How I propose to fix the property market.

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5288 posts

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#1599040 26-Jul-2016 14:14

allio:

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?

There would likely be a one-time price adjustment (market crash on the scale never seen before) as basically renters would be virtually gifted houses from the landlords.

High income earners/ entrepreneurs and the wealthy who would find such a communist style property rights grab objectionable and leave the country. The very type of people who innovate and create employment.

Then, as the population increases there will be no houses to rent. People will either be in the streets or living with family and saving for deposits (or on the streets in many cases).

Those with money will not want to build, as who knows what rules may be taken in future to grab their house.

And, successful farmers may no longer be able expand their businesses -- due to the housing rule they will be unable to house their managers/workers. This will lower productivity over the long term as successful farming models are unable to propagate.

Holiday towns may be turned into ghost towns, as houses become derelict and occupied by squatters.

It could be a very bleak future indeed.

Maybe I exaggerate some of the effects, but equally maybe I miss many of the unintended consequences too.

sir1963

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#1599070 26-Jul-2016 14:24

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.

Very very simple.

When you first leave home, can you buy a house ?

Lots of people shift towns as part of their job , and we also have a student population, etc etc etc all whom rent.

If you can only own the house you live in, all those people would live where ?

Or are you suggesting a massive tax increase so the government can buy up the 1/3 of properties that are rentals ?

For example, I have an intellectually handicapped son who lives in a property I own. He has managed independence and works part time pushing trolleys at a supermarket.

I dont want to be 85 years old with a 60 year old son living with us, perhaps you think that Tax Payers should supply him cheap accommodation ?

surfisup1000

5288 posts

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#1599071 26-Jul-2016 14:24

sir1963:

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.

Rates is similar in that it is based on property value but that is about as far as the similarity goes. Rates are used to cover the operational costs of running a city and are not linked to income tax.

A land tax is a government tax and would be used to fund government such as defence, education, healthcare, social welfare etc.

Ideally a land tax would be fiscally neutral ... total income tax would be reduced by the amount of land tax collected.

So really, a land tax is a completely different beast to rates ; other than a passing similarity in the calculation method.

And, where is your proof that a CGT has not prevented even higher house prices in Australia? Maybe, if Australia did not have CGT then their prices would be 50% higher. How can you disprove this?

frankv

5680 posts

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#1599073 26-Jul-2016 14:26

surfisup1000:

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.

Nope, still not buying it.

If taxation changes stopped investors from buying houses, the price of houses would plummet, to the point where owner-occupiers would be able to buy them. Or to the point where investors would still make money renting them out without relying on tax write-offs and untaxed capital gain. By signalling changes well in advance, the Govt could limit the severity of the plummet somewhat.

The demand for rental housing depends on the population of people who can't afford their own home. The reason rents are rising is that less people can afford to buy.

I don't believe that there's many investors building new homes to rent out, but I could be wrong. So I don't think there's much of a connection between the rental market and the rate of house construction. As the population grows, the market for new homes would continue, just as it does now.

We're already in a mess where certain entities are favoured over others and property is accumulating in an undesirable way.

jmh

458 posts

Ultimate Geek

#1599074 26-Jul-2016 14:28

frankv:

jmh:

I don't see any reason why companies or trusts would be exempt - might stop land banking. The exception might be charities.

I wasn't saying exempt... just that their taxation rate is currently lower than highest PAYE rate. A Govt would be inclined to tinker with land tax rates, I imagine.

Making charities exempt would be great for the churches, I guess. And the obvious next thing would be that churches would buy up the land, and then rent it out. A church with appropriate rules would make an even better tax shelter than they are now.

Why do we care if they get rebates outside of NZ? We want people to pay their fair share in NZ to benefit residents in the country - if they get it back overseas that's of no interest to me. Most countries don't do that - the US might because of their global tax status, but most like the UK wouldn't do it.

Why would you care? Because NZ land ownership becomes essentially free to wealthy overseas people. There being a pretty much inexhaustible supply of wealthy overseas people, land prices skyrocket. Oops.

