Tax Working Group considers 'vacant land' and 'empty home' taxes as a way of increasing housing supply and affordability

Tax Working Group considers 'vacant land' and 'empty home' taxes as a way of increasing housing supply and affordability

The Tax Working Group headed by Sir Michael Cullen is considering 'vacant land' and 'empty house' taxes as one way of improving housing supply and affordability.

The Tax Working Group Interim Report, which was released on Thursday says it's evident that New Zealanders are deeply concerned about the high cost of housing, and its impact on wealth inequality, social cohesion, and social capital.

"Consistent with these concerns, the group has been directed to have special regard to housing affordability in its work."

Although tax reform is unlikely to be the dominant driver of the housing markets, it has identified options that could release some additional supply, the group says. 

The introduction of a tax on vacant residential land, or on empty homes in residential areas, would intensify the use of existing urban areas.

There are already examples from Australia that could inform the development of similar taxes in New Zealand: 

• Australia introduced a measure in its most recent budget that denies deductions associated with holding vacant land. While this measure is not a tax on vacant land, it does provide a tax incentive to utilise vacant land for either residential or commercial purposes. 

• Australia also introduced a measure in 2017 that imposes a flat fee of A$5,000 on foreign owned properties that are not occupied or are not genuinely available for rent for more than 6 months. 

"The main risk with these taxes is that they encourage the token (rather than substantive) use of land or houses. Nevertheless, the Group believes there is merit in the consideration of taxes on vacant land and empty homes (over and above existing local government rates) to encourage housing development. Any new housing development spurred by these taxes would need to occur on a planned and environmentally sustainable basis."

Another thing being considered by the group is the restoration of depreciation on multi-unit residential buildings, which it says would increase the supply of housing and support greater intensification in urban areas.  

Also, the group is looking at the '10-year rule'.

As the 10-year rule stands at the moment, land affected by changes to zoning, consents, or other specified changes may be taxed on sale, if the sale is within 10 years of acquisition.

If at least 20% of the gain on disposal can be attributed to the change, the whole gain is taxable. However, the taxable amount is effectively reduced by a deduction equal to 10% of the gain multiplied by each year the taxpayer has owned the land. 

Likewise, land disposals may be taxed if an undertaking or scheme involving more than minor development or division was commenced within 10 years of the land being acquired. Land disposals may also be taxed if there has been a scheme of division or development that involves significant expenditure on specified works, subject to a number of exclusions.  

The group says the removal of the 10-year rule’ related to changes to zoning, consents, or other specified changes would reduce the incentive to engage in land-banking behaviour on city fringes.

"The effects would probably be minor, but the rule will need to be reconsidered in any case if capital income taxation is extended further."

The cause of unaffordable housing is, in one sense, straightforward, the group says. "New Zealand has been unable to build enough houses to satisfy demand at current rates of population growth."

This shortfall reflects a number of interlinked problems in the supply of housing – including land use constraints, infrastructure constraints, and high building costs.

"The tax system is not responsible for constraints in the supply of housing, but it does influence demand for housing.

"Certain features of the tax system – such as the inconsistent treatment of capital income – have probably exacerbated the house price cycle in New Zealand, even if the tax system is not the primary cause of unaffordable housing."

The group says its work on housing affordability is closely linked to its work on the taxation of capital income.

"There is an open question as to whether an extension of capital income taxation would have a material effect on the housing market. A concern for the Group is to understand these impacts further." 

It is difficult to quantify the impact of the New Zealand tax system on house prices and rents, the group believes..

"The housing market is subject to many different influences. Disentangling these influences is no easy task, so there is little definitive empirical evidence regarding the tax impact on house prices and rents in New Zealand."

The group says that the extension of capital income taxation (for example, through the introduction of a tax on capital gains from residential property investments) could be expected to have a number of impacts on housing markets, including some upward pressure on the ratio of rents to prices. 

"The group has explored the impact of similar tax changes on housing markets in other countries (including Canada, Australia, and South Africa).

"The group has not observed significant increases (and, to the contrary, rent to price ratios have fallen rather than increased in these countries). But it is difficult to know what other influences were affecting housing markets in those countries at the time of the changes."

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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63 Comments

Such a clumsy approach compared to just putting up rates 5-10x (Land Tax!) to encourage efficient use of land and housing, and also drop house/land prices.

Jacinda is unlikely to want to commit political suicide with a policy as profoundly unpopular as a land tax.

