Post by Crash Post by Rich80105 Post by Crash Post by Rich80105 Post by Crash Post by Rich80105 Post by Crash
On Fri, 26 Mar 2021 22:35:51 -0700 (PDT), James Christophers
Post by James Christophers Post by Crash
So we finally have an attempt to re-direct how the housing market
works, however Labour have simply taken measures that are not much
better than previous governments.
The popularity of investment in housing simply cannot be countered by
any other form of investment. All of us understand in far more detail
how this investment works and anyone who has significant equity in the
primary residence has the ability to borrow to by another house. The
opportunity to use this significant equity to invest in any other
direction is far more risky and therefore far more limited borrowing
power to invest. There are a lot of other investment options - funds,
shares, starting a new business etc. but buying another house involves
much less risk and making that investment work is far more easily
understood by the investor/owner.
Recent initiatives by the Government to skew the housing market away
from investors to owner/occupiers is a clear admission that Labour
have no clear plan to address the distortion in housing costs that has
continued over the last 30 years or so. It is of particular concern
to me that Labour have decided that interest costs, which are a
legitimate cost for businesses that have debt, cannot be included as
an expense when calculating taxable profits where the business owns
residential rental housing. In all other circumstances, interest
costs are an allowable expense.
Some property investors will inevitably sell down some of their
properties to clear debt. This will mean renters tossed out in favour
of the new owner/occupier. Other Landlords will simply increase the
rent to cover the loss of interest as a deductible expense. The
inevitable result is that renters lose one way or another.
So how does this fix the housing crisis? It does not.
That said, what will? And after at least 30 years of successive half-pie, no-clear-plan governments knowingly ostriching over a growing multi-faceted problem, why should this particular government now be expected to have all the answers? As for New Zealand's "government - skulking? - in waiting", would you, or anyone else for that matter, even give 'em the time of day?
"Yeah - nah - she'll be right."
Previous governments ignored the problem or did nothing. This
government made the claim that they had the answer.
They said they regarded it as a problem and would do some things about
it, but I don;t recall any claim that they ""had the answer"" - can
you provide a cite?
Are you seriously suggesting a political party will acknowledge a
problem but not have the answer? Labour have acknowledged the problem
in their 2020 manifesto: https://www.labour.org.nz/policy. Click on
this link then click through to the manifesto - housing is covered on
page 13. The headline is "Ensuring every New Zealander has a warm dry
Acknowledgement that there even was a problem was a significant
difference between the major political parties, and of course neither
of those parties, or the smaller ones, had "the answer" - to expect a
single answer to such a complex problem is to not understand the
nature of the problem.
"Ensuring every New Zealander has a warm dry home" is in part a
different issue - but the resolution of that issue has an impact on
both landlords and tenants, and on the difficulties of any
one-dimensional view of the housing problems. Of course there are
conflicts - real change will require changes in investor and tenant
expectations, but as a country it is not unreasonable for us to
tolerate some of the conditions inwhich years of worsening housing
supply have led some families and individuals.
"ensuring every new Zealander has a warm dry home" is clearly a
reference to the housing market - it cannot be anything else. For
those who don't have a 'warm dry home' one has to be found or built.
Post by Rich80105 Post by Crash
Click on 'What's Labour doing to tackle the housing crisis?. Under
'Helping to tip the balance in favour of first home buyers' they
describe the removal of a 'loophole' that allowed property speculators
to claim interest costs on business debt as a deductible business
And indeed it was ''helpng to tip the balance'' - anyone reading that
woud know that sucess depends on reasonable actions from others, and
other actions over time.
Is it reasonable to specifically target residential property investors
by disallowing the cost of interest as a part of calculating taxable
income, where every other commercial enterprise is permitted to do so?
Yes - we have different regulations for different sectors. We do not
apply banking regulations to other companies for example.
Banking regulations are industry-specific (apply to all banks).
Residential property investors who buy an existing home are being
targeted by removing the ability to claim interest as a deductible
business expense. Residential property investors who invest in new
builds, along with all other forms of commercial enterprise continue
to be able to claim interest as a deductible business expense. This
limitation on claiming interest as deductible business expense is
therefore not equivalent to industry-specific regulation. It targets
owners of a specific asset class.
Many buildings could be used for rental accomodation, but in fact only
a small proportion are - those are owned by the rental accomodation
industry, and the provisions only apply to that industry.
Post by Crash
Good luck to the IRD trying to figure out the tax return of a property
investor who owns existing residential rental properties, and then
buys more existing and new residential builds. The properties they
own today have a phase-in period (4 years?) for the removal of
interest as a deductible expense, the existing properties they buy
from now on have no interest deductibility but the new builds they buy
today do. I am glad I am not involved in testing the new software the
IRD will need to get this right.
The actual number of sales is relatively low - given that all sales
are recorded it is not difficult to track when any particular property
was purchased and when it is subsequently sold.
Post by Crash Post by Rich80105 Post by Crash Post by Rich80105 Post by Crash
Labour have been unable to specifically target property speculators,
but have targeted all who own residential rental properties. Interest
costs on business loans is a legitimate expense that all businesses
can claim as part of their tax return - except now not for those who
have debt against a rental property. No loophole has been closed -
tax deductibility has been removed for a targeted sector. There is
credible evidence that owners of rental properties will sell some of
their properties either to exit residential property or to reduce
their rental property indebtedness. So renters will be given 90-day
notices because the property will then be put up for sale unencumbered
by a tenant, so that a first-home buyer can buy it.