It's been a long time since I cared about this stuff, but in the good old days you were required to declare all your earnings worldwide to NZ's IRD and pay tax to them based on it, less any tax you had paid overseas. I assume it's still the same. I assume that this is pretty common throughout the world. But I have no basis for my assumptions except distant vague memory. Do you have any basis for your assertion that most countries don't do that??

I have no problem with rich people sinking their money into fine art - it has little social cost as far as I can see.

The social cost is exactly the same as sinking their money into real estate without using it... capital is not invested in productive enterprises.

I don't quite see how this makes land free to overseas investors. First they have to buy the land, then they are taxed in NZ. If there is a tax treaty then they will get tax credits for the tax paid in NZ but where there is no tax treaty they may suffer double taxation if the country they reside in taxes global income (not all do). This system means that it will cost more for foreign buyers than it does at present where they pay no tax.

If the land is taxed, and income derived from it is not, then it makes sense to make productive use of the land instead of it sitting there. So, with a land tax it either produces tax for the government to spend on local services or it produces income through productive enterprises.

sir1963

3264 posts

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#1599076 26-Jul-2016 14:35

surfisup1000:

sir1963:

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.

Rates is similar in that it is based on property value but that is about as far as the similarity goes. Rates are used to cover the operational costs of running a city and are not linked to income tax.

A land tax is a government tax and would be used to fund government such as defence, education, healthcare, social welfare etc.

Ideally a land tax would be fiscally neutral ... total income tax would be reduced by the amount of land tax collected.

So really, a land tax is a completely different beast to rates ; other than a passing similarity in the calculation method.

And, where is your proof that a CGT has not prevented even higher house prices in Australia? Maybe, if Australia did not have CGT then their prices would be 50% higher. How can you disprove this?

And maybe if 2012 was not a leap year then prices would not be higher either.

CGT have not solved anything in the UK or the USA , etc either, so the preponderance of evidence is that CGT does not work they way you want.

surfisup1000

5288 posts

Uber Geek

#1599077 26-Jul-2016 14:35

frankv:

Nope, still not buying it.

We'll just have to agree to disagree on this.

I suppose I get some of my views from 'Freakonomics' , which tries to explain how changes can propagate through society in unintended ways.

Sharesies

Trade NZ and US shares and funds with Sharesies (affiliate link).

surfisup1000

5288 posts

Uber Geek

#1599082 26-Jul-2016 14:40

sir1963:

And maybe if 2012 was not a leap year then prices would not be higher either.

CGT have not solved anything in the UK or the USA , etc either, so the preponderance of evidence is that CGT does not work they way you want.

As I said (and you seem to have missed the point), I don't want a CGT or land tax because of house prices. I would like a land tax (preferred) because it would balance the decision making process whether to invest in business or housing.

The effect on house prices is a secondary factor.

Maybe house prices would be higher in the UK and the USA if they did not have CGT, as people divert money from the stock market (which is taxed), into tax free housing investments thus further accelerating house price growth in those markets.

I'm not saying you are right or wrong, just that you have no evidence to back up your assertions ( i have no evidence to suggest you are wrong either).

sir1963

3264 posts

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#1599083 26-Jul-2016 14:41

surfisup1000:

allio:

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?

There would likely be a one-time price adjustment (market crash on the scale never seen before) as basically renters would be virtually gifted houses from the landlords.

High income earners/ entrepreneurs and the wealthy who would find such a communist style property rights grab objectionable and leave the country. The very type of people who innovate and create employment.

Then, as the population increases there will be no houses to rent. People will either be in the streets or living with family and saving for deposits (or on the streets in many cases).

Those with money will not want to build, as who knows what rules may be taken in future to grab their house.

And, successful farmers may no longer be able expand their businesses -- due to the housing rule they will be unable to house their managers/workers. This will lower productivity over the long term as successful farming models are unable to propagate.

Holiday towns may be turned into ghost towns, as houses become derelict and occupied by squatters.

It could be a very bleak future indeed.

Maybe I exaggerate some of the effects, but equally maybe I miss many of the unintended consequences too.

And who compensates the Banks etc who have mortgages ?

And there is no way I would "give" it to any tenant, I would burn the bloody thing to the ground and plant veggies instead.... you know make the land productive.

