Housing crisis!

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Networkn
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#869162 31-Jul-2013 11:26

stevenz:
KiwiNZ:
nathan: We should have a comprehensive capital gains tax, with no exemptions, including the family home. To discourage tax avoidance

Then income and company tax rates must drop by the equivalent amount

Capital gains tax stifles investment and will remove what little venture capital is made available in New Zealand. It also reduces fiscal growth and will reverse small gains of a CGT. The best way to fund retirement cost is economic growth, grow the economy, eliminate unemployment thus increase the tax take.

But is a CGT the lesser of two evils?

Improving the economy at all costs and to hell with the people in it looks to me to be the reason we're in this predicament in the first place. In a fair world an improving economy would lead to increased incomes for those at the bottom of the food chain, but it doesn't seem to happen, the people running the show just get nicer cars.

Gee and the poor have NO responsibility themselves for dealing with the situation? Cmon dude. I came from an extremely poor family, where no-one for 3 generations had gone passed high school level education, or owned property. We were as a family largely dependant on welfare and the entire eco system was the poor me's etc.

I woke up one day and thought I no longer wanted to live life like that, and I now have a successful business, I am educated (relatively), but 90% of it has come from extremely hard work (I used to regularly work >100 hours a week) and a motivation to succeed. I didn't get any handouts I can assure you.

I own my home but make no mistake, to do it I made a lot of sacrifices (I continued to work those hours through 6 weeks of daily radiotherapy). My wife and I were apart 25 days from 30 for a year and a half (and apart other times for lesser lengths) to put a dent in our mortgage in our first 2 years.

There are SOME true hard luck cases in New Zealand, and there will always be poor in every place, but it's in most cases a choice.

You compare that story to that of other members of my family, who are still tied to the welfare system when they shouldn't be and it's hard to have sympathy. I do understand where they are at, I used to have that attitude. (You get it from being around it your whole life since you don't know anything else).

crackrdbycracku

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#869172 31-Jul-2013 11:34

Interesting opinions all round.

My take is that first the 'what' should be addressed and then the 'how' after that. It will always be political/ideological because that is the way things are.

So, the 'what' is this. In a perfect world 40% of an average wage/salary (20% of two average wage/salaries) over five years should yield the deposit for the average house, a further 40% of the average wage/salary over 15 years should pay the house off. Sure, there will be regional variation but this should be the starting point.

If we, the people, can't make this deal with ourselves then we need to give up on the idea of home ownership and build policies around that. Currently our retirement system assumes a mortgage free house.

Now the 'how'. We need to make investing in property unattractive. We need to disadvantage those who have and want to buy a second property and advantage first home buyers. Make tax on second properties ruinous, and make property investing cost more than the investment. Advantage the building of 'first homes'. Building a house is cost plus a profit percentage so most new homes are not good first homes, there is more to be made on building bigger homes, do something to address this.

Make policy which actually lowers property values. Too bad if you have put your life savings into property, sometimes things fair means you suffer.

I think there will come a time when the electoral balance actually favours this due to changing demographics.

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ajobbins

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#869213 31-Jul-2013 12:25

KiwiNZ: Capital gains tax stifles investment and will remove what little venture capital is made available in New Zealand. It also reduces fiscal growth and will reverse small gains of a CGT. The best way to fund retirement cost is economic growth, grow the economy, eliminate unemployment thus increase the tax take.

This is a common line you hear in arguments about changing tax rates but is a fallacy that has been disproved multiple times. Just becuase your real return is less (because you are paying less tax), doesn't mean people stop or slow their investing. In fact there is evidence to show that investment actually INCREASES when you raise taxes (Look at what happened in the US under Clinton when taxes were raised). Logic for this (at a guess) is probably that investors pump in more to try and replicate the gains they were getting previously. Investors always want to grow their portfolios, they may just change their mix when rates change. Ie. Someone who has been milking the property market for years because of the tax breaks may instead focus more on the stock market.

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networkn

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#869215 31-Jul-2013 12:28

ajobbins:
KiwiNZ: Capital gains tax stifles investment and will remove what little venture capital is made available in New Zealand. It also reduces fiscal growth and will reverse small gains of a CGT. The best way to fund retirement cost is economic growth, grow the economy, eliminate unemployment thus increase the tax take.

