How I propose to fix the property market.

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#1598868 26-Jul-2016 11:27

sbiddle:

It's all too logical. That means there is no chance of any political party even considering your ideas.

The biggest thing that annoys me about property is the totally misguided belief by so many people that a CGT will instantly fix the problem when there isn't evidence from any country in the world to suggest this would work. A CGT should exist because the tax system should treat all income fairly, but those who think a CGT will suddenly fix things overnight live in a fantasty world.

The biggest problem now is pricing crashing are going to have such a massive effect across the economy.

Agree with you Steve a CGT will not make much difference at all. It just changes the behaviour of sellers to avoid paying it. People will be like, well if you are gonna tax me then I just won't sell the house because I can afford to keep it and get ridiculous rent prices. Which will cause even less stock to come onto the market. People will try and avoid it every single way they possibly can.

This is actually a massive problem for the NZ property market, and yes I to also believe its caused mainly by offsetting your PAYE tax when making a loss on your rental income and topping it up with your earnings. So essentially you pay less tax provided the value of your rental property stays the same or goes up.

There are also other issues around regarding the amount of people migrating here and the # of housing stock not being able to keep up. I am brutally going to point my finger at the council. Yes infrastructure is expensive but the auckland council appears to be very poorly run in my honest opinion. They are reluctant to upgrade infrastructure and one of the big problems is stormwater.

We have a lot of people in council who are actually putting up barriers to change for their own personal benefits. If we can get some good people into council who will work towards streamlining a lot of their processes and removing ridiculous red-tape we can make some good progress.

I know this because It has taken me since September last year to get a sub division done, a house moved, and then a new building consent to build on the rest of the section and they have not granted the consent yet, I am still waiting. So at least another 6-8 months to get the new dwelling constructed. All up about 18 months for me to move one house and build one more.

Quickly back to the stormwater, firstly the council didn't know where the stormwater drain was because their record-keeping is poor, then we finally do an assessment and tell them then they tell us we need to upgrade the stormwater system for them. And we are like.... hang on a minute a house was built next door 2 years ago with its storm water draining into the same area, how do you not know about this? (I suspect the developer did a deal with someone at the council) In addition to that they found that the neighbour on the other side's sewer was draining into the stormwater and now they are after them for blood, I suspect this has been like this for at least the last 15 years or more. I just cant understand how they have done such a botch job of their record keeping. Also developers are choosing not to build and to land bank because the council is saying we wont approve this development unless you upgrade our infrastructure.

In the end we are having to put in 2 water detention/retention tanks, one for each property (which I am not surprised about), this will reduce the run off to less per hour than it was before the initial development.

This is just the way the cookie crumbles, you cant go to a compeditor or anything because this is the council. And if you don't follow their rules your risk being fined or you cant get insurance on a property, so you are screwed.

Oh and cutting the OCR regularly is not pouring any more fuel on the fire....

andrew027

1286 posts

Uber Geek

#1598875 26-Jul-2016 11:32

@Jaxson: I'd like some sensible discussion around why anyone should be able to own more than 2 properties.

I'm happy to participate in this discussion. I own three properties – my family home in Wellington and two rentals in Blenheim.

I decided to buy rental property because I don't think I can rely on the government to support me in my old age. Having some rent dribbling in would provide me with a modest income when I stop working, and if I need a large sum of money for some reason (e.g. major hospital bills), I could always sell one.

If you have ever lived in a small provincial town you will know that average incomes are not particularly high. There are few big companies offering high wages, and not everybody in Marlborough gets to own a winery. There needs to be a pool of rental properties available in towns like this as many people are not be able to buy their own homes. Both my rentals are two bedroom houses, and almost all of my tenants have been young couples or solo parent/single child families.

Horseychick

150 posts

Master Geek

#1598905 26-Jul-2016 11:49

darylblake:

I know this because It has taken me since September last year to get a sub division done, a house moved, and then a new building consent to build on the rest of the section and they have not granted the consent yet, I am still waiting. So at least another 6-8 months to get the new dwelling constructed. All up about 18 months for me to move one house and build one more.

....

In the end we are having to put in 2 water detention/retention tanks, one for each property (which I am not surprised about), this will reduce the run off to less per hour than it was before the initial development.

This is just the way the cookie crumbles, you cant go to a compeditor or anything because this is the council. And if you don't follow their rules your risk being fined or you cant get insurance on a property, so you are screwed.

