King counters taxing solution to misdiagnosed problem

Tuesday 23 August 2011

A “huge misconception” exists that investment property receives favourable tax treatment, and additional taxes could “spark an investor exodus,” according to NZ Property Investors Federation president (NZPIF) Andrew King.

By The Landlord

In the NZPIF submission to the Productivity Commission inquiry into housing affordability King sets out to, "refute the view that the actions of residential property investors have caused housing to be unaffordable, and to address the over-emphasis by some on one policy measure - namely tax - as a means of achieving housing affordability."

In the submission King argues that the role of private landlords in providing accommodation choices for New Zealanders is overlooked, and that it is simply untrue that property investment receives favourable tax treatment.

"KiwiSaver gets millions of taxpayer money to support it, and we have had exactly the opposite," he said.

"Tax depreciation wiped and we've had LAQCs wiped, we've been hit and they've been supported and people still want a capital gains tax, it’s ludicrous."

He warned that the imposition of a capital gains tax could actually further damage housing affordability, either by prompting an exodus from the market as investors sold ahead of a capital gains tax introduction, triggering a slump, or that investors being forced to retain property could result in sales drying up.

"A reduced supply of houses would not only mean increased prices but ultimately rents as well. Both have negative effects on first homeowners, tenants and landlords."

In a more optimistic note King told Landlords that he had a meeting with the Productivity Commission in June when their inquiry paper was released and he said they were "very open" to the fact a lot of mis-information exists around investment property and tax.

As well as outlining the case against further taxes the NZPIF submission also called for the reintroduction of depreciation as part of measures to "further encourage the private rental sector to increase its responsiveness to house New Zealanders, not block them by proposing new impediments."

Comments from our readers

On 24 August 2011 at 7:31 am james said:
A slumps positive for individuals looking to get on the housing ladder, 1st time buyers should have an affordable mortgage therefore while not an ideal situation it will be 'affordable'. The supply of housing is not affected by resale of existing homes but by the addition of new build housing coming onto the market. The biggest area of misinformation about housing peddled by NZPFI is that the supply of housing is somehow linked to volatility or transaction volume.
On 24 August 2011 at 9:24 am Rob said:
Agree 100%, have a look at increasing rents already. Less rental property equals higher demand equals higher rents. Higher expenses for landlords (ie increased rates, insurance and no tax incentives) equals higher rents. Tenants end up paying more, Government has to help out those that can not feed their kids and pay the rent. Keep tax simple, if introduce capital gains on property will have to introduce capital gains for shares, antiques, classic cars, paintings and all other assets classes. At least Property is adding some benefit to the economy providing housing that the government does not have to provide... but what do I know?
On 24 August 2011 at 8:53 pm Plain Speak said:
Re James: According to you "The biggest area of misinformation about housing peddled by NZPFI is that the supply of housing is somehow linked to volatility or transaction volume," :- 1) Firstly I don't belong to NZPFI. 2) The misinformation you allege seems to be stemming from your over-simplistic interpretation of what was written above by NZPFI!!! 3) It's true that the 'supply of housing is affected by new build housing coming onto the market' but it's also a FACT that CURRENT building consent is at a HISTORICAL LOW in MANY, MANY YEARS!! Therefore the main factor to impact housing availability (in this CURRENT MARKET) is EXISTING STOCK (for rental) for those who cannot afford to own property. What the NZPFI is saying is that it is this EXISTING STOCK that will be under attack if Property Investors are further singled out from other Asset Classes - by an exodus of Landlords retreating from Property Investment. 4) As more Property Investors exit the market, less rental stock means increased demand and therefore this would lead to higher rents (cf demand v. supply forces) plus the fact that Landlords would need to pass on the increased cost of PI due to removal of depreciation, etc. 5) Existing stock would also be under pressure due to the migration out of CHCH after the earthquake! Not everyone can afford to buy houses or buy replacements (cf the LESSER compensation compared to the MARKET VALUATION of housing that was destroyed!!) so it stands to reason that there is in fact an increased demand for - rental - housing, at least. And growing .. why? Natural demographic reasons - see #6: 6) Time and demographics mean that one household (with kids) will become 2 or more households as kids grow up and find their feet (that does not mean mum and dad are retiring to a Rest-home anytime soon! Longer longevity is going to make sure they will need their own nest for quite a while yet!!). But Junior, as soon as the economy looks rosier will want to be getting his/ her own pad soon. 7) Home ownership: So if there is less rental housing available why not go into home ownership? a) Not everyone can afford it/ or the deposit. b) With the introduction of capital gains tax, there will be less incentive to sell - so owners will use legal strategies to circumvent this - take a look across the ditch! Why sell and trigger off CGT if you can sit tight and hold? This will mean that your existing pool of housing stock is not going to increase; on the contrary if you introduce CGT. c) It is a fact that the tax you collect from CGT will outweigh the costs of implementing it (cf cost versus benefit analysis) - a case of being penny-wise and pound foolish. 8) When politicians tamper with the FREE MARKET there will be consequences to pay!! Targeting one Asset Class will lead to exodus to other asset classes ... or worse .. to offshore investments where FOREIGN GOVTS are more TAX- and BIZ-FRIENDLY to Property Investors and where there are MANY MORE ADVANTAGES than in godzone!! In all of this - do note - it is the LOWER socio-economic sector that will be affected most!! As more landlords wise up to the fact that they can do better elsewhere .. don't think for a minute that the govt has the means or the will to be able to step-in and address the growing, housing-shortage that will only GAP FASTER ... when you thrash a group that has played a PIVOTAL ROLE IN SUPPLYING AFFORDABLE HOUSING TO KIWIS ... FOR DECADES ... a role that the govt has NEVER been able to fulfil ... all by itself!! If you think rents are high TRY RENTING ... IN .. SYDNEY!!
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