stats would present.

i.e. average number of occupants per rental is skewed by large households full of renters not planning to or able to buy. In my experience, a common path is multi-occupant house -> rental as a couple -> buy a house as a couple. The rental -> buying step does not change the number of occupants in this case.

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Also has been my observation that is the general path people take through life, so overall occupancy rates wont change much. I wouldn't be surprised if there is an increase of in young couples who buy a place and put up with having a flatmate or two for a few years to help pay down the mortgage until they decide they need to kick the flatmate out and turn their room into the nursery. I see nothing but good effects from these proposed tax changes.

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A lot of the reason there are fewer people in owner-occupied housing is retired people who are generally only 1 or 2 per dwelling. This policy isn't going to increase their numbers, but rather hopefully increase affordability for younger people who are presently locked out of buying a house, and they will likely keep the same number of people per dwelling.

I agree the stats at the margin could be different than the overall stats that I presented. The could be worse or they could be better or they could be the same.

Do you have any better stats around the margin to share, or do you only have anecdote and speculation? I have just as much anecdote and speculation as you.

In my experience most FHBs are younger professional type couples with no or few kids and most renters are larger families who will never own or groups of young people. I had a flat a few years ago where 3 couples lived in a 3 bedroom house. Those 3 couples all now own their own house, with no flatmates.

See how that works?

I have no better data source, I'd be fascinated if anyone does. I do strongly suspect that there is a relationship where those looking to buy and able to buy tend to live in smaller rental households, the common underlying causes being their wealth giving them options, and age. I don't have the data to prove this.

Below is a Branz report *cough* done on a very small sample set (around 1100 people i believe) and it's 5+ years old. Not so much around what ages are buying homes etc but more total numbers of people per house based on the number of bedrooms per house. Page 28 gives you their "findings" on:

Average number of Dwellings in Rental Tenure from 1996 - 2013 based on # of bedrooms (saw an increase across all Dwelling Sizes)
Average number of Tenants per bedroom by Tenure Status (saw a decrease across all dwelling sizes)

Grain of salt?

https://www.branz.co.nz/cms_show_download.php?id=606738ff7cb47451e094ad8...

Thanks for the link. I also had a look at 2013 census data but don't have time to fully do it justice right now. A couple of interesting tidbits:

"Like households overall, households who rented their home were most likely to be one-family households (63.3 percent) or one-person households (23.5 percent)

Other multi-person households (such as unrelated people flatting together) made up 9.3 percent of households who rented their home."

"In general, rental housing tended to have fewer bedrooms than housing that was owned or in a family trust"

I think there might be some misconceptions about what most renters are like - many renters are already living in a single family unit, and if they become FHBs it has no impact on the number of houses needed.

http://archive.stats.govt.nz/Census/2013-census/profile-and-summary-repo...

You're both forgetting that the average rental has 4 occupants but the average owner occupied house has only 2. If 1,000 house transition from rentals to owner occupied you now have 2,000 extra people looking for a home.

This comment shows the danger of putting basic statistics into the hands of people who don't understand data composition.

There is a 100% chance that I understand data and statistics better than you. It's a mathematical certainty.

It's possible that at the margin the stats are worse than what I gave. It's also possible that they are better. It's also possible they are roughly the same.

I've given you the data we have. Do you have any better data than that, or just speculation?

Wow, don't hold back mathclub. Tell us how confident you really are? Dunning-Kruger in action.

Math is in his name, if he doesn’t have math what does he have?

That's why I have crate in my name, mmm Beer.

When my partner and I were renting, there were 2 people in our house. When we bought a house, we had a baby. Owner Occupied number increased by 1 from when we were renting.

Surely this could be the case for many renters? Mid-Twenties to Early Thirties couples who have done their dash at "Flatting", now renting their own place in preparation to buy their own home? There's always going to be a rental market for 18 - 25 year olds who want to flat together to study/party, many of whom probably wont even buy regardless of housing affordability until they're ready.

When my wife and I bought a new house there were 5 renters in it who left, and then the 2 of us moved in.

Given most first home buyers are professional younger couples with no or few kids and lots of rentals are crammed with bigger families who will never own or lots of flatmates under 30 then the stats are what the stats are

For every retirement village unit/room there is a house vacated. How many retirement village units are there. #craploads and more being built all the time.

Think you've oversimplified it mathclub. There are more than 2 variables in this equation, such as:
house_prices
rent_prices
n_people_actively_looking_to_buy
n_people_actively_looking_to_rent
n_people_total
persons_per_dwelling_rented
persons_per_dwelling_owned
number_houses_available_for_purchase
number_or_houses_available_for_rent
d/dt all_of_the_above

I would think that as the settings are changed the system may undergo a phase change of sorts, and those aforementioned parameters may change in a non-obvious way.

Sure, because every renter is just sitting on a 20% house deposit. They're only renting for "convenience" right? Despite the fact that almost half of households dont even have enough money set aside to cover a $1000 emergency. This whole "renters will just turn into buyers" is a crock. People rent because they don't have savings, they dont have good credit records for a bank loan, they dont have the income to meet mortgage servicing requirements. Just how everyone expects them to overnight become buyers when their landlord puts the house on the market is illogical.
https://www.bnz.co.nz/about-us/media/2017/rainy-days-and-rocky-futures-i...

And not to mention that a single couple renting a small 1 or 2 bedroom place, are not going to be looking at buying the same size place as a family home. The two person rental household will be looking to displace a multi-person household or family from a 3 or 4 bedroom house.

Well, I am. I know quite a few others, too. Where do you think first home buyers come from? There's a bunch of renters with a wad of cash building up in the bank getting ready to pounce. Certainly not all of them, but I'm not aware of anyone saying we should aim for 100% home ownership rates. The numbers able to buy will increase further if prices come down a little.

I'm not sure why you're assuming FHBs require a 20% deposit - banks are able to offer lower and these will presumably be mainly marketed at FHBs, and failing that there are welcome home loans which only require 10%. http://www.welcomehomeloan.co.nz/

When I buy, I will buy a property very similar to the one I am currently renting.

Why are we paying so much in accommodation supplements/welfare if renters (as well as landlords as a result) are becoming so wealthy? (or better put, able to put money aside at the end of the week in the form of savings). That doesn't make sense...

If its such a good gig for tenants at present, our need to pay accommodation supplements/welfare should be reducing right, no increasing?

I don't receive accommodation supplement, and I'm in no way representative of all renters. I think you are deliberately misunderstanding me - many renters do not receive supplements, but many other renters do and I'm sure need it to keep a roof over their heads. The existence of one group doesn't mean the other doesn't exist.

In your world, how does anyone ever buy a house if renting is apparently supposed to eat away all your income?

Exactly - that's when you realise the market isn't a 'free' market, it's a rig market where the players who entered 10-15 years ago (or more) hold all the power and you now have a slave class whose job it is to work/serve for them - pay taxes to government to pay accommodation supplements for those who can't afford a house or their weekly rental costs and then pay rent to your landlord so they can pay the mortgage and get ready for their next winter European holiday.

And remember we're talking about the market overall here - not just your pesonal circumstances. If our society was functioning properly, why would we need to propping so many people up with such a massive amount of welfare? (while those who are already wealthy dodge taxes buy owning 'investment property'). If our society was functioning properly, we wouldn't need to be paying such a massive amount in welfare - everyone would be able to afford the weekly cost of living (apart from a small percent of the vulnerable).

It would be interesting to see if our overall welfare/accommodation supplement type costs have increased in terms of inflation the last 10-15 years or whether now we have a much bigger burden because the poor/average classes in New Zealand are propping up the rich - to see how that type of wealth transfer is occuing or at least in what magnitude.

Sure, because every renter is just sitting on a 20% house deposit. They're only renting for "convenience" right? Despite the fact that almost half of households dont even have enough money set aside to cover a $1000 emergency. This whole "renters will just turn into buyers" is a crock. People rent because they don't have savings, they dont have good credit records for a bank loan, they dont have the income to meet mortgage servicing requirements. Just how everyone expects them to overnight become buyers when their landlord puts the house on the market is illogical.

Bravo. You're right. However, what you're missing, and what the BNZ doesn't have the chutzpah to reveal from their research, is that there is a high likelihood that property-owning h'holds are also living paycheck to paycheck. I cannot find the data for NZ, but I have seen data for Australia.

-- 63% of households reported they ‘could not easily raise $3,000 for an 'emergency’.

-- 51% reported cash savings less than $10,000, including 27% with less than $1,000 in cash savings, regardless of whether or not they own property.

-- 73% have less than AUD50,000 in cash savings. That suggests the vast majority of Aussie families do not have the immediate resources for a deposit on a home if they have to save for it.

https://www.mebank.com.au/news/household-financial-comfort-report/

KW... us too and many of our friends, all in our 30's, all accruing sizeable deposits (many waaaay higher than 20%). We're all in slightly different situations, a few of our Auckland friends are waiting for the housing market to cool after years of being outbid or beaten at tender (which was soul destroying).

