Real estate, post level 4

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#2680186 25-Mar-2021 10:04

alasta:

Redistributing houses between investors and owner-occupiers doesn't really affect the balance of demand and supply in the rental market, all other things being equal.

Wait, you mean when a property investor has to sell a house, it doesn't get bulldozed into the earth and the land red-zoned so no one can ever live there? The way some people are carrying on, you could be forgiven for thinking so.

Every FHB who buys who is currently renting frees up a rental for someone who needs a rental.

Fred99

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#2680188 25-Mar-2021 10:12

alasta:

dafman:

1. As our population ages, life renters will not be able to service current high rents as they grow older and work opportunities diminish. So where will they live?

This is a very good point.

A lot of the political narrative is focused on "young couples" buying houses. I am not young or a couple, and a lot of my peers are under severe housing stress with no prospect of ever owning a house. If you're too old to go flatting and can't afford perpetually increasing rents for the rest of your life then what are you supposed to do?

I mentioned "regulatory capture", so an example:

Accommodation supplement is transferring money to landlords. It's economic market failure, because it's acting directly against market forces which should drive rents down. So if you're going to intervene in the market because it's "necessary" for humanitarian reasons (I agree there's a need) then why regulate to compensate for market failure when by doing that it's ultimately going to exacerbate the problem that it was set out to solve? It just keeps rents high to the point of unaffordability (and rents high for everybody).

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#2680273 25-Mar-2021 11:42

GV27:
alasta:

Redistributing houses between investors and owner-occupiers doesn't really affect the balance of demand and supply in the rental market, all other things being equal.

Wait, you mean when a property investor has to sell a house, it doesn't get bulldozed into the earth and the land red-zoned so no one can ever live there? The way some people are carrying on, you could be forgiven for thinking so.

Every FHB who buys who is currently renting frees up a rental for someone who needs a rental.

I'm not sure it does. FHB who was renting buys an ex rental property to live in.

The net increase in rental property is zero.

You need more houses. You are not getting more houses. The consensus from what I read seems to be rents will increase, how prices either flattens, or increase from the current momentum that its carrying. Those who have cash and don't need interest tax deduction will get richer. Time will tell.

tdgeek

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#2680295 25-Mar-2021 11:52

Batman:

I'm not sure it does. FHB who was renting buys an ex rental property to live in.

The net increase in rental property is zero.

You need more houses. You are not getting more houses. The consensus from what I read seems to be rents will increase, how prices either flattens, or increase from the current momentum that its carrying. Those who have cash and don't need interest tax deduction will get richer. Time will tell.

If such investors are happy to have a less worthwhile investment, probably not, and less leveraged so even more probably not

I agree that rentals"can" have a zero effect if each FHB bought an ex rental, and that's ok. You might go from 60% ownership and 40% renters to 75:25 and you arent affecting the remaining renters. Those that build, each swing the pendulum favourably though. Build a home. Move out of the rental, a spare rental with nobody to fill it. Spare, too much supply, rentals drop, well that's the theory. But that would play out in time.

GV27

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#2680305 25-Mar-2021 12:03

Batman:

I'm not sure it does. FHB who was renting buys an ex rental property to live in.

The net increase in rental property is zero.

You need more houses. You are not getting more houses. The consensus from what I read seems to be rents will increase, how prices either flattens, or increase from the current momentum that its carrying. Those who have cash and don't need interest tax deduction will get richer. Time will tell.

...or the FHB buys a new home. And therefore there is a free rental. It's all academic.

The real key missing bit of information is what our post-Covid migration numbers will look like.

If we go back to 50,000+ p.a. then we can just resume normal service.

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#2680336 25-Mar-2021 12:54

or the FHB who has moved out of mom and dad's house buys an ex rental.

Rental stock is now negative 1.

GV27

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#2680340 25-Mar-2021 12:58

Batman:

or the FHB who has moved out of mom and dad's house buys an ex rental.