I think that this is really easy to sort out.

1. Remove negative gearing as it is really tax avoidance by stealth
2. Introduce a Stamp Duty Land Tax for the purchase of any additional property beyond the primary residence. 10% should do the job
3. More prudential regulation by the Reserve Bank rather than direct taxation, but a phased removal of all interest only mortgages from the market and the implementation of a mortgage timeline to restrict lending beyond the age of 65. i.e. If you are 45 your maximum mortgage term would be 20 years.

Housing crisis sorted within 3 years.

A few small problems:
You can not discriminate based on age and 65 is not a retirement age it is simply the age of entitlement to NZ super. As it stands NZ banks already clarify how a loan is to be repaid and insure it is affordable.
If you introduce stamp duty you also need to ban overseas ownership, just a note, not actually a problem as such
Housing crisis would not be sorted in 3 years though because you need to actually build the extra houses.

Laminar. there is no housing shortage other than the one the NZPIF and banks have dreamed up... There is however a misallocation of housing resources... Too many empty homes, too many empty apartments, too many Air BNB's and too many elderly living in houses that are far too big for the two of them. The top down crash in prices (which is now starting) will sort out many of these issues along with improved regulation and more equitable taxation. It'll take a bit of time.

Rofl too many old people living in houses that are too big. I really reakon you should leave grandma alone.
You can check population growth vs housing growth and its perfectly apparent we need more houses.
I mean seriously, you sound like a socialist which is sad, i liked parts of your earlier post but now youre way off in the deep end.

Spoken like the Kommisar of the Soviet Socialist Republic of Aoteroa. First Gulag in Manukau?

Unfortunately they already gave Auck Council the Fuel tax.. they should have just said no, raise rates and fund your costs that way.

@ Foyle .... you are right clumsy ........... I would say cumbersome , its going to require an American sized army of people at the IRD to manage this new tax , so many that we might as well all apply for jobs there .

The costs associated with collection will far exceed the tax they collect

4 weeks and 5 days until the FBB comes in and there is a 'whisper' going around about an 'Empty house' tax.. That doesn't leave a lot of time to try and exit the market.

That's how it should be, and how it was implemented in Vancouver which is probably reasonably accurate to use as a case study.

Agree. For speculative houses that sit empty. The % is a better execution than a flat fee. But don't subscribe to the empty land tax. This is already being done with rates. Not all land needs to be built on right this second.

Having lived in Vancouver for 8 years and watching the housing/rental market spiral out of control. I wouldn't use them as the gold standard.

Supply has never been the issue there. They are building thousands of high quality apartments. And converting large sections into townhouses. (Good quality. Which Auckland should be doing more of. Not building single level, low quality Kiwibuild sheds on sections).

But there was over a decade of inaction. Firstly, a denial federal and provincial government that there was a housing crisis. Then inaction on foreign ownership, speculation & vacant housing. (sound familiar).

They're just now starting to claw it back. But given its a low wage economy. Its so far gone. Its ridiculous.

From a housing market perspective. A burned down house on a section for $3.9M.
https://www.cbc.ca/radio/asithappens/as-it-happens-wednesday-edition-1.4...

Or from a rental perspective. A 55sqm apartment for $2500 a month ($600 per week) https://vancouver.craigslist.ca/van/apa/d/well-kept-and-clean-fully/6703...

That rental...pretty similar to central Auckland.

A$5,000 hardly sounds crippling though...

Oh for goodness sake .

So I buy a vacant piece of land with the intention to build , are they planning to tax me while I go through the long winded process of Resource consent , plan approval , raising a building loan to build , etc etc ?

Then how the hell will they tax empty houses , how will they even know its unoccupied ?

I recall the implementation of the Vancouver tax – it’s basically self-declaration.

It’s backed up by random audit – with the onus of proof on the homeowner.

The penalties for a false declaration are extremely brutal – mess with the self-declaration at your peril:

“A homeowner who makes a false declaration could be fined up to $10,000 per day the declaration is not corrected, as well as being subject to the 1 per cent tax. Those who are late making payments or who do not pay their empty homes tax will be subject to a late payment penalty of 5 per cent, daily interest on arrears and the tax sale process.”

Water rates bill Batman..easy ..if it's zero than home vacant

Except if a property is 100% reliant on rainwater harvesting. I suppose that's where an exemption can apply, but then people will install water tanks their properties to meet the exemption still leaving the property vacant. Hell once they have the exemption they can then sell the water tank.

