Housing crisis!

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#868691 30-Jul-2013 16:38

KiwiNZ:
ajobbins:
kiwirock: They way I see it, baby boomers are starting to retire. Soon they're gonna have to give up housing investments to pay for hips or medical treatment etc... if they don't want to be on a public waiting list. So there'll eventually be more homes back in the market to buy. Sure some have health insurance, but that will become expensive as a lot of the population age. The population is increasing, but a fair amount of it in 10-25 years is also going to disappear and a lot retiring.

The baby boomers are the biggest group (of voters). Therefore, any prospective governments tend to do well with policy targeted at the boomers. I expect to see even more tax dollars pumped into funding what they feel they are entitled to in order for government of the day to win and retain power. Not to mention half of the big two parties probably fall into the boomer generation themselves.

Many (most?) of the boomers:
- Got a 100% free education.
- Had government assistance getting into their first homes.
- In many respects enjoyed labour conditions far better than what are on offer today.
- Have been able to accumulate wealth through property essentially tax free.

Now, many expect to retire and be taken care of the government for decades to come. Modern medicine means they are living longer than ever, and the current tax payers are funding it. Most people retiring around now will cash out more from the tax system than they ever put into it during their working life.

Would you prefer that now they have 'finished contributing' that they do the decent thing and die?
The baby boomers as you put have funded the retirement of previous generations by repaying debt via taxation and asset sales, funded the current pensions and have funded their own future pensions.

Nope.

Same way as the baby boomers paid for the pension of their parents, it is the children of baby boomers that will pay for the baby boomers' pensions. The proverbial will hit the fan when the baby boomers reach retirement age, as the ratio of taxpayers to pensioners balloons out. Fewer taxpayers paying for more people on pensions = generation Y chained down with government debt to fund their parents' pensions. It's going to be fiscally ugly.

nate

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#868697 30-Jul-2013 16:43

ajobbins: Well, the reason why CGT is so unpopular is because so many people own MULTIPLE homes. Treat these like any other investment and pay CGT - but not on the family home.

Why not on the family home as well? (not picking apart your argument, just curious as to why the family home is always excluded)

macuser

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#868714 30-Jul-2013 16:47

nate:
ajobbins: Well, the reason why CGT is so unpopular is because so many people own MULTIPLE homes. Treat these like any other investment and pay CGT - but not on the family home.

Why not on the family home as well? (not picking apart your argument, just curious as to why the family home is always excluded)

Probably because a family home is not traditionally an investment, and isn't tax deductible like an investment property. That said, I'm not an accountant...

jonherries

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#868719 30-Jul-2013 16:53

graemeh: This is not true. Other investments do not have to pay tax on a capital gain.

I am not sure you are entirely correct:

http://www.goodreturns.co.nz/article/976485506/capital-gains-tax-the-new-zealand-case.html

This is quite a good piece on the current legisalation. IANAL, however essentially if you are buying stuff (property or shares or other financial instruments) with an intent to accrue Capital Gains your income from that is taxable.

Whether this amounts to tax avoidance or tax evasion is a pretty grey line in NZ and I think that any CGT will be merely tweaking these definitions.

HTH,

Jon

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#868723 30-Jul-2013 16:55

What crisis?

As I'm in Christchurch I can't talk about the Auckland market but if I do a quick and dirty search on trade me there are oodles of properties in Auckalnd for less than $300k. For example, theres a 4 bedroom 2 bathroom in Saint Johns going for $179,000

jonherries

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#868727 30-Jul-2013 16:59

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=10903822

Re: the conversation about the baby boomers and paying for their retirement, Mary Holm wrote a nice rebuttal to the don't change the retirement age argument a few days ago.

Long story short, a micro-economic perspective doesn't translate to macro-economics. Two key concepts in this space are: ecological facllacies, and the paradox of thrift.

Jon

jonherries

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#868732 30-Jul-2013 17:03

minimoke: What crisis?

As I'm in Christchurch I can't talk about the Auckland market but if I do a quick and dirty search on trade me there are oodles of properties in Auckalnd for less than $300k. For example, theres a 4 bedroom 2 bathroom in Saint Johns going for $179,000

From what I understand Auckland has a lot of properties with land leases. Ie. you are buying the house and the right to rent the land. There have been a number of big cases recently where land rents have "unexpectedly risen" forcing out house owners...