If the government is going to force house owners into bankruptcy then it would be a BIG middle finger to everyone. Hell I'd quit my job and demand that same government look after me, feed me, house me, clothe me.

sir1963

3264 posts

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#1599086 26-Jul-2016 14:50

surfisup1000:

sir1963:

And maybe if 2012 was not a leap year then prices would not be higher either.

CGT have not solved anything in the UK or the USA , etc either, so the preponderance of evidence is that CGT does not work they way you want.

As I said (and you seem to have missed the point), I don't want a CGT or land tax because of house prices. I would like a land tax (preferred) because it would balance the decision making process whether to invest in business or housing.

The effect on house prices is a secondary factor.

Maybe house prices would be higher in the UK and the USA if they did not have CGT, as people divert money from the stock market (which is taxed), into tax free housing investments thus further accelerating house price growth in those markets.

I'm not saying you are right or wrong, just that you have no evidence to back up your assertions ( i have no evidence to suggest you are wrong either).

WRONG. Businesses invest based on only ONE criteria, can they make money.

Significantly higher taxes did not stop people from accruing significant wealth, neither have wars, civil unrest, left/right governments, etc etc etc.

A CGT will also not stop people from making money from land.

For example, this land crash you want happens. Someone wealthy figures he can buy the cheap houses at a slightly higher price than the tenants, demolish the houses and plant a high value crop will make them money, that is what will happen.

If you plan to take away everyones property rights, then money will rapidly bleed overseas, sort of like how many asians are buying up land in NZ.

sir1963

3264 posts

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#1599090 26-Jul-2016 14:58

surfisup1000:

sir1963:

And maybe if 2012 was not a leap year then prices would not be higher either.

CGT have not solved anything in the UK or the USA , etc either, so the preponderance of evidence is that CGT does not work they way you want.

As I said (and you seem to have missed the point), I don't want a CGT or land tax because of house prices. I would like a land tax (preferred) because it would balance the decision making process whether to invest in business or housing.

The effect on house prices is a secondary factor.

Maybe house prices would be higher in the UK and the USA if they did not have CGT, as people divert money from the stock market (which is taxed), into tax free housing investments thus further accelerating house price growth in those markets.

I'm not saying you are right or wrong, just that you have no evidence to back up your assertions ( i have no evidence to suggest you are wrong either).

Oh and I invested in housing before there was a Kiwisaver.

I also missed the investments in Goldcorp, BlueChip, SCF (all bankrupt), plus I have not paid excessive fees to investment brokers no matter how poorly they did.

Cheap land will only result in more of it being bought by the wealthy, houses knocked down and a more expensive set of properties built to be sold off at a profit.

Or they simply own the land and home owners pay a land lease.

No matter what you try, someone will find a way that benefits them in ways you don;t expect.

surfisup1000

5288 posts

Uber Geek

#1599094 26-Jul-2016 15:04

sir1963:

WRONG. Businesses invest based on only ONE criteria, can they make money.

Significantly higher taxes did not stop people from accruing significant wealth, neither have wars, civil unrest, left/right governments, etc etc etc.

A CGT will also not stop people from making money from land.

For example, this land crash you want happens. Someone wealthy figures he can buy the cheap houses at a slightly higher price than the tenants, demolish the houses and plant a high value crop will make them money, that is what will happen.

If you plan to take away everyones property rights, then money will rapidly bleed overseas, sort of like how many asians are buying up land in NZ.

I object to you making up things that I did not say.

It is a very deceptive approach to invent things I never said and then then make up arguments pretending I did say them.

I did not say a higher taxes stop people from accruing wealth. In fact, Australia has a CGT and some people still make a lot of money from property.

And, where did I say I want to take away peoples property rights? Or, that I want a land crash?

As for your assertion that rich people will buy houses, demolish them, and plant crops... I've really never heard anything more ridiculous .

And, you seem to have something against asian people too.

allio

885 posts

Ultimate Geek

#1599096 26-Jul-2016 15:11

surfisup1000:

There would likely be a one-time price adjustment (market crash on the scale never seen before) as basically renters would be virtually gifted houses from the landlords.