We're in a slightly different situation. We have lots of investments and savings, but have chosen not to buy a house right now because A. nothing came up that we really loved B. trying to buy a house in a sellers market in NZ is a positively revolting experience C. the housing market looks extremely overbaked so we decided to take a punt on getting a slightly better price buying in 2019. D. we've only been living in Welly 18 months so still getting to know the suburbs we like and the complexities of property here.

*People rent because they don't have savings, they dont have good credit records for a bank loan, they dont have the income to meet mortgage servicing requirements. Just how everyone expects them to overnight become buyers when their landlord puts the house on the market is illogical.*

No all of them do, but many do. Case in point, my ex-flatmate. Currently renting. General manager of a small company, so on a low 6 figure salary (+bonuses), his partner is a teacher, so not such a great salary. Between them they have at least $200k for a deposit. Neither of them have poor credit ratings. They can buy when they want to, and they will, once prices get a bit more reasonable.

Myself and my partner are also in a position we could buy if we wanted to, We can probably only wrangle $100k for a deposit, both employed professionals with good credit earning between us >$150k/pa but simply refuse to take on $500k of debt to buy a 1970s shitbox in Auckland, and for now at least we are tied to Auckland for family reasons, so we rent and keep saving/investing till either Auckland prices become sane, or till the family reasons we are tied to Auckland resolve themselves.

Not every renter is sitting on a 20% deposit.. but they don't need to be. All there needs to be is as many buyers as there are landlord exiting the game.. And if their is a shortfall of buyers.. that just puts downwards pressure on the prices.

There is hope for you yet Pragmatist!

My partner and I were in a similar position last year when out of the blue, work sent her to Northland for a year. We moved up with a lot of trepidation and it's been great! We live in Kerikeri and life is good, we rent a two bedroom house overlooking the water, I bought a boat and caught my first 20lb Snapper and we've actually been saving more money because all our expenses went down.

I miss the food in Auckland but that's about it. That place bloody sucks these days and I say this being born and bred in the central suburbs.

PS. I'm now currently trying to convince my partner that we need to buy a 1.5-hectare section up the road. Leave mate you won't regret it.

Thats a cool story. Over looking the water up North, 20lb Snapper.

I'm in London looking forward to coming home in a few years and buying a boat. My friends have boats as well. The beauty of Auckland changing particularly traffic, UK has made me sick of traffic, its made me want to move back home to the country and beaches. Better life for kids.

Yes that's right. It will bring prices down as some landlords exit the market, and fewer enter it, and therefore help with ownership.
I think it is a valid point however that it would affect the rental market. There will always be plenty of people who can't afford to buy, and are not eligible for state housing. They could be caught out by this.
So there are pros and cons that need to be considered.

In the case where there is zero population growth I would agree. In the situation we have where population is increasing you need to provide new dwellings. To get more dwellings you need to get enough sales to get funding for projects. Increasingly projects rely on a combination of owner-occupier and investors to get enough sales to reach funding threshold. Take investors out of equation and more projects fail = less new dwellings in market = more expensive housing for owner occupiers and renters.

A successful Kiwibuild program might mitigate those risks.

@dtcarter Nope, while its true the number of houses is reasonably static the number of occupants per house changes as ownership type changes.

The average rental property has more occupants per bedroom than an owner occupier property. So if more properties are in the hands of owner occupiers, you would expect there to be more homeless on the streets. Or at least that is what the national statistics show, rather than the anecdotal evidence found on these threads.

... does " Less landlords " imply fewer landlords in number .... or smaller landlords , a diminution in their stature ...

That'd be a great tourist marketing ploy ... the only country in the world with teams of dwarfs roaming the streets , armed with baseball bats bigger than themselves , searching for wayward tenants to teach a lesson in " pay up or lose your knee-caps , sucka ! " ...

... the Germans in particular would travel half way around the planet to witness that .... ahhhh .... for the good old days ....

You guys are all wrong, you don't understand how the market works.
Where do you think most new houses come from, the "Baby House Stork" ????
Its mostly small time PROPERTY INVESTORS that have a few rentals, a bit of land, or they use equity to buy developable land, then they build the new houses that you live in.
Either as new rentals, or you buy them as first homes, that is where the majority of housing comes from.
As well as some govt and some big developers and some builders.
The last 2 out of that group suffer due to the pathetic process through council that strangles and murders anyone stupid enough to try and build a house in todays Auckland world of property development.
Now one of the other groups, Property Investors, whose equity piece of the puzzle has been hammered by LVR restrictions and now income side of finance to build with higher rental compliance and new laws coming in, will make it much harder for them to want or be able to create new housing stock.
You think the government can build all the houses, really.
Also you don't understand how much of small business in NZ works, a good chunk of SME's are property investors who use equity and cash flow from rental properties, to enable them to operate their small business.
You are now choking of that, and reducing economic growth and employment growth.
Hammering people who work hard to try and get ahead in NZ, is that the way you want it to work, is it better that the government and large corporations provide all the jobs, and we are all slaves to 9 to 5 or serfs on the doll looking for hand-outs to survive.
Ring Fencing doesn't bother me, and I never off set rental property loss's against personal income, as I didn't believe it was honest and I went for another structure, so I agree with it.
But just be warned, it is another wooden stake into the heart of the property investor vampire that everyone thinks we are.
Be warned of what kind of new monstrous world you might create.
You cant keep blaming your inadequacy on other people.
Get out their yourself and live in a shitty house in a shitty area of massey for two years like I did, work 2 jobs and do up the property and flick it and move up the ladder.

Not in my experience. Of the three landlords I know socially, only one has built a single dwelling, and thats the one he lives in. The rentals were all purchased, had nothing done to them that wasn't absolutely necessary (and in some cases were downgraded) then rented out.

Developers and landlords have in my experience very little overlap.

New houses mostly come from property developers who build and sell houses and owner occupiers who want a new home according to their preferences.

Small time property investors (and I've for many professionally over the years) mostly buy existing properties, which may or may not include a newly built dwelling but they did not direct that build. Landlords that do build new in most cases would be those that have a large enough section to put a second dwelling on. Of the many landlords I've worked for over the last 2 decades only one had a stand alone dwelling built for rental and that was through a property management company that operated a specific business model for this purpose. Recently I know one landlord with a rural property who built a second dwelling and is only renting it in an attempt to circumvent the 2 year brightline test.

No, a good chunk of SME's are not property investors to fund their small business. Many SME's have to use their own home as security to fund their business. Some may or may not become property investors once their small business provides enough for them to invest in property.

@dtcarter okay , so you belong to the bash -the -landlords -brigade , and you would like to see landlords leave the market completely ...........and thats fine .

Dont forget a couple of things .

1) They provide rental stock into a market that is undersupplied with no alternative investors ( the State cannot do this )

2) The shortage of housing has not been caused by landlords , they are simply players in the market

3) In most cases they have taken enormous risks with eye-watering levels of debt that you and I would not entertain ourselves .

4) Many Auckland houses that are let out , are owned by developers who plan to redevelop the land , land prices will not fall by much

5)According to a recent ANZ Bank research paper around 15% of Kiwis are "battling ' to just get by , they are never going to own a home in most cases

6) Most of the middle class dont have ANY savings and live from paycheck to paycheck and are unlikely to save the deposit anytime soon

7) Investors have already started exiting the market , so there is already a shortage of quality rental stock (There is a lot of old run-down rubbish to let )

8) Some investors like one in my family has bought a home in Belmont which he intends to occupy when he gets back from Dubai where he is on a contract ............ how many more landlords are in this position ?

9) Landlords are being treated as if they are the cause of the housing shortage ............ quite simply that's fiction . The problems of bad planning by Aucklands city fathers , a reluctance to allow the city to expand outwards , high immigration , cheap money , and a good investment climate have all added to the mix.

Banning , outlawing , discouraging, or taxing landlords out of the market will not fix the problem .

Housing is not oil and gas which can be imported in unlimited quantities , this is housing , which we all need and is in high demand and short supply

I'm a landlord 3 properties that I rent I built myself.I plan to build another three this year .landlords subdivide and build new houses.That's positive for the economy and productive.

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The disaster was letting the ring fencing happen in the first place.

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As a tax payer I should not have to subsidising landlords who make poor investment decisions. Ring fencing should have happened years ago. Ashley Church can go whistle!

Do you take that same attitude when it comes to social welfare and poor life decisions per chance?

That's a different topic - I think the issue is here that we've turned 'homes' into speculative investment items. What would happen in the future if we start having limits with food supply and 'investors' start pushing up prices? And those that can't afford food has simply just made bad life choices as you put it? Is that ethically/morally acceptable? Then if not for food, why homes? (both basic needs for life).