This is a common line you hear in arguments about changing tax rates but is a fallacy that has been disproved multiple times. Just becuase your real return is less (because you are paying less tax), doesn't mean people stop or slow their investing. In fact there is evidence to show that investment actually INCREASES when you raise taxes (Look at what happened in the US under Clinton when taxes were raised). Logic for this (at a guess) is probably that investors pump in more to try and replicate the gains they were getting previously. Investors always want to grow their portfolios, they may just change their mix when rates change. Ie. Someone who has been milking the property market for years because of the tax breaks may instead focus more on the stock market.

Haha, by "milking" do you mean successfully investing?

crackrdbycracku

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#869230 31-Jul-2013 12:35

networkn:

Haha, by "milking" do you mean successfully investing?

Yes, in the sense that the property market does not have the same taxation as other uses for investment money.

Laws change.

Many economists have said that the New Zealand economy is hampered because people invest in property rather than in companies which generate a return for the economy as a whole.

It is probably a good idea to do something to address this. Yes, people who have a lot of money already invested in property will loose out but that's how things go. There are always winners and losers.

Sooner the better, no pain no gain.

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crackrdbycracku

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#869235 31-Jul-2013 12:40

By the way I would like to thank everybody on this thread for expressing their opinions in a forthright manner without degenerating into personal attacks or going wildly off topic.

Thanks guys and gals and whoever else.

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ajobbins

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#869247 31-Jul-2013 12:50

crackrdbycracku:
So, the 'what' is this. In a perfect world 40% of an average wage/salary (20% of two average wage/salaries) over five years should yield the deposit for the average house, a further 40% of the average wage/salary over 15 years should pay the house off. Sure, there will be regional variation but this should be the starting point.

Yep, that sounds about right. In 2012, the median weekly income from salary/wages (account to Stats NZ) was about $800. Assuming a 2% kiwisaver contribution and a student loan, the net amount you get in the hand is about $615/week.

40% of that would be about $245 a week, so 5 years of saving at that rate would give you about $63,000 in savings. Lets assume some interest and that your income pay increase during that time and call it $70,000.

The problem is, that at the rate that property prices are rising, your savings can't keep up. While $70,000 might get you the deposit on a low end Auckland home today, in 5 years you might need $100k for the same property...or more. That's also assuming you're both in work the whole time. Youth unemployment is sky high, so if one of you happens to get made redundant or can't find a job, you'll probably have to spend some of those savings and go backwards.

Neither my parents nor my grandparents had to save for anywhere near 5 years for the depoists on their first home (My grandparents the least. They had 3% State Advances Corporation loans and something in the order of £1000 kick start from the government). At the time, the average house price was something like 3x the average annual income. These days it's somewhere around 6x I believe (can't remember where I read that). And Auckland is even worse.

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TwoSeven

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#869255 31-Jul-2013 12:57

The way I see things is that we need both a housing market and a rental market.

The NZ population isn't 2 million any more and the cities have become quite dense population wise so land availability is realistically a high demand resource. Given this I think the government should be changing the market so that rental is seen as an ideal long term thing (overseas one can rent properties long term where here I think it appears to only be seen as a short term thing). Perhaps a person might spend $20k on a long term [5 year] lease and if moving be able to sell the remaining portion of the lease on the market. This has the benefit of being able to fix the rental rate and give some security if the owner sells up (the new owner still has to honour the lease).

From an investment point of view, each house taken off the market and turned into a rental property increases the demand (and the price) for the remaining stock of houses available for residential purchase given the same population base. I think it is important to allow a mix of both rental and residential but as to what percentage in each the split should be I don't know.

We can put a tariff on foreign ownership of rentals that I think will put a brake on conversion of residential homes to rental properties which over the long term will have a slight easing effect. However I am not sure how they will apply the same tariff on managed funds buying rental properties which is another way of doing thing.

I think Labour are in the ballpark of saying that a house is a NZ asset and therefore needs to be owned by a resident. What that resident does with it (rental or residential) is up to them. This I think would reduce people trading on currency and international money rates (e.g. they borrow money in country A where the rate is 2% and purchase in country B where the rate is 5% - since I suspect that the local market might have to offset the local borrowing rate and dictate the market rental rate, the ROI would I think be larger).

I am not sure I agree with capital gains tax as to me it appears to be a penalty tax and if implemented I think that the market adapt (the price will fluctuate briefly and then return to what the market can afford but the demand will still be the same). The counter argument is that we should be paying tax on all income so the profit on the house needs to be taxed. Perhaps so, but also equally perhaps not on the primary dwelling. This would allow people to get ahead by buying, doing up and selling their primary house - but secondary houses such as holiday homes and rental properties (where the objective is for economic return) probably should be taxed.

