Housing Announcement and Reforms 23/03/2021

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#2679529 23-Mar-2021 21:59

blackjack17:

Why on earth should the government aka tax payers help pay for developer's new sub divisions?

As I said, I may have misunderstood something in the announcement:

https://www.newshub.co.nz/home/politics/2021/03/have-your-say-will-labour-s-housing-announcement-make-a-difference-to-the-market.html

"A $3.8 billion fund will be used to help green light tens of thousands of house builds"

Does this mean something else?

Edit: found it:
https://thespinoff.co.nz/business/23-03-2021/its-a-drop-in-the-bucket-and-its-a-leaky-bucket-at-that-housing-package-underwhelms-experts/

"Kerr said the tool with the most potential was the $3.8b infrastructure accelerator, which is intended to help local councils create the necessary services infrastructure – plumbing, roads, power – to unlock remote land for property development."

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#2679569 24-Mar-2021 06:07

Fred99:

JaseNZ:

It's not going to help anybody new into the market and sure as hell not going to drive house prices down.

Removing negative gearing will over time, and it's a very ballsy move - exactly what's needed to slowly rein in dangerously stupid levels of leverage on rental property, which has the potential to cause a liquidity squeeze and stagflation. This as QE is eased - which must happen, regardless of how enjoyable "free money" has been.

Yip. Huge amounts of negative gearing is the scary part of the market. High house prices are bad - potential failure of the banking system is very very scary.

When 40% of the mortgages on investment property are interest only rapid inflation and proportionally rising interest rates have truly frightening potential impacts on the banking system.

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#2679585 24-Mar-2021 07:53

blackjack17:

quickymart:

Interesting changes announced today, but I don't know how much they will benefit me as a potential first home buyer trying to get into the market. I didn't see a great deal about increasing the number of new builds, although (and someone correct me if I'm wrong) I may have seen somewhere about how the government would pay to do the reticulation (streets, road lighting, power, water etc) into new subdivisions? That will help developers a bit, surely.

Why on earth should the government aka tax payers help pay for developer's new sub divisions?

I think they pay up front to make it easier to start a development then they get the funds back later when it sells, so that whoever is liable for that capital cost still ends up paying it. But the barrier of that initial outlay is avoided

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#2679588 24-Mar-2021 07:55

Infrastructure costs are one of the biggest reasons councils oppose significant numbers of resource consents. This is designed to help get over that and unlock more land.

GV27

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#2679593 24-Mar-2021 08:13

The $3.8b spend doesn't really impress me much, given the issues we have in Auckland aren't specifically related to developments not getting built; they're because the government and the council can't seem to link public transit and the areas being developed in any rational time-frames.

See for example: the total balls-up that is North-West Auckland. Shouldering a massive amount of the new housing building for the next 20 years, already with people seeing two hour commutes in the mornings when there's a decent snarl up, but with no progress on promised light-rail and the interim solution being some painted buslanes on the motorway.

No amount of funding, however large-sounding, is going to overcome the issues caused by building houses in the wrong place if you can't connect them with rapid transit, and we have literally no experience in doing that in this country. Experience to date does not exactly inspire confidence.

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#2679600 24-Mar-2021 08:22

What portion of the renter population are genuine home buyers (first or in between houses) and what portion are likely to be renting for life?

If you make property investment so unattractive for investors, will there be enough rental housing stock or not?

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#2679603 24-Mar-2021 08:31

sen8or:

What portion of the renter population are genuine home buyers (first or in between houses) and what portion are likely to be renting for life?

If you make property investment so unattractive for investors, will there be enough rental housing stock or not?

Good question. Given the excess or buyers over homes for sale, each rental that's sold as the landlords quits the market should be taken up by a FHB, directly or indirectly. But they also leave a vacant rental behind. At some point if not enough rentals get sold the market will still be firm, or if too may rentals get sold, the market may cause house price drops, but firm rents. No one knows, economists told us there will be a recession and all that goes with it, there want, although there was a technical recession, that houses will drop, also never happened. The next 6 months will tell all as to a trend.