I feel your pain on this one it took us a year to get a subdivision done through Waitakere on 2 properties that had been totally separate for over 8 years. The second property was built on the back of the section of the first one, but they were both under one title. All services were separate and as the section was on the corner of 2 roads each house had a diff address and diff driveways. In order to get the sub-division we also had to put 2 water retention tanks on the properties and we had to decrease the amount of impermeable area on both properties - each of these items took heaps of time, red tape, Council visits paid for by us etc. etc. Once we started the process we couldn't stop because this is the council you are dealing with and ultimately it cost us double $'s than it should have done for no good reason.

So I really don't blame developers for sitting on land and not trying to sub-divide. Until the Auckland Council sorts out their rules and regulations around building and development I'm surprised anyone manages to do it. I also believe that greasing some palms is still the way some developers have to go.

surfisup1000

5288 posts

Uber Geek

#1598929 26-Jul-2016 11:51

Jaxson:

I'd like some sensible discussion around why anyone should be able to own more than 2 properties.

And I too am confused as to why business losses etc should off set your income tax. I don't pretend to understand it, but there do seem to be so many loopholes to be exploited.

I don't care if someone owns 1000 rentals.

Less government interference the better.

In fact, government (national/local) interference is one of the big reasons we don't have enough houses. Government good intention policies always seems to have perverse and unintended consequences as the people work around the rules. The collective intelligence of the 'people' is far greater than that of a few government bureaucrats and policy analysts.

darkasdes2

428 posts

Ultimate Geek

#1598931 26-Jul-2016 11:54

My 2 cents worth, is that NZ permanent residents can only buy 1 house or land in NZ.

Stop companies from owning houses and land and as mentioned before, "losses from housing" should not be able to put against income tax.

But John Key would never do that considering his financial background.

Also, Aucklanders need to accept high density living, its a fact of life, just look around the rest of the major cities of the world.

surfisup1000

5288 posts

Uber Geek

#1598957 26-Jul-2016 12:03

darkasdes2:

My 2 cents worth, is that NZ permanent residents can only buy 1 house or land in NZ.

Stop companies from owning houses and land and as mentioned before, "losses from housing" should not be able to put against income tax.

But John Key would never do that considering his financial background.

Also, Aucklanders need to accept high density living, its a fact of life, just look around the rest of the major cities of the world.

I predict your solution would result in a huge number of homeless people as the stock of available rental housing plummets.

frankv

5680 posts

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#1598960 26-Jul-2016 12:12

surfisup1000:

I predict your solution would result in a huge number of homeless people as the stock of available rental housing plummets.

I don't buy this at all.

There will be exactly the same number of houses available. The only way that the stock of rental housing will plummet if people start to buy their own homes. In which case, they're not homeless.

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surfisup1000

5288 posts

Uber Geek

#1599010 26-Jul-2016 13:10

frankv:

surfisup1000:

I predict your solution would result in a huge number of homeless people as the stock of available rental housing plummets.

I don't buy this at all.

There will be exactly the same number of houses available. The only way that the stock of rental housing will plummet if people start to buy their own homes. In which case, they're not homeless.

Well , investors would stop buying rentals as they are only allowed 1 house.

So, as the population grows there would be no people or companies supplying the rental market so over time there would be huge shortages.

Even now there are shortages, as evidenced by rising rents.

The governemnt would be forced to sell all of their housing stock (they are only allowed 1). But, you may make an exception for government. Then, what about companies that supply rental housing? Do you exempt them too?

And, suddenly we end up in a mess where certain entities are favoured over others and property will accumulate in an undesirable way.

MikeAqua

7779 posts

Uber Geek

#1599011 26-Jul-2016 13:13

I kind of like the property tax idea.

NZ's annual central government tax take is $66B (source IRD website).

Total residential property value is about $1,000B.

I don't know the value of commercial property.

But let's pretend it's equal to residential. So total land value $2,000 B, tax revenue $66B.

BY& my calcs that requires a taxrate of 3.3% - if you own a $500k property you pay $16,500/year tax ($320/week).

In a household of two adults earning $50k each, that's 16.5% of income.

And ... the spending power of the residual $83.5k is improved because there is no GST or any form of excise tax (possible exception of tobacco and alcohol).

A problem I can see with the system is that people don't necessarily have the income to meet their land-tax liability. And if they do have the income, you want them to pay gradually, rather than assume someone will have $33k in the bank at 31 March.

But I'm, sure those challenges would be resolvable.

