Housing Announcement and Reforms 23/03/2021

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#2680806 25-Mar-2021 22:49

703:
Rents going up significantly over the next few years to offset against tax bigger bill. When rents go up, the economy shrinks as people don't have surplus or splash out on anything non essential.

This will mean people who are renting at the lower end will become homeless or in state housing.

changes nothing for landlords, as there will be a national wide price hike and there is nothing the government can do about it. Same with increases in commodity prices because the cost of goods has gone up.

There will be a few more first home buyers being able to buy their entry level homes, but most renters have no deposit to borrow any money anyway and will remain renters for life.

so the government better start building to house people.

There's quite a lot that can be done to control rental price rises. Rent controls are the logical next step.

Fred99

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#2680808 25-Mar-2021 22:57

703:

Rents going up significantly over the next few years to offset against tax bigger bill.

It's a great argument, except landlords are (or should be) maximising returns already based on supply:demand economics, so if the present rental price is set appropriately - already at the "maximum the market will bear", thus there's no room to increase prices, the impact of increased cost on rentals should be zero.

If they're renting out at less than the market will bear, then they shouldn't be in the business, capitalism and bleeding heart wishy-washy philanthropism is no way to run a business - they should sell up and run a charity op shop or whatever.

GV27

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#2680842 26-Mar-2021 07:03

703:

There will be a few more first home buyers being able to buy their entry level homes, but most renters have no deposit to borrow any money anyway and will remain renters for life.

so the government better start building to house people.

Those first-home buyers free up rentals. Why is this so hard for people to understand? Every FHB who moves out of a rental frees up a rental for someone else.

Also, interest rates have hit an all-time low. Did rents drop meaningfully as a result? I assumed they would have or else the interest deductions disappearing wouldn't be that much of a big deal that you'd need to threaten to spike rents in response to losing it.

quickymart

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#2680844 26-Mar-2021 07:09

GV27:

703:

There will be a few more first home buyers being able to buy their entry level homes, but most renters have no deposit to borrow any money anyway and will remain renters for life.

so the government better start building to house people.

Those first-home buyers free up rentals. Why is this so hard for people to understand? Every FHB who moves out of a rental frees up a rental for someone else.

This was explained by Batman in the other thread, but (the way he explained it) it doesn't free up a property like that.

Edit; found it: https://www.geekzone.co.nz/forums.asp?forumid=141&topicid=268553&page_no=53#2680273

tdgeek

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#2680857 26-Mar-2021 07:25

https://www.interest.co.nz/property/109587/number-new-homes-being-completed-auckland-has-doubled-over-last-five-years-and

This is the bigger news. Building is a bull market right now. Why? Maybe builds offer better value than a used house that's rising in price but decreasing in value. The capital assistance should help this grow. Any of these builds that come from a renter reduces rental demand.

GV27

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#2680859 26-Mar-2021 07:30

quickymart:

This was explained by Batman in the other thread, but (the way he explained it) it doesn't free up a property like that.

Edit; found it: https://www.geekzone.co.nz/forums.asp?forumid=141&topicid=268553&page_no=53#2680273

There are scenarios where it does and scenarios where it doesn't, as per that thread.

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sen8or

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#2680874 26-Mar-2021 08:19

tdgeek:

sen8or

No, normal businesses do not pay tax on capital profits. They may have to pay tax on depreciation recovered if any of the assets sold are sold for more than their depreciable value, but the intangible asset (goodwill for example) are not taxable

Why single out intangible assets? If a business has capital assets, say Land and Buildings, company cars, equipment, if they sell it and there is a profit after depreciation they pay tax.

I used it as an example as it would (most likely) be the most common asset category to regularly be sold at a capital gain. Land and buildings is probably the other. Things like cars, plant, office equipment etc may get sold at a higher price than book / depreciated value, in which case they pay back the depreciation recovered, but I would hazard a guess that the instances of those type of assets being sold for more than original purchase price (and hence create a capital gain) is pretty rare (unless there is some creative accounting on both the part of the buyer and seller to maximise depreciation claims).

sen8or

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#2680885 26-Mar-2021 08:47

Fred99:

703:

Rents going up significantly over the next few years to offset against tax bigger bill.

