Tax proposals target landlords - NZPIF

The Labour Party celebrated its centenary over the weekend by announcing a flagship housing policy which is intended to tackle the housing crisis on both supply and demand fronts.

In his speech, party leader Andrew Little said Labour has a comprehensive plan to tackle the housing crisis by building affordable houses and cracking down on speculators.

The three main elements of Labour’s policy are:

• The creation of an Affordable Housing Authority which is intended to cut through red tape to deliver large-scale master-planned communities.
• Government construction of 100,000 new affordable homes for first home buyers, with 50% of those houses in Auckland.
• A tax on speculators by extending the bright line test to five years, on top of a ban on non-resident foreign speculators buying existing houses.

Little also announced that the next Labour government will hold a comprehensive review of the tax system.

It will also consult on ending negative gearing, which Little said is effectively a taxpayer subsidy for speculation.

“We’ll do this in a way that’s targeted at speculators, not investors looking for a stable, long term return.”

However, NZ Property Investors Federation executive officer Andrew King said it appeared that Little does not understand the difference between traders, speculators and property investors.

He said that Labour’s proposals to extend the bright line test from two years to five years and to ban negative gearing actually targeted rental property owners.

“Good tax policy should never influence an individual's investment decision. Making rental property less attractive does just that and can only have a negative impact on the supply of rental property without any extra effect on traders or speculators.”

Disallowing negative gearing for rental properties will not affect traders or speculators at all, he said.

“It was tried in Australia and was quickly reversed after it was seen that it had a negative effect on rental housing supply and rental prices.”

Rental property owners operate under current market conditions like everyone else, and that includes the market price they can charge for rent, King added.

“It is already highly difficult for people to provide rental properties to tenants. If Labour’s policy was introduced, many rental property owners would be unable to cope and rents would have to increase.

“Little quite rightly says that it is unacceptable for families to live in overcrowded properties, in garages and cars. Given that these people need homes, probably rental homes, how does Labour’s policies help any tenant, especially those with existing high needs?”

Property Institute chief executive Ashley Church agreed that extending the bright line tax from two years to five years would impact on rental property owners, rather than speculators.

“The recent decision to cut the tax liability test from 10 to two years was to ensure that speculators were paying their share of tax while not penalising property investors who were adding to the overall stock of rental accommodation.

“The proposal to increase the bright line test to five years’ risks blurring that distinction. Since it is unlikely that a speculator would hold a property for five years before selling, the main effect would probably be to punish landlords selling for legitimate reasons”

However, Church welcomed many of Labour’s other housing proposals, including a ban on overseas buyers buying existing houses.

He said Labour’s focus on the need to collaborate with the private sector was a particularly positive feature of the policies.

“Labour appear to have recognised that the most effective way to deal with the housing crisis is to work cooperatively with private developers and Mums and Dads to build as many homes as quickly as possible.

“That’s not just a good idea – it’s also the only practical way to start turning the tide on runaway house price inflation.”