Just my thoughts.

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crackrdbycracku

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#869263 31-Jul-2013 13:07

@ajobbins

I agree. Part of the 'what' is that the percentages and time frames need to stay constant over time. 40% of the average income for the past five years wouldn't get you a deposit today.

A mechanism to keep pace with property markets needs to be built in.

Which brings us to the 'how'.

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minimoke

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#869265 31-Jul-2013 13:09

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

OK, so I’ve tried to distil the general thoughts over the last few pages. And:
- People don’t want to buy leaseholds
- People don’t want to buy apartments
- People don’t want to buy long commutes in Auckland
- Varsity grads want to buy.
- No reported problems in places other than Auckland
I think we can take the housing crisis to be one of a crisis in Auckland. It is one based on unrealistic desires by the potential buyers.

So what are the remedies.

- People in general need to be told owning a house is not a right. It is an earnt privilege
- People need to be told if you want a freehold house in a big city within a 15 minute commute without a large income you are going to be tough out of luck.
- Stop investing in long term infrastructure (Motorways / Trains) in Auckland. Create an environment where the supply of labour dries up and forces employers to locate their work in other centers. Take the demand out of the equation.
- Remind people property is generally seen as a ladder – and to get to the top you have to handle the first rung.
- Renting is a perfectly respectful life style. Home is where you make it – be it a freehoild house, a rental, an apartment or a van in a trailor park. And somewhere else I might argue that it makes better financial sense.
- Let risk takers manage the risk. If people want to buy into an inflating market and if banks want to lend with small asset ratios let them do so. A few hard lessons will bring a sense of equilibrium to the chaos.
- Promote the limitation of pets – these creatures create problems in the apartment and rental markets.

Oh – and if I look at the median sale prices June 2010 compare with June 2013 Auckland has gone from $445k to $555k. Clearly the problem is an Auckland one.

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#869270 31-Jul-2013 13:15

minimoke:

Oh – and if I look at the median sale prices June 2010 compare with June 2013 Auckland has gone from $445k to $555k. Clearly the problem is an Auckland one.

The other thing that I am not sure if it has been noted, but many people have moved out of christchurch up to auckland, which has also led to the house price bubble.

And yes, it is an Auckland problem, as house prices in Wellington haven't risen like that. But becuase the media is now largely based in Auckland, it is seen as a national issue. Perhaps it is more down to poor reporting, as they have probably fueled the crisis too, by implying if you don't buy now you will miss out and be locked out of buying a house forever.

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#869271 31-Jul-2013 13:17

Then maybe the solution is to tax companies more if they move to Auckland, or alternatively tax them less to set up in other centres.

This might help relieve the strain on the Auckland Housing Crisis (lets start calling it that) as well as the general Auckland infrastructure.

mattwnz

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#869274 31-Jul-2013 13:21

kiwitrc: Then maybe the solution is to tax companies more if they move to Auckland, or alternatively tax them less to set up in other centres.

This might help relieve the strain on the Auckland Housing Crisis (lets start calling it that) as well as the general Auckland infrastructure.

That would be a tax nightmare, and would be open to abuse. Eg. An auckland company may move their head office to dunedin for tax reasons, but it may just be a shell for offices in other areas.

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#869276 31-Jul-2013 13:24

While Auckland is the biggest problem for sure, the same applies to the rest of NZ, just to a lesser extent.

The income:house price ratio has been widening across the country and continues to do so.

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kiwitrc

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#869277 31-Jul-2013 13:25

mattwnz:
kiwitrc: Then maybe the solution is to tax companies more if they move to Auckland, or alternatively tax them less to set up in other centres.

This might help relieve the strain on the Auckland Housing Crisis (lets start calling it that) as well as the general Auckland infrastructure.

That would be a tax nightmare, and would be open to abuse. Eg. An auckland company may move their head office to dunedin for tax reasons, but it may just be a shell for offices in other areas.

IRD do audits now, they can easily audit a physical presence. It wouldn't be a nightmare at all. Simple matter of "you are based in Invercargill, you get a XX% rebate on your tax". I doubt any government would have the will to implement it to be honest as vested interest in Auckland would have it shot down in no time, but I haven't seen any other viable ideas so far so why not.

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