Mike

andrew027

1286 posts

Uber Geek

#1599013 26-Jul-2016 13:17

@frankv:

@surfisup1000:

@darkasdes2: My 2 cents worth, is that NZ permanent residents can only buy 1 house or land in NZ.

Stop companies from owning houses and land and as mentioned before, "losses from housing" should not be able to put against income tax.

But John Key would never do that considering his financial background.

Also, Aucklanders need to accept high density living, its a fact of life, just look around the rest of the major cities of the world.

I predict your solution would result in a huge number of homeless people as the stock of available rental housing plummets.

I don't buy this at all.

There will be exactly the same number of houses available. The only way that the stock of rental housing will plummet if people start to buy their own homes. In which case, they're not homeless.

I have to agree with surfisup1000. Who owns the rentals? Excluding New Zealand residents and companies from owning rental property only leaves the government and foreign investors. I can't see the government buying thousands of houses all over the country currently owned by small time kiwi investors and turning them into state housing.

There has to be a pool of rental property in the market. Just saying "people start to buy their own homes" isn't realistic. The solo mum who's one of my current tenants, working part time and studying at polytech, she's not going to be able to afford a house of her own any time soon. Where should she live - give up her study and move back in with Mum and Dad in an even smaller town with even fewer job prospects?

allio

885 posts

Ultimate Geek

#1599020 26-Jul-2016 13:32

surfisup1000:

Well , investors would stop buying rentals as they are only allowed 1 house.

So, as the population grows there would be no people or companies supplying the rental market so over time there would be huge shortages.

Even now there are shortages, as evidenced by rising rents.

The governemnt would be forced to sell all of their housing stock (they are only allowed 1). But, you may make an exception for government. Then, what about companies that supply rental housing? Do you exempt them too?

And, suddenly we end up in a mess where certain entities are favoured over others and property will accumulate in an undesirable way.

I'm sorry, I just don't follow your reasoning. If overnight the government passed a rule that said nobody can own more than one house, you'd suddenly have a huge number of houses for sale and a huge number of former tenants who now needed a place to live. The logical assumption is that the majority of these former tenants would then purchase one of the hundreds of thousands of now-available houses, and probably be very happy about it. So where exactly does the shortage come from? Do you really think there are going to be ex-renters choosing to live on the streets when they could just take their old rent money and pay a mortgage on their own home with it?

Yes, of course there are some people who don't want to buy a house no matter the price/ease of doing so - international visitors, students from out of town, people who plan to leave the country in the short to medium term, people who want the flexibility of being able to pack up and leave whenever they want. Obviously we will always need some supply of rental properties to meet this need. However it's my strong belief that these people are a small proportion of the overall population of renters, and most current renters would buy a house tomorrow if they were able to do so.

If there's a convincing argument for why having the majority of housing stock owned by landlords rather than occupants is a good thing, I'm yet to hear it. Presumably you also think the country would be better off if car investors owned 60% of the nation's car fleet and leased them to the rest of us. This is more economically efficient, because some people don't even want to own their own cars, and they really like the flexibility of renting! Or something.

andrew027:

There has to be a pool of rental property in the market. Just saying "people start to buy their own homes" isn't realistic. The solo mum who's one of my current tenants, working part time and studying at polytech, she's not going to be able to afford a house of her own any time soon. Where should she live - give up her study and move back in with Mum and Dad in an even smaller town with even fewer job prospects?

I love this. Create a system where people can't afford to buy their own homes because the investors bought them all first. Then claim you're doing them a favour by taking their rent, because they couldn't afford to buy anyway.

darkasdes2

428 posts

Ultimate Geek

#1599024 26-Jul-2016 13:40

allio:

surfisup1000:

Well , investors would stop buying rentals as they are only allowed 1 house.

So, as the population grows there would be no people or companies supplying the rental market so over time there would be huge shortages.

Even now there are shortages, as evidenced by rising rents.

The governemnt would be forced to sell all of their housing stock (they are only allowed 1). But, you may make an exception for government. Then, what about companies that supply rental housing? Do you exempt them too?

And, suddenly we end up in a mess where certain entities are favoured over others and property will accumulate in an undesirable way.

I'm sorry, I just don't follow your reasoning. If overnight the government passed a rule that said nobody can own more than one house, you'd suddenly have a huge number of houses for sale and a huge number of former tenants who now needed a place to live. The logical assumption is that the majority of these former tenants would then purchase one of the hundreds of thousands of now-available houses, and probably be very happy about it. So where exactly does the shortage come from? Do you really think there are going to be ex-renters choosing to live on the streets when they could just take their old rent money and pay a mortgage on their own home with it?

