Date27 March 2021
Published date27 March 2021
Publication titleWhanganui Chronicle
Prime Minister Jacinda Ardern avoided questions this week about whether that was the goal. National’s leader, Judith Collins, has done the same.

The reason is this: For those who already own property, this is not a crisis. Provided they can pay their mortgages, it’s an endless golden summer.

Politicians don’t think they’re being cynical about this. They know most people are homeowners, and most homeowners believe their home will never stop gaining in value, so they base their personal financial strategy on that. Your home is your nest egg.

Ardern spelled it out in a media conference last December: Governments have a moral duty not to undermine nest eggs. We don’t elect them to destroy our hopes and dreams.

She was right, we don’t.

A lot of “Mum and Dad” investors have bought more properties for the same reason, with the same expectation.

It’s not hard to spot the problem with this. The 2018 Census revealed home ownership is the lowest it’s been in 70 years: 64.5 per cent. Preserving the hopes and dreams of homeowners means treating a third of the population, and growing, as collateral damage.

To manage this, says Ardern, the goal with property values is “sustained moderation”.

But before this week the economic settings held no promise of moderation. They were soaring in the other direction.

Reserve Bank governor Adrian Orr says it’s not his job to control house prices and just two weeks ago called on politicians to have the courage to tax property owners on their unearned gains.

The Government responded this week, extending the “bright-line test” so that anyone selling a house within 10 years of buying it will be taxed on the profits. Your own home and new builds are exempt.

For residential property, we have, finally, in all but name, a capital gains tax.

There was more. Tax deductibility of landlords’ mortgage interest payments will be phased out. Infrastructure for housing will get a $3.8 billion boost. Kainga Ora, the Crown agency that builds and manages state houses, can borrow $2b more. And limits on grants and loans to help first-home buyers have been raised.

Ardern said they were trying to “tilt the playing field towards first-home buyers”, and “away from the rampant demand from speculators”. Andrew King of the Property Council called it “bizarre” and “crazy”.

Worth a mention here: Landlords will still be able to deduct all their other business expenses. That includes maintenance and repairs, rates, insurance, the costs of getting tenants and of getting rid of them, and fees paid to property managers, lawyers and mortgage lenders.

Most bank economists believe the new tax rules will slow housing inflation. Westpac suggests they could even cause prices to fall.

Whatever happens, the political lines are drawn. There is now a clear difference between the two major parties over property tax. Probably, they both like it that way.

Labour will go into the next election saying the housing crisis demanded a crisis response and it has adopted the best and fairest measures to address it.

National will campaign against the new tax rules. Collins says there are better things to do than pick on “Mum and Dad” investors and the new plan won’t work anyway.

“By removing interest deductions and doubling the bright-line test, fewer houses will be built, fewer houses will be available for rent, rents will increase, and more kids will grow up in motels,” she said on Tuesday.

Time will tell. What’s clear is that the favoured status of residential property investment has been addressed. That was essential.

If Collins is right about unintended consequences, that will need to be addressed, too.

LET’S NOT forget what this is about.

A couple of weeks ago in Auckland, a house sold for $755,000 more than it did seven months earlier. In February alone, its value rose by $100,000.

This means if you were hoping to enter that market with a 20 per cent deposit, you should have put away $20,000 last month. Just to maintain the value of your money.

The news is better for the country as a whole: The median increase in house prices is only $50,000 per month. To keep your deposit from sliding backwards, you have to be saving only $10,000 a month.

The average house in New Zealand now costs over $800,000.

House prices in Auckland rose 22 per cent last year and the median price is now $1.1 million. And Auckland is not the epicentre of runaway housing inflation. In Gisborne last year it was 47...

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