The apartment complex across from Victoria Park in town is the classic example (apart from it leaking as well I think).

http://www.stuff.co.nz/business/4897248/Leasehold-ground-rent-strife-brewing

Jon

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ajobbins

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#868739 30-Jul-2013 17:12

jonherries:
minimoke: What crisis?

As I'm in Christchurch I can't talk about the Auckland market but if I do a quick and dirty search on trade me there are oodles of properties in Auckalnd for less than $300k. For example, theres a 4 bedroom 2 bathroom in Saint Johns going for $179,000

From what I understand Auckland has a lot of properties with land leases. Ie. you are buying the house and the right to rent the land. There have been a number of big cases recently where land rents have "unexpectedly risen" forcing out house owners...

The apartment complex across from Victoria Park in town is the classic example (apart from it leaking as well I think).

http://www.stuff.co.nz/business/4897248/Leasehold-ground-rent-strife-brewing

Jon

Leasehold is right. The $179,000 property you quote is on leasehold land. Therefore you're basically paying rent and a (albeit) smaller mortgage.

Problem is that when property values accumulate, it's the value of the land that's going up, not of improvements on the land (unless you improve them further), so buying a leasehold property wont net you anywhere as much of a return, and you will find it harder to borrow against for the same reason.

Similar story applies to apartments. Most banks have much higher deposit requirements for apartments as you essentially don't own the land. You kind of indirectly do, but if you have a 50sq/m apartment in a 10 story high building, your share of the land your apartment sits above is about 5sqm - so your property will increase in value at a much lower rate than it would if it was on it's own land.

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blackjack17

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#868772 30-Jul-2013 18:23

minimoke: What crisis?

As I'm in Christchurch I can't talk about the Auckland market but if I do a quick and dirty search on trade me there are oodles of properties in Auckalnd for less than $300k. For example, theres a 4 bedroom 2 bathroom in Saint Johns going for $179,000

That place would be a lease hold where you can pay in excess of $30,000 a year in land rent.

People always say "what crisis, trademe shows 100s or 1000s of places for less than $300,000.

And yes it does, however 90% (made up percentage) are auction or tender which always results in the property going way higher. Also most of these are apartments. I have nothing against apartments, I actually really enjoy living in them overseas, however in my experience in new zealand they are poorly designed, sound proofed and small for the price. Apartments and townhouses can also have massive bodycorp fees, plus banks want up to 50% deposit

The housing market in Auckland is rough esp if you don't want to spend an hour+ a day commuting

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ajobbins

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#868793 30-Jul-2013 18:31

macuser:
nate:
ajobbins: Well, the reason why CGT is so unpopular is because so many people own MULTIPLE homes. Treat these like any other investment and pay CGT - but not on the family home.

Why not on the family home as well? (not picking apart your argument, just curious as to why the family home is always excluded)

Probably because a family home is not traditionally an investment, and isn't tax deductible like an investment property. That said, I'm not an accountant...

This, basically. You need somewhere to live and I'm not convinced you should be taxed on that, but additional property is an investment, for the purposes of a return and should be taxed accordingly.

A CGT along however will not solve the current crisis, but it is a needed step. Supply is also a big issue, especially in Auckland.

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kiwirock

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#868826 30-Jul-2013 19:32

KiwiNZ:
Would you prefer that now they have 'finished contributing' that they do the decent thing and die?
The baby boomers as you put have funded the retirement of previous generations by repaying debt via taxation and asset sales, funded the current pensions and have funded their own future pensions.

I don't know about future pensions. The last time I checked the Government was in deficit of around 70 something billion and growing. That's fine unless we get a good economic curve ball with younger folk like me skipping the ditch if tax goes up and the cost of living and owning a home becomes less of a reality. Or the world economic stage gets worse when the USA start to really rock and roll with their exploding debt bubble.

But the issue is not just the baby boomer generation, the issue is the knock on effect of everything in the coming 10-20 years down the track and how it will all effect the over all picture, long term, something I don't think Government comprehend since it thinks selling assets is better than long term investment and cash-flow. It's not pushing growth and expansion, it's continually finding something to be conservative with under National, like most bean counters, until eventually there's nothing left to strangle because the bean counters ruined innovation and expansion.

But I digress.

What the Government are saying, is the housing market is a bubble bigger than it should be. But in order to bring that back in line, there has to be sacrifice - now that's something they won't out right put in that simplistic wording, that's bad politics but they'll use new terms and phrases to put positive spin on it for voters. This isn't going to come from those that can afford to work around it like those already on the property ladder. It's going to come from those who are already struggling to own their first home.It prices the poorer out of the market and slowing demand where demand is of greater need - those needing to get in to a home, not just selling and buying another or swapping like for like.