Hi Independant, this was a bit of a facetious post. I see a lot of unintentional double standards in the comment section and occasionally try to highlight them, food for thought. For the record I strongly agree taxpayers should not be subsidising landlords in this instance, just as I think taxpayers should be not be subsidising many other things in our country. When I express that idea, I then have commentators say the equivalent to me so I thought I might try and put the shoe on the other foot to show how in both instances subsidies are wrong.

Social welfare and poor life decisions are very different from business ventures aimed at making profit which is the expectation of most landlords!

There was a type of ring fencing in the eighties, was limited to x amount of dollars per year, extra losses to be carried forward, interest rates were double digit. Not sure who canned it.

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These kinds of policies are already being implemented in the UK to attempt to discourage small time landlords. The country is now battling with rent inflation of as much as 1.1% over the last year with a general inflation rate of 3%.

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexo...

In the most expensive market of London, rent inflation is running at 0.1% over the last year. What a calamity.

Yeah, interesting eh. Was reading about the Scottish experience recently, which seemed to suggest costs were not easily able to be handed on to renters too.

Ashley Church has also argued in previous television appearances that Letting Fees are good for renters because they enable those who can afford to pay more to outbid those who cannot afford to pay letting fees, thus letting them get better houses. And this is good for renters? Rents can do that, without letting fees. It's a nonsensical argument.

In the end, Ashley is doing his job and running interference for those he represents. But the arguments don't stack up.

no hes not . On both counts

Like it or not property ownership is a legitimate business just as owning a farm or other businesses involving risk. Sure there maybe a degree of abuse by a small group but most landlords are simple mum and dad investors looking towards their retirement historically property ownership has been a long game.

Landlords mindset that they acquire from the previous Govt thinking property investment is nothing but positive returns. Property is a very high-risk investment, I bet some "Investors" just went with the flow during the hype.

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I'm struggling to see how a tenant buying the rental property he is living in is other than a very positive move.

If so called property investors are buying properties with cash negative returns - then they can only be buying in the expectation of tax free capital gains.

Should have been done years ago.

Lucky they aren't going to make interest non-deductible - exactly the same situation a home owner faces.

Nope, , rents rise over time. What looks negative today is positive tomorrow. Exactly the same as with stocks.

Consider the position of the three other renters he was previously sharing the property with.

From the 2013 census:

"Like households overall, households who rented their home were most likely to be one-family households (63.3 percent) or one-person households (23.5 percent)

Other multi-person households (such as unrelated people flatting together) made up 9.3 percent of households who rented their home."

http://archive.stats.govt.nz/Census/2013-census/profile-and-summary-repo...

The Feds are grumpy too;

Farmers give thumbs down to new taxes

Source: Federated Farmers

Any move to introduce a capital gains, land or environment tax will meet stiff opposition from farmers, a Federated Farmers survey shows.

The Federation asked its members for their views last month, to help inform the farmer group’s submission to the Tax Working Group. The nearly 1,400 responses indicated strong opposition to some of the new taxes that have been suggested.

Just on 81 percent opposed a capital gains tax excluding the family home, with 11 percent in support. However, 47 percent would support a CGT on property sold within a five year ‘bright line’ test. There is currently a two-year threshold, and the measure is seen by some as a way of discouraging speculators.

"Farmer opposition is even more entrenched on the idea of a land tax, excluding under the family home, with 91 percent against and only 2 percent in favour," Federated Farmers Economics and Commerce spokesperson Andrew Hoggard said.

"A land tax would be punitive and inequitable on farming. The strong opposition to it in last month’s survey mirrors its utter rejection by rural New Zealand the last time our tax system was reviewed, in 2010," Andrew said.

Some 82 percent of respondents opposed environmental taxation but there was minority support if such taxes were used to fund on-farm environmental initiatives.

Tax incentives for those who invested in environment -related on-farm investments drew 84 percent support.

"Just on12% supported a ‘progressive company tax’ (i.e., a lower rate for small companies), with 26% opposed and 55% thinking ‘maybe’ depending on what is considered ‘small’. There was a lot of concern about compliance implications," Andrew said.

Meanwhile, 66% opposed exempting basic items, such as food, from GST, with 29% supporting.

"Federated Farmers will be sending in a comprehensive submission to the Tax Working Group, which will pick up on the concerns and comments raised in our member survey.

"But we also encourage individual farmers to have their say direct to the TWG by April 30. This is an issue vital to all New Zealanders," Andrew said.

ENDS

How would a land tax affect the farming sector?

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..it would drive down farm prices to a level based on trading profits and not based on tax free gains.

Lots of farmers farm because they like farming (and maybe don't know how to do anything else) and feel a bond with the land, not because it's the most profitable use of the capital tied up in the farm.

And all these tax-free capital gains - sure, for farmers on the margins of cities this break-neck population growth has given some massive windfalls in property gains. For plenty of others in more remote areas or who don't want to sell their family farms, capital gains don't exist.

Shows how little you know rastus - it will drive the foreign ownership, corporatisation and fewer entities owning more, of land. Farm prices in many areas have already come back, though there are pockets where they have held up due to land use change e.g. dairy going back to sheep/beef, dairy support going in to arable.

....they use land.....

.Its only punitive because they pay too much for land - they are in business for cap gain and not trading profit.

"Typically farmers and their funders (mainly the banks) focus solely on the ability to service the debt raised to fund the business.

So let's say the farm is worth $2 million and the bank lends the farmer $1 million, then all the bank is interested in is whether the farm can generate a net profit big enough to meet the interest payments on $1 million.

There's little or no interest in whether the farm can generate a net profit that also gives the farmer an appropriate return on the $1 million of equity, let alone a reward for the risks being taken".

Yep...more tax free gains to the asset protected aset owners with zero tax to pay.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1069...

Ask a bank whether if they are interested in financing an unprofitable farm ?

Really rastus - using 8 year old articles that have no relevance to today's situation shows your complete lack of understanding of farming as it is now.

Tell us...
Why then are farms not priced at the marginal value of production?
Take some rough numbers:
- ave price of $34k per hectare for dairy land in NZ.
- average of a metric ton of milk solids per hectare
- marginal price of milk solids is ~$5.50 kg
- marginal cost of production is ~$5.00 kg (estimated slightly lower to give farmer $100k salary).

So, revenue from each marginal hectare is ~$5.5k.
Prices are 7 times their gross productive value.

Seems like land banking is the true business of farming in NZ, to me.

People are emotional, not as rational as you may surmise.

and for background, there were some great threads for a period a couple of years ago.
https://www.interest.co.nz/rural-news/80338/dairynz-cuts-breakeven-milk-...

and hats off to AbbeyD

by AbbeyD | Tue, 01/03/2016 - 17:52
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Interesting Pita Alexander articles Henry Tull - back then I had concerns too as to the global milk supply & rising China debt to GDP, and the inability of the last financial crisis to re-balance markets.

I liked this article at the time:
http://www.stuff.co.nz/taranaki-daily-news/opinion/70323554/Rachel-Stewa...

What I'm currently interested in is the housing debt in NZ, could that possibly be more worrying than the farming debt? & the actual health of the banks? I see Heartland bank didn't have much equity/reserves in their last shared financial statements! but yet they are posting a publicised profit,
http://www.odt.co.nz/news/business/374173/bigger-loan-book-boosts-heartland

Our other big banks link to Australia
http://www.afr.com/news/economy/employment/uncovering-the-big-aussie-sho...

Be nice if there could be an easy solution/magic wand to fix all this stuff and we can all be positive forever !!
Maybe the extinction of financial greed as a learned human trait ??

A land tax has to be comprehensive.

1% on the value of all land, bang! What does that raise? What is the value of all land in NZ?

Then you take the proceeds and decrease income tax and increase working for families and superannuation a bit to help out. It will reward workers and people who save money.

Also, we don’t need to worry so much about foreign buyers because they will be boosting our coffers through land taxes. Muhahaha.

Won't that just cause land to be revalued by some creative accounting to avoid paying the tax on it?

Who says they get to value it? Clearly this would be controlled by government.

I suppose if you write down the value of the land, then for a land owner, the land tax obligation gets smaller. Just wondering how easy that is to do... https://www.justice.govt.nz/tribunals/land-and-title/land-valuation-trib...

The productivity commission or some other working group estimated the impact of a land tax on land prices. From memory they thought they would drop by 15%. Just to head off any comments, lower land prices are actually a good thing as they raise the return on farming/home ownership.

This nonsense about an increasing return is only looking at half the transaction because quite obviously the extra 'return' is some other persons loss.

The question needed to be, 'would you support an asset tax if it was tax neutral'?

Farmers are getting old , either we go full corporate or land gets cheap enough for young farmers to enter the industry. No existing farmers want to see their capital erode in value.

No change is ever neutral for everyone. The question is are the societal benefits great enough to justify the change to the status quo. I say yes of course.