Rental stock is now negative 1.

That'd be the FHB who has had to live with Mum and Dad to save a deposit because the required amounts are now so high, you can't pay rent and save for one in a major city?

Yea, not a super convincing argument that intervening to lower house prices in a runaway market is a bad thing.

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#2680344 25-Mar-2021 13:01

i'd love for house prices to come down!

mattwnz

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#2680455 25-Mar-2021 14:39

alasta:

Landlords like to push a narrative whereby any additional costs they incur can be directly passed on to tenants. That's not quite how the market works, because rents are driven by demand and supply in the rental market and are ultimately constrained by how much tenants are able to pay. Redistributing houses between investors and owner-occupiers doesn't really affect the balance of demand and supply in the rental market, all other things being equal.

That doesn't mean that rents won't increase because of other market factors, and landlords will be quick to blame any government policy that they don't like.

I read that one bank thinks both will happen. House Prices could drop up to 30% if only landlords were covering the costs, but rents could also increase instead or a combination of both. But as rents increased 10% in a year, there does also seem to be a supply problem with rentals. Surely rents shouldn't be increasing more than inflation or wage growth if the market was working properly. Some regions in some countries seem to have rent control of say 3% maximum rises a year..

But the thing is that didn't the government have this deduction in place as an incentive for people to buy properties to rent out? This is so the government then didn't need to be providing housing themselves. So it seems the deductions and 5 year brightline test will only apply if they build a new house to add to the building stock and rent it out. But the high cost to buy land (saw land quoted at $1500 sqm) and build would likely require a huge amount of rent to be paid, and what stops the government then changing the rules again mid game?

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#2680488 25-Mar-2021 15:23

mattwnz:

But the thing is that didn't the government have this deduction in place as an incentive for people to buy properties to rent out? This is so the government then didn't need to be providing housing themselves. So it seems the deductions and 5 year brightline test will only apply if they build a new house to add to the building stock and rent it out. But the high cost to buy land (saw land quoted at $1500 sqm) and build would likely require a huge amount of rent to be paid, and what stops the government then changing the rules again mid game?

The tax changes are a major potential threat for any business. Some media yesterday kept referring to this as a "tax loophole" but it was anything but - it's a legitimate way of calculating taxes on earnings and expenses (including interest) for any business in NZ, and it's also pretty common across the world. If they're willing to make a change to this for property, what could come next?

I just don't know what will happen is house prices keep rising - if they're another 20% higher by the end of the year what will happen?

Fred99

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#2680600 25-Mar-2021 17:55

sbiddle:

The tax changes are a major potential threat for any business. Some media yesterday kept referring to this as a "tax loophole" but it was anything but - it's a legitimate way of calculating taxes on earnings and expenses (including interest) for any business in NZ, and it's also pretty common across the world. If they're willing to make a change to this for property, what could come next?

I just don't know what will happen is house prices keep rising - if they're another 20% higher by the end of the year what will happen?

The tax changes are not a potential threat to "any business". Claiming interest on loans has only been removed for residential investment property.

Yes, offsetting income with interest on loans for investment property is reasonably common, with a very strong correlation between countries where it's allowed, and unaffordable housing in large cities.

I reckon it's going to work. If there's one main "non-technical" reason I think that, it's because of the level of bleating from those associated with and who have been profiting from within the sector, when past efforts to cool the market and protect economic stability (LVRs, the 2 year brightline test) met with a pretty muted response. Probably because those moves targeted only the extremes of over-leveraged investors and tax-avoiding property flickers - the stereotypical "bad guys" - but not the whole economic setting which has caused massive investment in a non-productive sector based on debt, and exacerbated the often lamented poor productivity of the NZ economy - which ain't because "people don't work hard enough" - the usual copout excuse. We don't invest in production.