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"New Zealand has been unable to build enough houses to satisfy demand at current rates of population growth."

Has anyone considered reducing the rate of population growth.

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Nope, not National, not Labour, not NZF, not Greens, no action by any of them

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"reducing the rate of population growth"

funny how this seems like an obvious and simple solution to many (most?) problems, yet is hardly ever mentioned...

yep, but apparently putting all beneficiaries on contraception is not allowed by the PC police.

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Neither is requiring paternal details. Now that the COL has removed the rule requiring fathers identity or lose the benefit, the number of non disclosure cases will sky rocket.

Bit late, most the beneficiaries are pensioners, or those who through medical disability & lack of work opportunities need income assistance. Far better to get to the population who think having 4+ kids is normal but that would be against certain religions & cultures.

Working for families and accommodation supplement are benefits too. That covers a huge number of the 3+ kid families.

WFF families is about 700 million while the accomodation allowance is over 3 billion. A direct subsidy to landlords from the taxpayer to venture that often goes untaxed.

I think most of the beneficiaries would be civil servants - at the very least in terms of the amount of money they suck from those of us in the economy who produce.

The last few years population growth in NZ has been around 100,000 per year, 25,000 from natural increase and 75,000 from immigration.

The housing demand generated by children born to beneficiaries is far, far less than the demand from immigrants.

They aren't mutually exclusive. We could slow/stop immigration and also deal with internal population growth, particularly for those trapped in the poverty cycle.

You could probably start at the vatican.

No, because NZ relies on population growth to finance its ballooning pensioner population and maintain the nanny state. If you don't keep continually importing new, fully grown workers - which saves the state a lot of money in education and childcare services - there's only one other option: scrap the pension.

Which I am personally in favour of. Lower taxes, lower immigration, bye bye pension pyramid scheme. I'm fully prepared for it.

It's lucky migrants don't get old then isn't it.

In another 30 or 40 years they'll be coping with the demographic bulge of the recent influx of migrants.

No political party will do what needs to be done with regards to pensions though, it's political suicide. Even ACT, a so called "fiscally conservative" party merely advocate raising the age to 67.

I would be interested in the definition of "empty homes", is it a holiday home, a batch? What if it's rented short term on Airbnb say for less than 33% of the year? less than 50% of the year, more than 50% of the year?

The Airbnb example could probably be relatively easily addressed through rating anyway, with commercial rates now beginning to apply on properties people are using as an accommodation business.

Yes but the tax on empty homes this working group is considering would be additional to the rates increase which are collected by the local Councils

Ah, my point was more that it being a commercial building under rates would likely exclude it from being considered an empty residential home. Sorry, wasn't quite clear.

Hmm interesting point

How do they know if a home is empty? Would be quite hard to patrol one would think...
哟,什么时候连冷宫也不放过,要被抽税啦?可怜啊,這政府偏要把主子们置于死地才心甘哪。

Level one filtering would be dead easy. electricity smart meter, has the household used more than some nominal amount of power in the last week/month? a couple of weeks with no power usage and you start to float towards the top of the list for further investigation. A couple of months and somebody starts poking into other databases and eventually someone drives to the address for a physical check if needed.

The Vancouver process is interesting:

“Properties deemed empty will be subject to a tax of 1% of the property’s assessed taxable value. Most homes will not be subject to the tax, as it does not apply to principal residences or homes rented for at least six months of the year; however all homeowners are required to submit a declaration.”

1% of the property’s assessed taxable value – hardly the end of the world – best to declare.

The possible penalties are potentially horrendous – and I imagine based on the obvious difficulties and time spent in tracking down offenders. So, declare and life is good – try and cheat the system, you may well lose the place.

And bear in mind that Auckland may well contain one or two enthusiastic whistle-blowers in your neighbourhood if something like this should come to pass.

If you don’t like the rules of the sandpit – don’t play in it.

custard, you say "1% of the property’s assessed taxable value – hardly the end of the world" that's still $10'000 for a house worth $1 Mill, if that amount is payable yearly it makes a big difference

Yes – but I could suggest that if you have a $1 Mill property that you can afford to keep empty, you’re probably not short of pocket change.

It’s also their choice to keep it empty and incur the tax.

So easy to have a desk lamp(s) on timer. Shows power usage plus looks like someone is there. But honestly if the authorities start going to those lengths they will probably be history soon after.