It has been clear for many years that laws relating to property have
led to an expensive distortion of invesmtnet markets,
1. We understand how rental housing works in far more detail than any
other form of investment. Most of us start our working or student
lives as renters, then as time goes on we become property owners.
2. Mortgage finance is easily accessible once a property owner has
significant levels of equity. Much of that equity was never earned
but came about with house price inflation.
Name any other form of investment that delivers like this. There is
none. The best that can be hoped for is that instead of investing in
residential property, investors will turn to other forms of real
estate despite not being that familiar with how it works.
This has nothing to do with laws or tax, though there have been some
tax advantages to residential property investment in the past that
were addressed by the advent of the 'bright line test' that ensured
that capital gain from houses but and sold in the short term was
deemed taxable income.
The ''bright line"" test did not change the tax laws - just whether
the IRD were forced to make an assessment, and also the default
presumption for the result of that test.
Post by Crash Post by Rich80105
leading to an
emphasis on property investment to the detriment of business, and to
housing stock designed for those with more money than average rather
than for all New Zealanders. Of course those most advantaged by the
unsatisfactory situation will protest about losing those unfarir
Post by Crash
We are now discovering why past governments (led by both National and
Labour) have passed on housing market regulation.
Exactly - change was always going to be hard - and we now have the
added problems of Covid - with substantial spending (largely agreed by
New Zealanders) which have affected our ability to progress other
issues, and also distrorted our financial position. One effect has
been lower interest rates. Through the time of that reduction, which
will have reduced costs for landlords significantly, rents continued
to rise. The small increase cost of the tax changes is relatively
minor compared with the previous reduction in interest rates, but the
answer is of course that every opportunity will always be takent o
increase rents . . .
Landlords can raise rents because tenants cannot find somewhere else
to move to. The answer is to increase supply to exceed demand for
residential housing. The government has started down this path but
results will be limited until RMA reforms make it easier and cheaper
to get building consents.
I suspect a greater problem is putting in infrastructure before
dwellings are started - and with water and waste problems in many of
our cities that represent maintanenace having been deferred for far
too long, resouces are having to be put to those areas. Then there are
the problems of supply for materials; while some is domestic we do not
have an efficient market - too few large suppliers; and Covid has
affected transport. One of the significant decisions that has helped
is Auckland changing some planning restrictions - while made some time
ago it is now affecting the ability of developers to build higher and
more densely - many suburbs are seeing single houses on a large
section being replaced by multiple units - this year will see a
significant rise in dwellings, and for the first time in some years a
lower average size of new builds.
Services to new subdivisions are paid for by the developers. This
includes connection to existing infrastructure and reticulation
throughout the subdivision.
Our problems started through an increase in immigration, particularly
of low paid workers to assist employers who could not attract New
Zealanders to very low wage jobs. That was criticised at the time for
not having taken into account the need for housing for these people,
many of whom stayed and became New Zealanders. Much of our
infrastructure resources were directed towards roading, some of it
very necessary, but also some that were 'vanity' projects.
Post by Crash
The government is helping where existing
infrastructure cannot handle the increased load of a new subdivision.
We now find that existing infrastracure in some of our cities has over
many years suffered from poor maintenance and poor monitoring for
replacement at end of effective life. Urban intensification, which we
are seeing in most of our large cities, is exacerbating existing
problems, and in many cases new subdivisions are requiring upgrades to
existing systems - all of which takes time, and resources that we do
not have or that have been diverted to other projects.
Post by Crash
My original comment about the RMA reforms was aimed at local bodies
that use the planning process to prohibit new subdivisions. This
needs to be loosened up - if someone wants to create a new subdivision
for residential housing, any prohibitions on this should be looked at
as part of the RMA review.
"Should be looked at" is critical. Blind acceptance is leading us to
continuing expansion of urban sprawl over fertile farmland, leading
to produce needing to be being transported further, and workers
travelling further, but with worse transport options than previously.
It was for example appalling that the Hamilton Expressway was planned
and implemented without accompanying planning and allowance for high
speed rail connections from Auckland to Hamilton and probably on to
Rotorua. As Auckland are finding, purchasing housing to create a rail
lonk is very very expensive. We do also have Climate Change
commitments that should also be allowed for.
Post by Crash
Post by Rich80105 Post by Crash Post by Rich80105 Post by Crash Post by Rich80105 Post by Crash Post by James Christophers
 No different from its predecessors, the current government is comprised of those who have earlier been influenced by the sub-standard norms and mores of every government that has preceded them over the past 50 years. Groundhog day, perpetually licensed in full by an electorate that, similalrly conditioned, wishes it would all go away, but that then also demands as of right that a quart of milk be drawn from a pint bottle.
Post by Crash
The risks here are precedent. Will other forms of investment be
deemed worthy of the same deterrent in the future? For example, will
fossil-fuel investors or those investing in brothels etc be similarly
targeted by not allowing them to claim interest as an allowable
expense? The mind boggles.
And it can boggle as much and for as long as it cares to in the cases you refer to; the significant difference being that the humanitarian right to a roof over one's head is rightfully based on the universal instinctual - primal - need to survive. This is why the policies and actions of every government include, first and foremost, its prime mandate to defend both the state and its people from harm.
In targeting property investors by disallowing what is otherwise a
legitimate business expense, the current government shrieks that they
are desperate to 'do something' that is as poorly targeted as it is