It's a great argument, except landlords are (or should be) maximising returns already based on supply:demand economics, so if the present rental price is set appropriately - already at the "maximum the market will bear", thus there's no room to increase prices, the impact of increased cost on rentals should be zero.

If they're renting out at less than the market will bear, then they shouldn't be in the business, capitalism and bleeding heart wishy-washy philanthropism is no way to run a business - they should sell up and run a charity op shop or whatever.

Except when the status quo no longer applies, by changing the market conditions, it has thrown the future into doubt. Rents may increase, property prices may decrease, there may be less rentals available, who knows.

If property values do decrease, will this make them more attractive for investors? High rents and a lower purchase cost may make them still an attractive option, even considering the tax implications?

Paul1977

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#2680901 26-Mar-2021 09:26

tdgeek:

Paul1977:

Removing interest deductions from mortgages may lessen investor purchases, but it will also shrink the number of available rentals.

Can you clarify?

Say I am a landlord, I see these changes, I sell. To a FHB. Im happy, FHB is happy, he is now a home owner. The rental he bought is a home now, ones less rental. The rental he left is now available. No reduction in rentals.

In theory. But it assumes that every landlord who sells will be to a FHB, and that FHBs will suddenly be able to afford to buy. But even if this part of the plan works, it will still result in substantial rent increases for all those who remain renters.

EDIT: It seems to me that no matter what you do to help one group, will screw everyone else. Help FHBs and it screws investors and renters.

sir1963

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#2680909 26-Mar-2021 09:41

tdgeek:

gbwelly:

You can be sure it will either be

No real changes

or

Changes producing unintended negative consequences for the little guys and renters. Like every time.

For example, extending the brightline test to 30 years would just encourage hoarding for significantly longer, or cement in place multi generational wealth for the existing 'haves'.

Another suggestion in the article was removing income tax deduction of interest, this will just result in tenants picking up the full tax bill. I mean, ring fencing and record low interest rates already didn't do anything.

Brightline may go to 10, not 30. Hoarders would keep hoarding so no effect there. Baby Boomer rental owners who intend to cash in, in the not that far off future and dont want to wait 10 years may cash in sooner, rather than have to hold on past the 10 years. If offsetting tax losses wasnt available, yes that may cause landlords to increase the rent, but how far can you push that? The only potential good thing is if some landlords start dumping their rentals onto the market

Well in my case my tenants are not paying anywhere close to the "market rate", in fact they have had no had a rent increase for something like 5+ years. And I know a number of landlords who have long term tenants who are doing exactly this.

I could do this because of the historic low interest rates. But what happens when rates rise again ?

All I have got from the announcement is that this debt is now a massive liability and the best option is to increase the rent up to market rates to pay off this liability as fast as I can, just incase interest rates rise again (Which they will).

The domestic property rental capitalisation is worth somewhere over $500 Billion, in comparison the entire NZ share market is worth about $170 Billion.

So apart from having to raise rents, what else am I looking at. One option is to sell at least one of our properties, unfortunately the best one to sell currently has a family of 5 in it, and I know they can not afford to buy it, they also get the best deal as far as rent is concerned because of this. The money I would get from the sale will allow us to buy an apartment in Surfers Paradise. I have yet to go through the numbers with my accountant so we understand Australian property/rental laws properly, but it looks like a viable option from our perspective. The profits would stay in Australia. It would be a cheap holiday destination for the wider friends and family as well as ourselves ( and amusingly tax deductible when we go over to do inspections/maintenance). We would also have a pool of money there in Australia, in Aussie Dollars.

So back to the capitalisation, what would happen if 30% of landlords did the same ? That would be like the stock market heading to $0. Sure that figure is unrealistic, but what about 10%, $50 Billion ?

Robinson has said this will not apply to New Builds, my reply is "yet" , and I say yet because he has shown he is willing to act capriciously. And that too is part of the reason to pay of debt quickly. How do I know he will not suddenly say all rentals must be double glazed, I certainly don't. Can I trust his word, no way, he has broken trust.

Who is next for this closing of the "loop hole", Tradesmen, Doctors, Store Owners, Movie Makers , Commercial realestate ?

Can we expect other "levelling of the playing field " actions in the future ? You know something like "taxing" to top 30% of KiwiSaver accounts to top up those with poor savings ?