It’s like self driving cars. People are worried self-driving cars will kill people and ask how we can make sure they never make a mistake. While forgetting that people driving cars kill people all the time and we accept that.

If you put the incentive into the income part of the business and not the non taxed capital gain, the outcomes would be positive.

If you put the incentive into the income part of the business and not the non taxed capital gain, the outcomes would be positive.

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"Property Institute warns the Government..." I stopped reading at this point,vested interests!!

How narrow and closed minded of you.

Every argument should be judged on the merit of the argument, not on who is saying it. The kind of thinking you are displaying is counter-productive to a modern, successful society.

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"So the ability to claim losses early on is offset by an eventual return to the taxman later on – and without the ability to claim those early losses many investors would abandon the market, or wouldn’t enter it in the first place," Church says." - that's the whole point, Ashley

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"Ring-fencing tax losses will be the ‘final straw’ for many investors and will largely have the effect of pushing them out of the market."

It's a race to the bottom - whoever sells the cheapest, sells first. No overseas money to keep the ponzi going so they have to rely on local kiwi salaries to buy their house.

Good news.

Two outcomes:
1. rents soar, and
2. property prices increase

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Yeah, good luck with that.

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That is what you took from the article?

Wrong .... and wrong!

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Good news.

1. Domestic speculators trying to convert tax losses into equity repayment bail out in droves
2. Prices drop as that market anomaly is removed
3. Some renters become FHB'ers
4. Professional investors who value tenant and property health can make money, so re-enter the market
5. Reducing prices puts pressure on the over leverages and the banks pull the trigger on some.

Either rents have to rise dramatically, or prices have to fall dramatically, in order to attract "professional" investors. At the moment, the only reason rentals are owned by "mum & dad" investors is that the "professionals" have much better options to put their money into - like commercial real estate, or the share market. In order to attract them into the residential investment market, returns will need to be equivalent to commercial, where rents are 7-8% pa. and the tenant pays all outgoings. Otherwise, why would they switch? (and if you say, oh because of capital gains, then you've defeated your own argument).

And futher do that, what type of investor would buy into a market where they're at risk of catching a falling knife. The correction will need to come, the market stabilises and then growth occurs again before any right minded investor would buy......surely? Otherwise its high risk with poor return potential....

I think that reducing prices (or at least stabilising while inflation eats away at them) is very much the ultimate goal.

ummm Xwrong we have had that already...so you just might find the opposite occurs.

So what would be your ideal method to drop rent and decrease property prices?

To drop rent reduce demand by cutting immigration to the bone and taxing Air B'n'B out of existence.

Either that, or magic up a large number of dwellings quick smart to increase supply.

EXACTLY ! ... most people commenting on this issue today are Blind and know nothing or very little about the social activities around them.

They comment either out of political belief, envy, or the small circle of people they know - pitty !

Mr. Church is 1000% correct in everything he said - this market cannot afford the trial and error methods of these noob ministers (along with some academia idiots) to experiment on !

Should this ship sink, it will take everyone with it ( I mean all taxpayers ) .

Stupid election slogans and purposely mixing between Speculators and Landlords and making promises they could not keep about housing will result in stupid laws and regulations put out to please the silly sheeples who believed them.

As i said in several previous posts, only naive illiterate people would only believe that rentals will be owned by tenants - you have no idea who most of these tenants are?

Watch the space carefully, this is going to be an ugly fatal mistake -

Tenants, Don't cry if rents go sky high when deep pocket Property Investment Corporations buy half of the country rental stock and milk you and the Gov ( through AS) big time in decades to come.

Lucky darklords aren't tax payers right?

And talking about ugly fatal mistakes - what do you call the present and the position we've found ourselves in because of past decisions?

I'm currently sitting in an office with 6 colleagues all currently renting, all with growing deposits, all planning to buy in the next few years. There are plenty of us about.

Sure you want to buy at the top of the market? If this starts to unravel - it will unravel for a number of years before it bottoms out....

We're in Chch - market has been pleasantly flat for years now, I don't expect major falls here.

Well if there's no demand now, imagine what would happen during a recession....(net migration turns negative....probably better to buy somewhere that people want to live..?)

Hope The Man 2 has been treating you well - you might know him/her?

Best to buy somewhere that I want to live. Once I know I'm here for a while, I'll buy, and with enough of a deposit that a 20-30% drop wouldn't cause major problems.

I sure hope not.

...an opportunity of a lifetime for patient savers to watch the tide go out on the negative geared! Interesting times indeed. In the absence of capital gains, I would expect given the risk of tenants, yield should be no less than 5-6% when compared to today's term deposit rates. This would imply quite a considerable adjustment of house values is in store.

My concern is though RP is that people might be too eager to enter the market if it does start to slide....because it will be difficult to judge where the bottom is.....(will it be an Ireland/US/Spain style event.....or could it be a Japan style event that could last decades?)

very true. Only through sales turnover the revised spot values are determined. There will always be the ones that buy on the way down (falling knife). Those who understand the now changing dynamics also understand there is no hurry. This is a pure suckers market.

Your maths is bunk. Properties future income gain and capital gain is discounted to a fair value today that doesnt require a profit for years. Exactly the same maths as for stocks.

you and your colleague better have put their savings in high return investments because they won't be able to buy anything in few years if they are in TD ... just saying !

house prices will soar if this goes through, it will not come down !!

And, I stand to be counted on that !!

Echo Bird, when market tanks, accountability will be avoided as you conveniently disappear from this forum. We can all count on that.

As you are a follower, what's also worth noting is that you've overindulged in only one commodity. A commodity that will, best outcome scenario, underperform long term when compared against term deposits of equal length. By the time you realize it, you will merely be a property caretaker trading verbal blows with an anxious Bank Manager.

lol, you know nothing about me Expired Poppy, assumption is the mother of all ...**** ups as I told you before ...

No I won't disappear -- this is the best free entertainment around , lucky that we have another 2.5 years of it ..

I have no accountability to anyone, my posts and advice are free to All , I don't even charge the idiots for my time and replies !

I bet your term D has made better than investing in the share market in the last 12 months ( like surely better than 26,8% pa)

BTW, I am retired and have no wages or salary to be taxed on - unlike most of you I pay tax on other income - so this whole shambolic crap won't affect me at all but it will make the life of most tenants tougher.

In fact , this crap will increase my revenue from rents as these will be put up significantly and no one would blame any landlord for that.

I bet you feel better now Poppy,

Keep trying ! that might help with your silly jealousy :)

Happy ANZAC Day to Expired Poppy!

DGZ, Echo Bird, Houseworks, I sense your envy of the financial diversity of others. In my case, all my tax is paid, all my gains are banked. You foolishly boast of paper profits as if they are banked and nontaxable. Just typical "would be if could be" talk.

Like I said, you'll disappear from here when the going gets tough.

What counts as banked? You do realise that holding capital in a currency is a bad idea right? Ideally you would transition from 1 share/commodity into another without transitioning through currency because the currency transition attracts tax and does not automatically inflation adjust. There are some shares (such as Duracell) that can be held as proxy for cash due to the ease with which they can be moved combined with their ability to act as a store of inflation adjusted value, whilst these are used as a currency of sorts when I say not to hold currency I mean notes issued by the central bank of any arbitrary country including New Zealand.

dp

I feel very relaxed taking an opposite financial position to yourself. Chch prices would have to double to price me out of the market, I will take my chances and buy when I want to.

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What a bunch of cr*p - landlords don't build houses.

Could this section of society be more self-important? You would think they were saviors of us all, to be worshiped and cosseted at every turn.

Of course they do. They also expand existing dwellings by adding rooms or converting garages or adding flats.

Jealousy isn't a substitute for a rational argument.

And preaching false idealogies makes you seem like Brian Tamaki.....just saying...(I'm here to help you but really I just want your money)...

what false ideologies did I preach exactly?

I stated a fact - that landlords do build and add to existing houses to create more dwellings.

Please state the claimed ideology that I preached.

What do you know about that ... yes they do and yes they buy a lot of new built and turn them into rentals ... Wake up Coffee is getting cold.

I've built 3, how many have you built?

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So Farms and Rentals running at a loss will not longer economic, and people stacking debt on them to make a transferable loss will become unfashionable. FHB wont be under price pressure to match the prices paid to "loose money" by speculators and will have another step to better affordability (there are other issues for sure).

Where the bad news again?

First of all, ring fencing losses should not make much of a difference to landlords, if they use this strategy (hardly anyone I know does), they are doing it wrong and should be penalised.

But some people are so dumb, landlords provide the government with a free service. If it wasn’t for them, the government would have to provide rental property costing the country (all of us) 10s of billions. They know that and are now backing off quite a lot of what they stated they would do after the election. Phil Tyford is waking up and has softened his stance, knowing the more he will disincentivise landlords, the more there will be a shortage of rental property.

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Yeah it’s so free. Check out the accommodation supplement some time.