I had someone trying to convince me the other day to open a term deposit to help start saving for a house. Except, since about 2006 house prices have doubled again meaning an 8% ROI is a waste of time if a $20,000 deposit needs to be a $40,000 deposit in another 5 years. Even if the housing market does drop or stay flat for the next 5 years which anyone can speculate at the moment, if the lending criteria is then a 20% deposit - we still need a 50% ROI over 5 years to keep pace with the cost of getting a deposit together. That's a huge leap to keep up with. It's got to come from somewhere and it sure won't be from wage increases.

ajobbins

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#868883 30-Jul-2013 21:03

nickb800: Same way as the baby boomers paid for the pension of their parents, it is the children of baby boomers that will pay for the baby boomers' pensions. The proverbial will hit the fan when the baby boomers reach retirement age, as the ratio of taxpayers to pensioners balloons out. Fewer taxpayers paying for more people on pensions = generation Y chained down with government debt to fund their parents' pensions. It's going to be fiscally ugly.

The general attitude of boomers tho is not that they paid for their parents retirement, and now it's their children turn to pay for theirs, but more one of entitlement.

They seem to think that paying tax during their life was a 'savings scheme' for retirement that they now want to cash in on. They don't care/understand that their tax dollars pay for many other things.

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networkn

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#868908 30-Jul-2013 21:29

ajobbins: New Zealand needs a Capital Gains Tax.

LVR will do nothing but make it harder for young people like me to get into the market. People upgrading their house or buying investment properties don't usually have a problem with LVR at all.

Stopping overseas buyers may help a little, but not in a big way, and again, a CGT will help to normalise demand.

Property is generally pretty low risk. Even at 5% deposit, the likelihood of your property loosing enough value for your equity to become negative is pretty low (Aside from a major correction to property prices happening as the result of some intervention - tho this should be a one off adjustment with short term implications).

My suggestion: CGT for anything other than the family home, open up more land in Auckland, plus a government guaranteed equity protection of up to 15% of the purchase price for first home buyers (up to a cap - maybe $500k purchase price). That way, new entrants would be able to get into the market while satisfying lenders risk concerns. Borrowers could then also avoid LVR insurance, meaning they can pump more money into actually paying off the mortgage.

Based on the example above, the governments exposure would be at the very maximum $75,000 (15% of 500k) per property HOWEVER the cases where it would need to be invoked would be minimal, and even where a property had to be sold for less than the outstanding mortgage, it's not likely they would lose the whole lot.

Cost of policy - not that much as mortgage defaults resulting sale for less than mortgaged value would likely be minimal. I'm sure the CGT will more than cover it.
Benefits of policy - Huge. stimulate building industry, young people enter property market and build up equity.

I don't agree with this. Well not all of it. Young people need to understand that to get a house takes sacrifice. Stop buying Iphones, Ipods, Ipads, overseas holidays, expensive cars etc, and SAVE. It's what the rest of us who DID those things have to show for OUR sacrifice. Stop expecting the entire country to subsidise your lifestyle choices.

Stop buying $750K houses right off the bat, buy a 100-150k apartment, pay it off over a few years by putting all your earnings into it, THEN upgrade.

networkn

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#868913 30-Jul-2013 21:31

ajobbins:
nickb800: Same way as the baby boomers paid for the pension of their parents, it is the children of baby boomers that will pay for the baby boomers' pensions. The proverbial will hit the fan when the baby boomers reach retirement age, as the ratio of taxpayers to pensioners balloons out. Fewer taxpayers paying for more people on pensions = generation Y chained down with government debt to fund their parents' pensions. It's going to be fiscally ugly.

The general attitude of boomers tho is not that they paid for their parents retirement, and now it's their children turn to pay for theirs, but more one of entitlement.

They seem to think that paying tax during their life was a 'savings scheme' for retirement that they now want to cash in on. They don't care/understand that their tax dollars pay for many other things.

Of whom do you speak of specifically? I don't know a single person who believes that, in fact I know a number of wealthy boomers who DONATE their pension.

Compare that to Y (hine) generation. Y not me, Y can't I have it now instead of working for it, Y can't I have a 100K job fresh out of college.

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#868926 30-Jul-2013 21:33

A CGT is not something I am against per se, however it needs to be introduced lightly at least at first to Exclude the 1 house you live in (even if you sell it and buy another) and 1 investment property.

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