Yes, of course there are some people who don't want to buy a house no matter the price/ease of doing so - international visitors, students from out of town, people who plan to leave the country in the short to medium term, people who want the flexibility of being able to pack up and leave whenever they want. Obviously we will always need some supply of rental properties to meet this need. However it's my strong belief that these people are a small proportion of the overall population of renters.

If there's a convincing argument for why having the majority of housing stock owned by landlords rather than occupants is a good thing, I'm yet to hear it. Presumably you also think the country would be better off if car investors owned 60% of the nation's car fleet and leased them to the rest of us. This is more economically efficient, because don't you know that some people don't even want to own their own cars, and they like the flexibility of renting! Or something.

andrew027:

There has to be a pool of rental property in the market. Just saying "people start to buy their own homes" isn't realistic. The solo mum who's one of my current tenants, working part time and studying at polytech, she's not going to be able to afford a house of her own any time soon. Where should she live - give up her study and move back in with Mum and Dad in an even smaller town with even fewer job prospects?

I love this. Create a system where people can't afford to buy their own homes because the investors bought them all first. Then claim you're doing them a favour by taking their rent, because they couldn't afford to buy anyway.

I totally agree with this.

Yes, there may need to be some houses available for rent and maybe something like people could own 2-3 houses but not companies nor foreign investors.

MikeAqua

7779 posts

Uber Geek

#1599031 26-Jul-2016 13:57

allio:

If overnight the government passed a rule that said nobody can own more than one house, you'd suddenly have a huge number of houses for sale and a huge number of former tenants who now needed a place to live. The logical assumption is that the majority of these former tenants would then purchase one of the hundreds of thousands of now-available houses, and probably be very happy about it. So where exactly does the shortage come from? Do you really think there are going to be ex-renters choosing to live on the streets when they could just take their old rent money and pay a mortgage on their own home with it?

I suspect this would be self defeating and very rough: -

- House prices would decrease - dramatically,

- Many households would then have negative equity,

- Banks would have then problems with collective house value as a proportion of lending,

- Bank deposits may decrease as well, so banks could have less money to lend,

- On balance banks may struggle to lend to tenants wanting to buy a house (even at bargain basement prices).

How do you even force someone to sell a house - what constitutes a reasonable value and time frame to sell?

Mike

sir1963

3260 posts

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#1599034 26-Jul-2016 14:07

Aredwood:

Biggest problem is the fact that you can buy an investment property, rent it out. If the rent doesn't cover the mortgage and other property expenses, meaning you have to contribute some of your wages to cover the mortgage. This means you make a loss on the property which can be offset against the tax you paid on your PAYE job. This tax refund is essentially free money. Which means you still get a benefit from owning a rental property even if there is never any capital gains. And the mortgage payments are simply "forced savings".

And under the previous Labour Govt, you could often also qualify for working for families if you previously didn't due to earning too much. National got rid of that in 2008. Which is why house prices went up heaps when labour was in power, but rents didn't go up much. Yet rents started going up more when National got into power. (So higher rents are definitely John Key's fault, for those who like to blame everything on him). But getting rid of that subsidy was still the right thing to do. This proves that tax rules definitely influence rents.

Now the government needs to get rid of that big tax dodge. Due to it causing excessive housing investment as well as not collecting as much tax. Easiest and fairest way of doing that - Outlaw all tax deductions against PAYE income. (Except donations) This is intended to get the desired result without many side effects.

And for taxing capital gains - First of all the ideal tax system is one where all income is taxed equally. And one where taxes don't influence decisions of investment, sales, (Wether or not to buy or sell an asset such as a house) or jobs ect.

How I propose to achieve that - Make kiwisaver operate on a "before tax" basis. Meaning you can contribute to kiwisaver out of your before tax income. But you then pay tax on your withdraws. Allow withdraws to purchase a house tax free if you don't currently own a home (even if you previously did own a home). If you sell a house you can buy another house with the sale money tax free. Or put the entire amount into kiwisaver tax free. This means that you can buy and sell houses, and move money between a house and kiwisaver tax free. But if you spend that money on anything else or gift it to anyone - you pay tax. And if you die, your estate pays tax on the money that gets distributed. (no tax on things like funereal costs and legal fees to manage your estate).