Landlords do provide a valuable service. I take my hat off to anyone who provides a good warm home and does so in exchange for a reasonable rent that covers his costs. Unfortunately I don’t believe this is the predominant business model.

Tell you what Hardly, you should do it. You should buy a place for $500,000, rent it out for $200 per week and spend $50,000 on it to ‘help’ someone. You would lose $25,000 per year and go bankrupt. Typical of Socialists, they think that money grows on trees as are usually from private school backgrounds!

Nobody owes anyone anything in life.

What a strange comment. I want to argue with you but to do that I need to be able to understand what you are saying.

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Your two paragraphs seems quite contradictory - firstly what the government is proposing won't negatively affect landlords. Secondly, the government shouldn't do anything to negatively affect landlords.

Could you enlighten me on why so many landlords are jumping up and down to provide this service to save the government the job? Good for them if it's out of the goodness of their hearts. If they're making a profit, why are you assuming that the service would be a cost for the government to provide rather than a revenue raiser?

Exactly. They're "providing property" because the returns are outsized. The government could make a killing!

Government and by this I mean central is the largest landlord yet is the worst landlord. Not maintaining properties well, check, leaving homes vacant for long periods, check, allowing bad tenants to flourish, check, doing nothing to beautify properties with any sort of landscaping such as specimen tree or colourful perennials. On the last point they usually have an ugly bare section and yet are the first to preach about protecting the environment.
It's time they sold some more homes to owner occupiers thus achieving the goal of home ownership for their tenants and yes I do realise that many of the state tenants cannot afford to buy

House Works

You would be the first to scream bloody murder if the state tried to run state housing on a commercial basis.

State housing is not a profit making enterprise, and was never meant to be. Its part of social welfare system of a first world democracy like NZ, part of the safety net offered to all our citizens.

If they tried to run Housing NZ on a profit making and no social obligation manner like a private landlord like yourself would, your taxes would go UP.. a lot. A state house is a lot cheaper to provide than a prison, or emergency accommodation in hotels like has been happening recently, and better than paying private landlords a no doubt stupidly high premium to take undesirable tenants who will have to be housed somewhere.

Did you miss the point or just sidestep it to avoid giving a sensible answer ??

Your point was pointless. Sell state houses? When they are already short of a good 10,000 or so houses and paying out a fortune in accomodation supplements and emergency accomodation fees? Moronic in the extreme

Again didn't bother to read before answering, bad habit of yours prag

I did read your post again.. but again, just such a stupid idea, selling part of the inadequate supply of state housing to ease the burden on the middle class who can afford to buy while pushing the poor further into the gutter.

Or are you harping on about prettying up the state houses idea? Again, you would be the first to scream blue murder if HNZ got a bunch of landscape gardeners in. Que comments about gardens full of woodstock bottles and cigarette butts.

There are a lot more renters per household than owner occupiers per household. So with a lot of landlords about to leave the market where are all these extra people now going to live. I see this as a problem but I guess who cares as long as it fits the lefts ideology right.

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OMG...here we go again. The landlords won't leave with their shacks....they will still be there..and surprise surprise...with people in them too!!! No net change in available accommodation.

Envy again Rastus, feel sorry for you and your attitude that it is everyone else’s fault. You won’t get you very far in life blaming ‘they’ for the rest of your life!

..I don't do personal attacks my friend. So back to the comments..what is your point to contest? Do you also think a change of ownership = a vanishing of the said property?

do you not realise that owner occupied houses tend to hold a lot less people than rented houses?

Since when does being a renter have an influence over whether someone fills the extra bedrooms or not?

It's an interesting one, sure. I would say that it's something of a simplification to look at the simple average occupations - what is interesting is the average occupation of the renters who are actually buying houses.

For example, I live with my partner in a rented house and may well buy shortly, at which point there will still be two of us. No change. Renters living in multi-occupant housing are somewhat less likely to be buying a house in the near future.

If a large proportion of those renters looking to buy currently live in rentals with fewer than the average number of occupants, then looking at the coarse averages will greatly overstate the problem you are talking about.

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I prophesise the following scenario;

If Westpac is correct and prices do drop somewhat (and specuvestors continue to leave the market)

- more and younger owner occupiers will cease to be renters
- more of the experienced, long term, professional landlords (ie positive yield) will buy some of the cheaper houses that the specuvestors have offloaded and continue to rent them out. These landlords will have the cash flow to expand and a healthier LVR because they weren't property bubble drunk muppets.

The landlords that will exit the market because of the change in conditions were clearly specuvestors banking on capital gain, or else they wouldn't have been negatively geared and offsetting losses on the rental income in the first place. The landlords that long term hold properties for the yield returns will happily buy up a few extra rentals if the figures stack up, like they always have. But the numpties that were specuvesting and pushing up prices will not be missed.

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....it would be interesting to know what % specuvestors are negatively geared here. In Australia 30,000 people have five or more homes negatively geared for tax offsets, costing the nation up to $5 billion a year in lost revenue. I heard it was in the vicinity of 700-900m forked out by IRD. Thats a lot of investors that will be left high and dry of refunds and for the while, capital gains too!

There is also the effect of removing that cash from the economy. The Govt might save $5B, but it is also $5B removed from circulation as landlords cant spend the cash given as tax rebates. Sure the Govt might also spend that $5B but we all know that Govt cant spend money productively.

You think giving the money to landlords is the most productive use?

I agree.

Futhermore, I see the overall long term trend being towards fewer landlords who each own more properties. The days of people owning 1-2 rentals is passing. It's becoming too hard and complicated, as well as the negative stigma, for the average person to manage.

We're going to end up with a small group owning most of the property in the country and getting exceedingly wealthy off it. I'm going to be in that group and I couldn't care less what anyone thinks of me for doing it.

Many of the inhabitants in this forum will have a real problem with your comment. Not me, I like your style and ambition Mathclub. What type of properties/residential properties take your fancy?

I think he's probably a friggin genius, most of the time anyway, well some of the time

mathclub is an example of a professional Landlord who does his sums. Sadly, many form a large, highly indebted, negative geared club of novice wannabes. This is where the risk is concentrated.

Mathclub, retired poppy is one of our left-leaning stalwarts. He has such a wide knowledge of property that he has trouble making it through an open doorway.

Good call Mathclub, I think it's times of uncertainty like this and thinking differently from others makes people super-rich.
Much better than putting money in the share market which is full of companies run by old white men well past their time e.g. Fletchers. At least you will be in control of your own assets with property. I genuinely wish you all the best.

A small group owning most of the property in the country? If you mean residential property - I seriously doubt it. Owner-occupiers will remain the vast majority of the residential property owners here.

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...a milli-second of silence for all novice, small time, speculator/Landlords who got caught with their $$-pants down by a legislative change. The public service they rated themselves so highly for will be replaced by many more affordable dwellings to be picked over by first home buyers.

In the interim the for sale rental properties sit on the market whilst unoccupied or get demolished for yard space / to make the adjacent owner occupied dwelling larger

Woah, cheer up, you're predicting a hell of a crash here. It might not turn out that bad. Speaking as someone who has had the house they're renting sold out from under them a few times in NZ, it's quite possible to sell a house with existing tenants. House prices would have to fall dramatically to make yard space more appealing.

Don't worry about Shawn, he's feeling a bit sensitive.

If you are taxed on everything except the family home it makes sense to expand the “family home” as much as you can. You might find that the yard space as a form of land banking gains popularity!

I'm hoping so. I'm looking for a section to build on. If I could get something for land value in the established suburbs I'd be very happy.

Excellent, the longer those rentals sit empty with the landlords trying to sell the more downwards pressure on the price.

As for people buying adjoining sections and demolishing a house, does that seem like a smart move when prices are heading sideways or down.. If you actually need more yard space and have cash on hand it might make sense, but if you are paying a mortgage on a property that cost you ~$500k to buy, and getting zero income from it, roughly zero or maybe negative capital gains?

If your million dollar section next door is appreciating at circa 5% pa. The value of avoiding having to pay 33% tax on that 50,000pa is $16,500. Assuming that your rental property on that section is rented out for $500 per week and you don’t have any insurance or maintainance to pay on it then your after tax rental income will be roughly the same as the avoided tax on capital appreciation, the difference being that yard space involves less hassle. I believe this logic applies to any property with an above 0 rental yield that is roughly equivilant to or less than 33% of the annual capital appreciation, which you may potentially want to sell within the 5 year bright line time frame. Negative yielding properties are a whole different kettle of fish.

If you have a house there being rented out, you gain both the rent AND the capital gain. There is no contest.

The $50,000 capital gain is taxed unless it is part of your family home. $16,500 is the tax savings which you gain by having the property as part of your family Home as opposed to rented out.

You are assuming 5% PA capital gains in the future.. I think you're dreaming.