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#2679657 24-Mar-2021 10:55

Much like most things in society, there will be a portion of the population at the edges of the bell curve, those that are highly geared where a small shift the wrong way will be catastrophic and those at the other end where these changes will scarcely make a dent. Public interest and ratings dictate we will hear a lot more of the catastrophic end than the other.

If the entire rent was now treated as taxable income, not just the surplus after interest costs, a model of required returns could look like -

Mortgage Value $ 600,000

Interest Rate 2.5%

Weekly Rental Income $ 750

Under the above scenario, under existing tax provisions, the landlord is making approximately $ 24,000 "profit" after rental expense. Assuming they now hit the high tax bracket, this would create a tax liability of $ 9360, so net profit after tax of about $ 14,640. Under the new scenario, the tax liability increases to $ 15,210, so net profit of $ 8,790, roughly $5.5k out of pocket. To make up that difference, rent would have to go up by about $190/week just so they are getting the same net return. Is it likely the tenant and/or market would accept a 25% rental increase? Doubtful.

If interest rates were higher, this increase in rent rises rapidly (due to the nature of the tax offset) and an interest rate of 5% would necessitate an increase in rent of 50% ($375/wk) just to be at the same level of after tax profit. If $190 is questionable (in my opinion), then $375 would be ludicrous.

I think it most likely that both landlords and tenants are going to feel the pain of this move, the landlords initially, but over time, it will shift towards the tenants.

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#2679678 24-Mar-2021 11:17

blackjack17:

Why on earth should the government aka tax payers help pay for developer's new sub divisions?

For the same reason taxpayers help pay for all sorts of things whether you personally benefit from them or not. It's better for everyone overall.

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#2679906 24-Mar-2021 17:56

GV27:

The $3.8b spend doesn't really impress me much, given the issues we have in Auckland aren't specifically related to developments not getting built; they're because the government and the council can't seem to link public transit and the areas being developed in any rational time-frames.

See for example: the total balls-up that is North-West Auckland. Shouldering a massive amount of the new housing building for the next 20 years, already with people seeing two hour commutes in the mornings when there's a decent snarl up, but with no progress on promised light-rail and the interim solution being some painted buslanes on the motorway.

No amount of funding, however large-sounding, is going to overcome the issues caused by building houses in the wrong place if you can't connect them with rapid transit, and we have literally no experience in doing that in this country. Experience to date does not exactly inspire confidence.

well when you expect to change transport ministers / mayors who have no knowledge of infrastructure but have pipe visions every 1 - 3 years nobody has any long term plans. they appear to operate on the premise of "someone else's problem". aka just too incapable. hire rob fyfe on a 30 year plan and he'll get it done.

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#2680028 24-Mar-2021 21:25

It's taken me a while to get an overview of the changes. I found this article very helpful. Bloomberg had the best potted summary and included a couple of items missed in the discussion:

Bloomberg: The new bright-line test will apply to properties bought from March 27. The time horizon for new builds will remain at five years to encourage supply.

From Oct. 1, investors won’t be able to deduct mortgage interest as an expense on properties acquired from March 27. For existing property owners, mortgage interest deductibility will be phased out over the coming four years so that it can’t be claimed at all by the 2025-26 tax year. New builds are expected to be exempted from this change.

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gzt

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#2680030 24-Mar-2021 21:31

This one from interest.co.nz is excellent. It has a paragraph summary of each policy. At the end of each paragraph is a link to a policy fact sheet produced by IRD, Ministry of Housing:

https://www.interest.co.nz/property/109638/government-releases-housing-policy-package-bright-line-test-extended-interest

gzt

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#2680034 24-Mar-2021 21:39

Loved this image on this other interest.co.nz article! where is this?

Fred99

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#2680132 25-Mar-2021 08:30

gzt:

Loved this image on this other interest.co.nz article! where is this?

It's house-cliff_2.jpg on numerous storage devices, but I expect you'll need to search for house-cliff.psd to find the original location.

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#2680149 25-Mar-2021 08:49

Honey, I'm tiiiiiiiired of that blue colour. I need you to paint some other colours so I can decide what I like. No, not there, there's no light on that side. Yes, over there. I'll go down the valley to see how they look. Thankyou so much, I love you!

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