High income earners/ entrepreneurs and the wealthy who would find such a communist style property rights grab objectionable and leave the country. The very type of people who innovate and create employment.

Then, as the population increases there will be no houses to rent. People will either be in the streets or living with family and saving for deposits (or on the streets in many cases).

Those with money will not want to build, as who knows what rules may be taken in future to grab their house.

And, successful farmers may no longer be able expand their businesses -- due to the housing rule they will be unable to house their managers/workers. This will lower productivity over the long term as successful farming models are unable to propagate.

Holiday towns may be turned into ghost towns, as houses become derelict and occupied by squatters.

It could be a very bleak future indeed.

Maybe I exaggerate some of the effects, but equally maybe I miss many of the unintended consequences too.

Tthe "overnight" aspect was an exaggeration for simplicity. If such a change was ever going to happen in reality it would take place over decades to avoid shocking the market. Probably existing owners would be grandfathered from having to sell until they die.

As for your "the wealthy would all leave, leaving the wretched poor to eat each other" theory - what a load of crap. Anyone who'd leave the country because they weren't allowed to keep a residential property portfolio won't be missed.

"Holiday towns may be turned into ghost towns" - ever been to Pauanui in winter?

For what it's worth, I think a flat ban on owning more than one property is a terrible idea. For starters, it'd be totally unenforceable as people would just register ownership in the names of family members. However we absolutely need a tax/policy structure in place that gives progressively less and less incentive to acquire multiple properties. You and I actually agree that a land tax is the best solution.

darylblake

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#1599097 26-Jul-2016 15:12

I have a short write up I wrote a couple of days ago. Ill post it tonight. But that rebate made it either worthwhile putting an extra $200k into the housing market or investing it elsewhere. Its on my PC at home, will post it in here tonight.

Also ponder this.. If they introduce a CGT, then should they introduce a Loss Rebate?

mattwnz

20164 posts

Uber Geek

#1599108 26-Jul-2016 15:29

There are so many problems with the property market in NZ, it would be a huge list. I will list a few other reasons apart from the mainstream ones.

(1) Real estate agents commissions and methods - They charge a large commission, often far larger than other countries such as the UK. Every time a house sells, you are adding on about 4% to the price of the property just to cover agents fees. So the price each time the house sells is going to have to go up by at least this amount to cover that fee. Then the methods used solely benefit the seller, so the highest price possible is paid. eg Auctions in a property bubble mean houses people are outbidding each other up to their limit. Tenders are worse for buyers. Banning auctions and tenders in a property 'crisis' I think could have a benefit to house prices.

(2) Kiwisaver - It may sound like a great thing that we can withdraw our kiwisaver money to put towards a house. The problem is that everyone else can do it. This means that you have more money in total to put towards that house, and so does everyone else. This just pushes prices even higher, because people are paying up to what they can afford to pay. Same thing with reducing interest rates, it just pushes up house prices becuase people can afford to pay more. So really all that money you have put into Kiwisaver is getting wasted on pumping up the bubble. If the bubble does burst and people get into negative equity, then many are really going to regret withdrawing their kiwisaver money to buy their house.

(3) Expensive building materials - It is well known that we pay a lot more for building materials in NZ. This is largely because of the lack of competition in the market. Builders also get perks for using certain brands of materials. Unfortunately there have been very little done about this. I don't know why, because it is regularly discussed in the media in cycles. As a result to build a good quality house on a good sized section you are easily paying half 500-600k. I am also talking about a good quality house with good quality fittings and finishes, and not the lowest spec stuff. If the country setup a Kiwibuild division, like is proposed for building of state houses, they could also buy materials from overseas in bulk and people could use these to build their own houses. I imagine the savings would be significant. If you really shop around, you can save up to 50% on materials in NZ by shopping around and buying end of line stuff (I know because this is what I have been doing on a new build).

When you have the CEO of NZs largest bank coming out and saying there is a problem, it is time for the politicians to act. But National still claim there is no property crisis. Even though it seems that pretty much everyone else says there is. This really shows they have either lost touch or they are in denial.

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