I just had a look at the QV value tracker for a couple of my properties and am convinced that 5% is very achievable. Besides even if it is 3 or 4 % for a couple of years and then goes back into double digits after 3 or 4 years, it only takes 1 year to make it all worth it. You could try only adding the rental title to your family Home just before you sell it, but the IRD may take a dim view

You use the QV value tracker and I'll use the last digit of my neighbours phone number to determine future house prices gains (%) - then see who is closer to being right? (shame we can't have negative numbers for phone numbers right - but hey, I think I'm just as like to be right as sadr001...)

I will accept the last 3 digits of my own phone number which are 100 for the capital value gain on our last investment property over the year just gone. And before you jump to conclusions we have done some clever value add. The extra income means I can afford my new dream home :) You really must learn to think more than just one dimensional Independent_Observer and become engaged instead of observing from the sideline

Houseworks says within last 12 months he has experienced 100% capital gain in Hamilton. Whos using the (hash) key now? WOW, Hamilton is indeed "smoken"

He bought a 1970's caravan from Manheim, gave it a quick lick of paint and has parked it down at Narrows Park Christian camp with a For Sale sign on it.

Ha-ha-ha :)

A leftie with an innovative idea congratulations

To be honest, I"m not sure government would do any ring fencing. So far, this government seems to be backing off from the promises they made before election. Foreign buyer ban seems to taking forever and if and when that is done, it'd be so watered down that it'd not have any effect.

Classic Labour. Promised no new taxes, so what do they do? Put all the existing taxes up and remove all the tax rebates. Meanwhile all their other promises have gone on the backburner while Jacinda swans around the world on her babymoon.

That treatment of taxes is exactly what National did too, bear in mind.

Yep, I wouldn’t expect anything different, once again in life it seems as though all of your problems are the fault of that old age bugger, ‘they’.

What a load of rubbish. The tax benefits need to go.
CGT is a really expensive tax to collect. Bring in stamp duty instead.

In the UK as an example tax receipts from stramp duty are 3 times that from Capital Gains Tax and really easy to implement.

Also on foreign ownership the Government have been trying to reinvent the wheel to "ban" foreign ownership.

As they are finding out (as it was said at the time of the election) it is easier said than done. All they need to do is what has been done in Singapore,Aus and UK and introduce a high stamp duty rate for foreign buyers...just price then out of the market if that's what you want.

Really simple stuff but I guess it wasn't as headline making as saying "we will ban foreign buyers"......

If we're playing dream tax systems here I'd go for a land tax rather than a stamp duty as there's less of a discouragement to moving. Easier to move for new jobs, upgrade for a larger family, etc.

Yeah stamp duty seems inferior.

The only advantage of a stamp duty would be that the burden of the tax would fall most heavily on those who transact the most often. While in some cases that might be a bonus - property flippers - it would be a downside in terms of people who have to move for other reasons. Plus, as you say, people avoiding selling to avoid the tax. Land tax seems much better.

The big downside of a land tax is how to levy it. I hate rates and a land tax would just be another rates bill. It would be great if it could be garnished like PAYE.

A land tax is messy. With stamp duty you can vary who is charged what. Eg. Overseas buyers 10% and FHB 0%.

You're right, the UK is now charging an extra 3% stamp duty for second home buyers (including property investors) so it can be weaponised to achieve certain goals relatively easily. Land tax would involve a certain amount of bureaucracy, but it has the benefit of encouraging efficient land use through a constant drain. If you want to land bank, you pay. If you want a larger property in an area where land prices suggest densification is needed, you pay.

A land tax is clean.

What you mean to say is a land tax is blunt and catches everyone.

mfd & Hardly - don’t you think that a land tax is a bit too much? I accept the need for tax but why not on when you earn money (I’m fine with cgt by the way) rather than because you own something. It seems rather punitive, you’ve saved hard, all the while getting taxed on the way to a deposit and then you choose to buy a property which then you are then continually taxed on to boot. Why not then continually tax on other items you own i.e owning a company or shares?

In theory earning is a productive activity so you want to encourage it. If you tax earning - especially wages - it can discourage it. Although there is mixed evidence about tax changes at certain thresholds.

While land is sometimes productive, taxing it will encourage people to put it to its most productive use. If you stop working you don’t pay tax, but land can never stop being land.

Also land tax can’t be dodged.

It’s a very good candidate for a tax.

And you use the proceeds to cut taxes on other things - particularly wages.

Don’t worry about paying a land tax. For ordinary people you’d get a bigger tax cut than a tax increase. This is what stops progress people stressing about a little tax on their house when they already pay a sh*t ton of tax on their income.

Interesting and thoughtful comment however I can’t agree. Foremost because this would be a tax to control behaviour which is ideologically dangerous. Also, the ownership of private property is one of the cornerstones of prosperous societies and I don’t want to see that disincentivised.

Regarding your out look on tax “if you tax earning - especially wages - it can discourage it.” I mostly agree which is why user pays taxes are the fairest form of taxes but I don’t think you’d agree with that?

A cgt would also be a fairer mechanism to lower income tax without penalising aspirational purchases. I disagree about ordinary people getting tax cuts as 63% approx of NZ live in their own home plus with commercial overheads rising the cost of locally made goods would rise too.

Haha, if stamp duty was such a panacea then why has it not made any difference to property prices in the UK and Australia?

In that case, nothing to worry about, eh? Would be a good way of spreading the tax burden instead of foisting it all on wage slaves.

What are the prices without it in place?

We are in for interesting times if the Government introduces ring fencing.
Possible outcomes are more first home buyers entering the market; increased pressure for rent increases; and it will most probably be likely to be the most significant factor to drive the currently highly inflated house prices down considerably.
I am a retired ex-landlord so don't really have a direct vested interested other than an interested observer.
When I was first active in buying rental properties, a yield below 10% - especially around the year 2000 - was considered a poor investment. Rental properties tended to be cash flow positive, even with mortgage interest rates of 6.5 to 8%.
Since then we have seen increasing house price inflation especially during the periods 2002 to 2006 and from 2011 to 2017. The term "negatively geared" soon became into common usage in discussion among landlords from about 2004 onward. However there was an expectation that in the longer term the property would become cash flow positive. While landlords are often perceived as greedy, the reality was that they were subsiding the rental property on a weekly basis; capital gain was never a certainty and for periods such as 2006 to 2009 there were capital losses. There feeling was an expectation that in the long term properties would become cash flow positive.
Today, and as previously reported by Interest.co, yields on low to average priced houses are in the vicinity of 4% to 5% prior to outgoings of related to mortgage interest, rates, insurance and maintenance (and of course, missed rent).
With continuing highly inflated property prices and very low yields, landlords are already exiting the market and looking to invest elsewhere in less hassle and safer (no meth risk!) investments. Although historically at a low, even bank term deposits are currently attractive compared to rental property.
Ring fencing will both accelerate this exit and discourage both new landlords and existing landlords buying properties - unless there of course there is a considerable increase in rents which is a real likelihood with a shortage of rental properties.
Rental properties have always been a significant part of the property market accounting for about 35% of homes and the market. Any market which loses 15% is one that will see noticeable downturn and even some free fall in prices.
While it is pleasing that first home buyers will continue to be an increasing part of the hosing market, there will need to be considerable correction (read drop) in the market to meet the underlying value of houses to income.
The next few years will be very interesting as we move to a new norm compared to that which has existed for the last 8 to 15 years.

I recall the time when the basic ready reckoner for how much rent a house could generate was based on if you paid $100k for a house then you would want it to be generating $200 pw in rent, $150k - $300pw and so on.

The % of homes rented has been steadily increasing for the past 20 years. If you take the rate of rented accommodation from 20 years ago and apply it to today's total, you will find that 207,000 extra properties have become rentals compared to the 20 year old ratio.

Source: Stats household ownership tables

Have landlords contemplating exiting the "business" made some sort of devil's pact to burn down all of their investment properties?

No, but watch the market.
Remember, first home buyers have been priced out of the market so landlords selling are going to need to meet FHB affordability which is less than that currently.

You are assuming that most of these Landlords will be in a hurry to sell tomorrow at any market price for the sake of saving few thousands in tax while losing 100 thousand in selling price differential !!

Proof?, look at what happened in the last 9-12 months , prices did not fall ( despite the propaganda) they are mostly higher or equal to last year .

most portfolio owners have made 100s of thousands in CG in the last 4 years alone and they will sit the market out and watch property prices soar and rents hit the roof ...all because of this CoLs incompetence.

Never underestimate or doubt S&D forces.

few FHBs will get in at slightly reduced price opportunities created by hasty sellers - that's it, and this whole exercise will fire back bigtime.