The overall intention of this - tax will eventually be collected on all capital gains. But only when it is eventually spent. This is to stop capital gains tax changing peoples decisions on wether to sell their house or not. And it will mean people selling to move. Or switching between being an owner occupier and renting out their house while they pay rent elsewhere. Wont be penalised. People will be discouraged from withdrawing everything from kiwisaver at once for a big spend up - as they will pay more tax to do so. And to help stop excessive inter generational buildups of wealth. As homeowners can currently gift deposits to their kids (either in cash or via use of equity in the parents property) to allow them to buy houses at young ages and skip the rent trap. Meaning they also buildup wealth to again pass on in turn to their kids. While those stuck renting are trapped. And only a few can escape.

As the big problem with a simple capital gains tax - is that not as many people sell their houses. As they will have to pay tax if they do. But this causes prices to increase as there are not as many houses for sale. And a capital gains tax that exempts the family home encourages people to over capitalise their homes. And makes it less likely that landlords will upgrade their rental properties.

And this will also mean that tax on a property, will finally be the same as tax on money earning interest in the bank (at least in kiwisaver). As in both cases investment returns can be compounded without paying tax - meaning your investments grow alot faster. And you only pay tax when you decide to spend that money. So will encourage more savings.

There is still the problem of restrictive planning rules making houses harder to build. And more expensive than they need to be (which is a separate but still very big issue, That I also have ideas on how to solve). And any changes to discourage property investment will cause rents to rise. Until the property market and wider economy rebalance.

So what do you think - any big problems apart from people who currently own property not wanting to pay tax? Or should I start my own political party?

And you are wrong.

If you make a $10,000 loss on your properties, you can claim the tax back that you would have paid, i.e. about $3,000. That means you are still out of pocket by $7,000, hardly free money. Most properties also end up in profit within 10 years or so and so pay taxes and ACC. But then lets look at the forced insulation of rental properties, costs thousands, its capital works and is therefore NOT tax deductible. And because home rentals can no longer depreciate the building (unlike other businesses ) its all out of pocket expenses.

Working for families...WTF ???? there is no correlation or causation there at all. You may as well have said 2012 was a leap year.

So far all you have done is push investors out of the property market, who is going to supply rental houses ? We already have people who can not find a place and you want to make it harder ? All that is going to do is either raise rents higher, or push the quality / size of houses lower.

But lets look at your local supermarket as a comparison. They can depreciate the building, housing landlords can't.

They pay pretty much minimum wage, those workers pay typically less than 10% taxes. However the business can deduct that by 30%. So for every $1 the government gets from the workers they gain $3 less from the supermarket. This is true of all minimum wage employees. Over all a $2/hr loss to the government.

Kiwi saver... who the hell is going to administer all of that ? Thats going to add millions in compliance costs, fees that kiwi save will charge out to everyone.

The wealthy on the other hand will find all sorts of ways around this. A business owning the property, a trust owning the property.The wealthy also dont need to borrow money, they can buy with cash. So you are on one hand preventing people on lower incomes from investing in an area while allowing the wealthy free reign. The wealthy can also invest in paintings/art etc etc etc and make capital gains all tax free.

WTF about not selling homes is a problem... if you sell one you need to buy one. So whether they sell or not does not ultimately impact the total pool of excess houses.

Landlords are a business, they are not just going to upgrade houses unless it is cost effective to do so, and everything you have suggested reduces that meaning LESS investment, fewer rental houses, higher rents, more homeless people. Worse, areas with higher unemployment will have even less investment.

sir1963

3260 posts

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#1599038 26-Jul-2016 14:12

surfisup1000:

sbiddle:

It's all too logical. That means there is no chance of any political party even considering your ideas.

The biggest thing that annoys me about property is the totally misguided belief by so many people that a CGT will instantly fix the problem when there isn't evidence from any country in the world to suggest this would work. A CGT should exist because the tax system should treat all income fairly, but those who think a CGT will suddenly fix things overnight live in a fantasty world.

The biggest problem now is pricing crashing are going to have such a massive effect across the economy.

We must have a CGT (on all property), or a land tax.

Simply to broaden the tax base such that all asset classes have similar tax implications.

Nothing to do with house prices, but it could have a side effect of moderating prices.

Incidentally, you have no proof that CGT does not dampen price increases. If Australia did not have a CGT then I believe their house prices would be even higher than they are now. You cannot really prove it one way or another though.

We do have land tax, its called Rates.

Its not just Australia that has CGT and it has NOT solved the problems in those countries either.

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