Which is why you'd set the filtering limit a fair bit higher than a desk lamp would use. And with a smart meter you can also do peak rate detection so it has to see a 1kW load minimum.

Really – going to those lengths to commit basic fraud and evade a simple tax obligation – with the all present risk of grappling with crippling penalties – and at worse a criminal conviction.

All the authorities would be doing is simple enforcement – should they not be doing their job?

In the Vancouver example we are only talking 1% of the property’s assessed taxable value – otherwise, just throw a tenant in it or sell it.

1% extra tax is a deal killer when the house yields max 5%. Take rent at max 5% yield, deduct interest costs, rates, insurance, maintenance, & management + the extra 1% tax = no go

If the house is rented (for at least 6 months of the year) you don’t pay the 1%.

So the result is an incentive to release the property to the market (a good thing) thus reducing the price/value (a good thing for buyers) and further helping to give a higher rental yield (by reducing value the same rent yields more return)
Result is a more realistic price as Mr Market takes over.

Eww simplified.. If you're going to write in chinese at least use real characters not this peasant communist crap.

Nope could do it from where you sit if you have the database(s) access. ie IT wise technically its very easy. Legally not so much.

a) Is the electricity even connected? Locate house in council's database is the rate payer located at that address? are the rates paid from somewhere else. Do a search in each electricity companies customer list if its not even connected it very probably empty (yes Ok the odd wack job or "off gridy". b) if it is connected, once located in the power company's system, is there actually any significant and varying power use?

Knock on the door over a number of days, at different times

Politicians opened the gates & the foreign investment money poured in
They never fully appreciated that the purpose of buying property outside China was a hedge A foreign land bank There was never a requirement for yields. Vancouver a city the size of Brisbane is a classic example
of empty million & multi million dollar homes empty for years and years. Whole streets where once a family earning 100K a year would live now outclassed by the waves of adult rich children from mainland China
Canada’s experience with multimillionaire business migrants found out of hundreds of them the average tax revenue was a mere CA$1400 which was less tax paid by refugees given residency in Canada
The Canadian govt closed their wealthy business migrant residency policy because of this abuse in 2010 but because Quebec [ a province with the GDP of NZ ] was allowed its own policy the Chinese multi millionaires simply give the province of Quebec a CA$800K loan to gain residency & then 90% then move to other provinces like Toronto Vancouver etc. So today Canada still plays host to the new super wealthy who pay little tax. NZs government must understand who they are dealing with These are not people uneducated in the ways of avoiding obstacles Business in China is a minefield to operate in NZ rules will be little hindrance to the wealthy class

Exactly. If you want to see the impact of that in Vancouver. Once vibrant communities, now ghost communities. And the evaporation of the middle class.

https://www.youtube.com/watch?v=JRFp8f0J2Jg

We are such soft touches. We are responsible for this mess because our elected parties have fiddled while rome has burned. Empty house tax at 5% per year and 10k per day for cheating with a retrospective angle would be great.

Regarding land tax, isnt the council rates already doing it with new valuations. A legacy single house in a new multistory zone already attracts higher rates.

Auckland Council only taxes land at about 0.2%. There should be an effective tax on land of around 2%.

Why, where does that number come from?

It is important to be clear about the objective of such a tax. If the objective is to raise more money for the government, the tax will certainly be successful in achieving its objective. However, if the objective is to make houses more affordable, there is a huge question mark whether the tax will have any impact. It is important to explain why people rather leave lands and properties vacant. How a punitive tax will affect those underlying reasons?

Empty property taxes sound more a political respond to housing affordability problem to tell the voters that the politicians are doing whatever they can while avoiding the difficult task of addressing fundamental underlying issues.

Well said

Vacant land is only vacant because it takes years for Council to issue all the requisite consents - how is it fair for owners to be taxed based on government bureaucracy and incompetency?

Frankly that is rubbish.

Do you really think the Tax Working Group are going to read your comment and go "shit, we didn't think about people who own land and are taking steps to develop it"?

Those accountants and intellectuals on the committee look so un connected with the real world I live it.
Were on earth do they get the idea that imposing or increasing a tax will make things drop in price. If you take $1 billion of extra tax out of an industry like the Nats did by abolishing depreciation on buildings it has had an impact! If I the owner of multi tenanted dwellings have extra costs like national and local body taxes I need to pay this money. Where on earth do people think I get that money from? I only have one source of income and this is rents. If the rents go up the capitalization of the property goes up. Simple stuff that does not need a degree in economics to understand.