No. That is not what landlords I know are doing and recent reports on interest.co.nz don't support what you are saying. .
Landlords are currently exiting the market simply because they can sell to take their assured capital gains, and invest in safer, less hassle, alternatives. Yields at the moment are less than 5%; take away outgoings and you are looking at less than 3%. Even bank term deposits are returning more.
The new ring fencing, combined with at best neutral but more likely negative capital movements, will further discourage landlords from purchasing additional properties or new investors from entering the market.
Time will tell what will happen to the market but investor thought is that it is shaping up to be a "perfect storm"; an over valued property market, poor yields, assured capital gain by exiting the market, and, as the government wishes, actions such as this driving he market down.
We will see who is right in 12 months.

Hi Printer8,

While I could understand this action taken by newish property investors who are still negatively geared and on big wages ... I do not have that impression from the older portfolio holders around me who have bought more than 4-5 years ago ( also depending of how astute the original purchases were) ... Most of the old properties are now returning over 8-10%pa gross enabling landlords to reduce their debt or re-invest in other assets.

Selling today is unwise if the seller carries some debt ... most of the sale revenue might be demanded back by banks to satisfy the new 65/35 LVR rules on the entire portfolio including the application of the new servicing rates (7.8%pa) .

Hence some sellers might open a pandora's box and end up generally worse off -- Unless of course they are debt free !

You are right in saying that new investment in property is unprofitable by fundamental definitions - however some people still prefer to park the cash in brick and mortar instead of TD and saving accounts.

Yes, the coming 12 months will be interesting to watch and see how the market will behave.

Yes, they may be making 8 - 10% on what they initially paid 4 to 5 years ago.
However, there is reason to exit the market now.
Firstly, while they are making a good return on their initial investment, their return on the appreciated current value is likely to be less than 3% after outgoings. Therefore better return on their appreciated value from safer, less hassle investments even such as term deposits.
Secondly, the outlook for capital gains in the short to medium term is not great. At best a flat market while properties return to fair value to income. There is downward pressure on prices at present. The opportunity is there to take an assured capital gain.
The article is about landlords exiting the market; it is happening and I suggest that these landlords are those who have thought the current implications through.
As with any investment, whether it be property or shares, for cautious and/or astute investors there will be times to either get out or reduce one's holding albeit for a short period.
There is always the risk that house prices may increase; however most commentators are suggesting at best a flat period for the next five years or so until such time as houses return to fair value to income for FHB and rental yields improve to realistic levels (and 4.5% yield less expenses is not a realistic return on current value of properties).

I partially agree with few reservations about losing good properties in strategic locations with future development potential, or selling nicely renovated properties etc.

However, it is a case by case basis and a portfolio yielding 6 to 7 % gross at current valuations is not a bad investment especially in areas enjoying better CG than others.

I also agree that prices in general will be subdued in the next few years and will only appreciate by 2-5% pa (close to the rate of inflation) given the supply shortage in some desirable properties.

However, this applies to the lower decile priced houses which are of interest to FHBs ..i.e. up tp 3 bdrm, under the $750K mark in Auckland today, everything else will follow strict supply and demand rules and new building rates. Hence, given that most rentals fall in this price range, then there will more demand on these going forward - cant see a significant drop in prices in these even if the market was flooded with them - let's keep in mind that these will need some renovation and tidying up too.

I cannot see landlords leaving ~100K + RE com on the table ( out of an 800K house) just for the sake of exiting the market and using the money elsewhere ...

Time will tell - I guess everyone has his own fear of loss and strategy when it come to long term investment.

I do not believe that CG is a done deal - the jury is still out and NZers will decide on that in 2020.

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Yup, it's been clearly articulated that when a landlord sells a rental it vapourises and not even land is left behind - it just simply disappears - so tenants will be kicked out and have to look for other rentals properties to live in.

Absolutely no consideration for the idea that it will increase the supply side of available homes for normal people to buy (by normal, I mean young families wanting to own their own home with no interest in darklording or speculating on capital gains).

Let the landlord bashing begin.
Guaranteed to get over 100 posts

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Don't worry Yvil, we can throw a few swipes at RE agents too so you don't feel left out :)

But should't you be rubbing your hands in glee.. all these landlords exiting will mean a huge pickup in sales.. every sale brings a commission in doesn't it? Thousands of sales at reduced prices is still a metric sh*tload of commissions.

Do you think I'm a Real Estate agent?

That is the impression i had from previous posts. Am I incorrect? Or was it former RE agent?

I've never been a RE agent. I have a friend who is a RE agent, he's a great guy. Just like any professions, there are good and bad RE agents, I don't blanket hate a whole profession

Ah, well I obviously was mistaken, my apologies. My mother was an RE agent, so I don't hate the entire industry, just 90% of it :)

Well Pragmatist, your unsubstanciated "swipe" netted you 7 thumbs up within an hour!

Only 11 thumbs in over 12 hours, I R disappoint. Must try harder.

Yvil, really? Stop counting. Sooner or later you have to eat, sleep and do other stuff.

Not a good argument Ashley. You should point out the examples around the world that have tried this ring fencing thing and failed. People forget that if they are left to providing their own owner occupier home the quality and size will be significantly inferior compared with what can afford to rent. Alternatively they might like to wait for the state to supply one. Again the Soviet experience is a prime example. Socialist housing favours a few at the expense of the majority. Elected officials are here today and gone tomorrow. They have not got to where they are by careful years of prudent hard work.

Property Leader, what country has introduced ring fencing at the height of a property bubble? I'd suggest the outcome of this legislative change will prove entirely different tomorrow as opposed to it being introduced in say 2010. Remembering, it was post GFC that money printing began and the capital gains ensued. Just a thought.

Unfortunately the property institute is right, at least for Auckland and at least for the short term.

A significant drop in the availability of rental properties will push rental prices up significantly - this will adversely affect the low income groups which are already sleeping in garages.

Whilst additional supply will be available to home ownership market the high immigration rate means that it will easily be moped up with only a small fall in prices.

The only way out of this dilemma is to massively increase the supply of housing in the short (simply not possible - we don't have the land zoning or construction resources) or drop the immigration rate - which can be done at the stroke of a pen.

BE CAREFUL WHAT YOU WISH FOR .

If we make property investment so unattractive, who is going to provide housing to the residential letting market?

The Government ?

Forget it , with all the will in the world the Government simply cannot house everyone .

Around 40 % of all people living in New Zealand rely on a property investor who has saved a pile of cash up and risked all in buying a house to let it out to them ............. nearly half of all of us rely on this class of investor .

The Government has neither the capital to provide a rental to everyone , nor the resources to build or buy them , nor the ability to manage a massive housing portfolio .

Just look at the shambles at Housing New Zealand

And whatsmore State tenants are notorius for not paying their rent , knowing they are unlikely to get evicted , so there is a moral hazard to the state giving people houses .

Banning Landlords will be far far worse than banning future oil and gas exploration , the consequences will be unintended , hard , unpleasant, and very very quick .

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Boatman? Wait???? Whose banning landlords? I thought the suggestion was just to balance the tax treatment so that it was not given such preferential tax over other investments categories and so as not to encourage property speculation?

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At this point it is just a competition between himself, TTP and TM2 as to who can supply the dumbest comment the most days in a row.
Obviously competition is tight.
I think Boatman is actually starting to edge out the other two, though.

lol, you guys are so naive despite being ( or claiming to be ) well educated ...
Your common sense is still on holiday and you even refuse to think about this disaster and its consequences !

Well, you will all suck it up very soon and see what we are talking about if this idiocy continues and is set in as new tax regualtions ...

As I said before, Dont cry when your taxes go up to pay for this ( in so many ways) and other stupid decisions this CoL is bringing about !!

Oh No!. How could I forget you, Eco Bird?!

Sorry everyone. The competition for is between Eco Bird, Boatman, TTP, and TM2.

Oh Please do, the last thing I would want in life is a "clever dude" like you reading my post !

LOL..good riddance

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Goodness, get a grip. There is no ban of landlords, but landlords who deliberately engineer a cash loss on their investments will no longer be able to apply that loss to reduce the tax payable on income not related to that property. That is entirely fair and entirely rationale. Honestly, you are getting as bad as Eco Bird

LOL, your condition is deteriorating fast Bob, see a psychiatrist or someone --- your IQ is catching up with PT !!

Great Minds Discuss Ideas; Average Minds Discuss Events; Small Minds Discuss People

Well said jcs

You are delusional if you think it won’t have a major effect on the rental market.
Christchurch is a different market to Auckland, but I do know roughly how many of our tenants currently live hand to mouth with next to no savings.
Investors want to buy as cheaply as they can so their yield is the best it can be!
I think you will find that it is buyers who are buying for their own occupancy tend to pay overs for property.
If the ringfencing does come in I think you will find that the positively geared investors will have a field day buying good yielding property without competition from first home buyers or small time investors with lower equity.
Interesting times indeed coming up over the next year, but what you are going to see more and more incompetence and backtracking from this rabble of a government.
Looking forward to Winston taking over as it is going to better than any comedy show you will ever see!
Watch the strikes happen, watch the business’s close and unemployment no.s grow.