Home ownership is a good thing for the economy, it stimulates demand, provides stability. It's good for every business (except one of course)

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#2680623 25-Mar-2021 19:24

sbiddle:

The tax changes are a major potential threat for any business. Some media yesterday kept referring to this as a "tax loophole" but it was anything but - it's a legitimate way of calculating taxes on earnings and expenses (including interest) for any business in NZ, and it's also pretty common across the world. If they're willing to make a change to this for property, what could come next?

I just don't know what will happen is house prices keep rising - if they're another 20% higher by the end of the year what will happen?

It all depends if you wish homes to be seen as businesses. If so count me and everyone else in. Safer than the sharemarket, and like the ever present excess P/E ratios, I;ll bet on homes. Unlike share prices, you actually have a real asset as distinct from a "hope it thrives" asset

mattwnz

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#2680625 25-Mar-2021 19:32

sbiddle:

mattwnz:

But the thing is that didn't the government have this deduction in place as an incentive for people to buy properties to rent out? This is so the government then didn't need to be providing housing themselves. So it seems the deductions and 5 year brightline test will only apply if they build a new house to add to the building stock and rent it out. But the high cost to buy land (saw land quoted at $1500 sqm) and build would likely require a huge amount of rent to be paid, and what stops the government then changing the rules again mid game?

The tax changes are a major potential threat for any business. Some media yesterday kept referring to this as a "tax loophole" but it was anything but - it's a legitimate way of calculating taxes on earnings and expenses (including interest) for any business in NZ, and it's also pretty common across the world. If they're willing to make a change to this for property, what could come next?

I just don't know what will happen is house prices keep rising - if they're another 20% higher by the end of the year what will happen?

It was actually the Finance Minister himself who referred to it as a tax loophole when he announce the changes with the PM.

The government should have implemented a debt to income ratio years ago when interest rates kept dropping. The low interest rates were supposed to go to business to stimulate the economy, but much ended up pumping house prices higher and higher. They look like they may finally bring them in after May, but the horse has well and truly bolted.

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#2680627 25-Mar-2021 19:33

tdgeek:

sbiddle:

The tax changes are a major potential threat for any business. Some media yesterday kept referring to this as a "tax loophole" but it was anything but - it's a legitimate way of calculating taxes on earnings and expenses (including interest) for any business in NZ, and it's also pretty common across the world. If they're willing to make a change to this for property, what could come next?

I just don't know what will happen is house prices keep rising - if they're another 20% higher by the end of the year what will happen?

It all depends if you wish homes to be seen as businesses. If so count me and everyone else in. Safer than the sharemarket, and like the ever present excess P/E ratios, I;ll bet on homes. Unlike share prices, you actually have a real asset as distinct from a "hope it thrives" asset

It's really not safer than the sharemarket over any reasonable horizon. A diversified share portfolio will perform as well or better than property over the medium-long term. If you invest in a truly diversified portfolio you are lower risk in the sharemarket as you can spread risk across hundreds of companies and global markets. When you invest in one property you are absolutely pegged to that house in that market. If you screw it up you can take a hiding.

Property has certain advantages, with leverage and tax being the main ones.

mattwnz

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#2680628 25-Mar-2021 19:33

tdgeek:

sbiddle:

The tax changes are a major potential threat for any business. Some media yesterday kept referring to this as a "tax loophole" but it was anything but - it's a legitimate way of calculating taxes on earnings and expenses (including interest) for any business in NZ, and it's also pretty common across the world. If they're willing to make a change to this for property, what could come next?

I just don't know what will happen is house prices keep rising - if they're another 20% higher by the end of the year what will happen?

It all depends if you wish homes to be seen as businesses. If so count me and everyone else in. Safer than the sharemarket, and like the ever present excess P/E ratios, I;ll bet on homes. Unlike share prices, you actually have a real asset as distinct from a "hope it thrives" asset

This is part of the problem, people don't see shares as actually owning part of a company. Anyone who has money in kiwisaver likely has much of that money in shares, and many have done very well.

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