Exaggeration much ??? , maybe, but now the government has broken trust with investors, how do we know , it could be a popular thing with voters, punish people whom they perceive as having "too much".

And there is yet another reason to put money into Australia, the removal of all of ones eggs in one basket, the spread of risk.

sir1963

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#2680916 26-Mar-2021 09:58

tdgeek:

Paul1977:

Removing interest deductions from mortgages may lessen investor purchases, but it will also shrink the number of available rentals.

Can you clarify?

Say I am a landlord, I see these changes, I sell. To a FHB. Im happy, FHB is happy, he is now a home owner. The rental he bought is a home now, ones less rental. The rental he left is now available. No reduction in rentals.

Say I am a gazillionaire and gave all my money to everyone in NZ, they are all then Billionaires. Problem solved. Your POV is 100% straw man.

So, I got into rentals so that when I retire I can afford to still do things. The pension is not enough for that. There was no KiwiSaver back then either. THAT goal has not changed.

If I sold a property, it would be to the highest offer (No straw man , 100% reality).

Worse, If I sold a property I would buy another , but in Australia. How many tens of billions can NZ afford to head overseas so people can reduce their exposure to a capricious government ?

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GV27

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#2680923 26-Mar-2021 10:13

sir1963:

So, I got into rentals so that when I retire I can afford to still do things. The pension is not enough for that. There was no KiwiSaver back then either. THAT goal has not changed.

I now have a mortgage that will last until past when I retire because investors displaced so many owner occupiers in the market and spiked the price up for the modest starter home I bought. It is unlikely there will be a pension when I retire either.

The goal for me is not being able to afford to 'do things' but to have a roof over my head when I retire. It's totally out of the question for many people my age, so I'd be one of the lucky ones.

sir1963

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#2680926 26-Mar-2021 10:20

Paul1977:

In theory. But it assumes that every landlord who sells will be to a FHB, and that FHBs will suddenly be able to afford to buy. But even if this part of the plan works, it will still result in substantial rent increases for all those who remain renters.

EDIT: It seems to me that no matter what you do to help one group, will screw everyone else. Help FHBs and it screws investors and renters.

The ONLY solution is to build more houses.

The Problem is, successive governments has allowed the apprenticeship schemes with wither on the vine so we have fewer news tradies coming through even though older ones have been retiring.

A LOT of skilled workers also went to Australia, better money and life style. So while there was no crisis governments were happy to not care, pushing the problem onto the next government.

So this means when Twyford started KiwiBuild there was exactly zero chance of success, there were not tradies just sitting around spare to build this dream of his. Getting the apprenticeship system up and running again was going to take years, Polytechs did not have the staff to do their part so that would take years to fix in its self. So in reality he was at least a decade away from being able to actually deliver.

The housing crisis is not landlords or property developers fault, its government and their kicking the can down the road.

We will see this in University graduates soon too, Universities are dropping expensive courses as fast as they can, they can no longer afford them. That means staff, infrastructure, skills will all need to be rebuilt when we need these graduates.

GV27

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#2680928 26-Mar-2021 10:22

Some of the hysterical reactions from investors have convinced me this was worth doing for the entertainment value alone.

sir1963

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#2680932 26-Mar-2021 10:26

GV27:

sir1963:

So, I got into rentals so that when I retire I can afford to still do things. The pension is not enough for that. There was no KiwiSaver back then either. THAT goal has not changed.

I now have a mortgage that will last until past when I retire because investors displaced so many owner occupiers in the market and spiked the price up for the modest starter home I bought. It is unlikely there will be a pension when I retire either.

The goal for me is not being able to afford to 'do things' but to have a roof over my head when I retire. It's totally out of the question for many people my age, so I'd be one of the lucky ones.

I have a disabled son. I am his landlord. He has a safe, secure, permanent place to live. He has social issues, we tried flat mates, that did NOT work. He is NOT tidy, not by a long shot. He would not be able to pass a rental inspection.

Moving flats for most people is hard enough, for him it would be an incredibly traumatic event , something akin to being seriously assaulted.

I am taking care of his housing needs, not the tax payer.

And if he was "lucky", he would not need this.

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