Property

CGT 'would lift home-ownership levels'

A capital gains tax would have a positive impact on home ownership levels, BNZ’s chief economist Tony Alexander says.

Thursday, May 22nd 2014

In his latest Weekly Overview, he says there are two ways of looking at the tax.

One is to assume that the reduction of expected returns for investors caused by a capital gains tax would reduce the supply of houses in the market, worsening the housing supply problem.

The second is to think that in a capacity-constrained economy, if investors built fewer houses, owner-occupiers would pick up the slack. “A capital gains tax would have probably no impact on construction and supply in the current climate.”

He said: “Our economy is going to become increasingly capacity-constrained, therefore a capital gains tax would have a positive impact on the level of home ownership wand would ease some of the upward pressure on prices. If however you think a tax will appear in the next few years then your incentive is to buy your investment properties now rather than after the tax comes in, running on the assumption that existing holdings will be grandfathered as tax-free and only new purchases will attract the CGT.”

Alexander said he expected immigration to pick up as Australia’s “climate of despair” accelerated the flow of New Zealanders home and put off others from moving there.

That would put further pressure on prices he said, which had been rising even while migration rates were low.

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