Why is there a sudden deluge of good yielding property on the market if losses on negatively yielding property is ring fenced? If a property is making money these rule changes have exactly zero effect onnthat property no? Further if it's because prices have come down increasing the yield then who cares if FHBs are competing with investors, it's still at a lower price point.

Having a high home ownership rate is better for our society and it's members.

Indeed, tell that to people who just woke up and want a house now because owning a house today is back in fashion.
They followed idiots in 2003 and 2010 and were greedy , now paying the price of inaction and spending the money on lifestyle "necessities"

There are several properties for sale near me here in Remuera that have been on the market for more than 2 months,asking prices have dropped by more than 10%

Yes. Houses are not selling lately...I even notice a mortgagee auction.
https://www.trademe.co.nz/property/residential-property-for-sale/auction...

CV of $1.18m for a small cross lease place. No wonder.

I'm amazed there are almost 200 posts, ring fencing property losses is not such a big deal

Exactly – other “sensible” countries have invoked it and haven’t imploded without trace.
There might be some short term bumpiness in terms of adjustment – and then the market will move on.
I still believe that residential property will still be the go to investment of choice - for many, rightly or wrongly, it remains the only game in town.

There is little doubt that the tax landscape will change. It is what the govt was voted in to do.

Agree that landlords wont burn their houses down. There will be increased movement as fhb movd to their first house, and tenants move to the, hopefully better, vacated house. State tenants will likely remain just that.

your comments are nothing but Average.

"There is little doubt that the tax landscape will change. It is what the govt was voted in to do. "

BS, No they didn't ... the losers gathered and formed the CoLs , no one voted for a change in the TAX landscape.

it will be decided in 2020 whether NZers will vote for tax changes - wake up, Averageman!

Indeed – the losers, National and ACT, gathered and became the opposition - though to describe them as a coalition of losers could be construed as harsh - your words though.

As an aside - this ACT carry on is just so silly and pointless.

Common EB you know change is coming. Stopping overseas, and ride along domestic speculation was a core policy of the center left leading up to the election. Its part of what the majority of Kiwis voted for. You also know Cullen is in the tax think tank, and you know the outcome will be toxic for the heavily leveraged. Don't beat the messenger.

Muted sales, stale listings increasing.Notwithstanding the spin by RE, the prospects of dizzying levels of capital gain are rapidly evaporating. What happens to properties hoarded for speculation & left as "ghost houses" ? Owners will likely sell or rent it out, thereby adding to available stock for rent .Another option - Burn it down!!!

200 & counting...

Unbelievable

Is this the view of the members of the Property Institute of NZ or unilateral comment from a self-promoter desperate to seek some sort of profile for political purpose ?

Is this the view of the members of the Property Institute of NZ or unilateral comment from a self-promoter desperate to seek some sort of profile for political purpose ?

I thought bricks and mortar were totally safe. Unlike equities they could not be affected by outside influences. The number of boomers squealing on this site currently tells me I am wrong. Obviously people need to diversify into a number of different asset classes when investing as every dog has its day. Currently residential housing investment in New Zealand especially in Auckland and Christchurch is sluggish at best.

I can hardly write this,for the crocodile tears pouring down my face. Right now,the system allows people to offset costs against other income,while also allowing them to waltz off eventually with tax-free gains. That's a rort on other tax payers and the sooner it's stamped on the better.I write as a long-term landlord(18 years).
Of course,most of those with rental properties would have been better off in the NZ stockmarket.I have investing in equities for over 40 years and obtain a significantly higher net yield from them,than from my rental property,taking account of insurance,rates and (average) maintenance.

@linklater you are simply wrong ............ if you obtain tax breaks for losses on an investment which is subsequently sold at a profit , there is a CLAWBACK .

So no one 'waltzes off ' with your and my tax Dollars .

As to your comments about the sharemarket , you are correct , its a much better passive income source in the long run

@boatman you are simply wrong.

There is no clawback for losses offset against other income. There is depreciation recovered if you sell an asset for more than its written down value. The depreciation rules were tightened for rental properties as the tax write offs were once quite considerable. Was really a timing issue rather than a "clawback" and there were easy ways around it.

Well, well ,well my anaology about banning landlords being potentially worse that banning oil and gas exploration certainly hit a raw nerve with some commentators . (Some even suggesting I was a candidate for the looney bin )

But thats what it boils down to, a BAN by another name .

Remove every incentive to supply the market with housing rental stock and and hammer that class of investor with all and every piece of new legislation you can dream up, and effectively its a de facto ban on their business activity .

Deny it as much as you like , the raft of new proposals to hammer this investor class are tantamount to ensuring no investor enters the market , and that could be very very serious for anyone wanting to rent a home .

And lets be brutally honest , there are a significant number of people who will always be renters , it runs into the millions of people . These folk will never own a home , they either dont earn enough , dont save enough , or dont have access to sufficient funds for the deposit, nor have they got any method of raising the deposit .

Its a mess , but its a fact , its not going to change and we should plan accordingly .

The first step would be to look at the German model where residential property companies which are listed on the Frankfurt Bourse own and operate apartment buildings for lease to individual tenants .

These tenants , if they behave , are assured of long term tenancies , and the system works .

A complete load of rot as usual, one landlord I work with is dying to buy more property once the prices fall and the yields become sane again. The tax changes only affect those using negative gearing or specuvesting. Real long term positive yield landlords have nothing to worry about. Sure, he has to prepare to meet the healthy homes or whatever the correct name is requirements but he's not to worried about that.

That's what I don't get. If property prices go down, then your mortgage is lower, interest payments are lower, better yields. It makes no sense. You can buy more properties for less.

Just sell up one or two now, wait till prices drop, and buy again. That way you will have realised your capital gains, plus can buy at lower prices.

But instead people want to do nothing and keep houses at unaffordable levels for the rest of NZ. Also if your on 10% like some say they are then what is the big deal anyway.

Clearly you have never been a landlord before. It's not that easy to flick of property and buy back in the suburbs you want to invest in. Transactions costs, etc have to be taken into account, the tax incentives have to work and capital gain has to be there or why invest at all. At no point in my lifetime, am I expecting residential property yields to get sensible in Auckland. Not when as investors, people compete with homeowners for whom yields have no relevance. This is the same in every major city in Australia as well. I do fear a serious lack of rentals for the workers of Auckland who can't afford to buy a house. These include teachers, police, nurses, etc. A lot of young people in these and currently the rents are not ridiculous but with only few investors and rentals available, I'm expecting big increases in rent.

Quite earnest there chessmaster you say that as if being a landlord is a divine thing with altruistic goals. Its sounds as if your trying to save renters from themselves. Sounds quite biblical.

I didn't talk about Auckland but I did talk about yields. Auckland is no different, if prices drop enough in Auckland then investors may be able to achieve yields. If not Auckland then other parts of the country.

I'm happy if you cant claim losses and you are taxed on capital gains, if this reduces the number of landlords buying up stock, the more people who can buy properties for themselves. You must have read the comments on here where people have money waiting for prices to drop.

If house prices drop, lower cost of houses, lower mortgages, higher yields less rent needs to be charged. Then the poor renters are saved by

A) Being able to afford their own house
B) Landlords buying houses at cheaper prices and renting them out for lower rents.

This will then change the market to lower rents.

Buy low, sell high, sounds simple really.

As for me my money is invested elsewhere, I'm building a scalable business, that has global aspirations, maybe I will fail or maybe I wont. But I'm certainly not looking at property as an investment at this stage. I find my business much more exciting. Tough but exciting if it works. But the thing with my business, I pay tax on profits and I cant claim losses.

Here's something that may help landlords decisions as well.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1204...

"More broadly the higher bond yield should serve as a warning that after years of central bank policy engineered to help the global economy deal with fallout from the financial crisis interest rates are finally on the rise."

" I do fear a serious lack of rentals for the workers of Auckland who can't afford to buy a house. These include teachers, police, nurses, etc".Say what!! These people should absolutely be able to purchase a house for themselves, even somewhere in Auckland.
Have things changed so much that is just considered normal that they just won't be able to??
There is much to be done to put things right again, and people doing these sorts of jobs being able to own their own homes must be way up the list. If we do not sort that, heaven help those below them.

Unbelievable statement isn't it? The very heartbeat of a city being relegated to a renter class, and an attempt to portray it as somehow caring. Those are typically middle class professions, years of training, dedication, without whom there would be no law and order, no health, no education, and apparently the concern is not that they can't buy a house, but someone can't gouge them for profit.

It's a terrible state of affairs that those who choose to take advantage of a problem are somehow held in higher esteem than those who seek to remedy it.

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Australia stopped negative gearing a few years ago. House prices didn't drop. Landlords stopped entering the market. Rent rose and new builds slowed to a crawl. Australia quickly reintroduced negative gearing. Good luck with ring fencing negative gearing New Zealand