DPMC have published a very good report on house prices. I quote one section:
Like other businesses, a rental property investor can combine their net rental income with income from other sources. An investor’s total deductions for interest, rates, repairs and insurance may exceed the gross income from rent, creating a loss that can be applied to reduce the taxpayer’s liability on other sources of income. The value of this aspect of the tax system is directly related to marginal tax rates. Therefore, the increase in 2000 to a top marginal tax rate of 39% may have encouraged some additional investment in rental housing.
So Labour increasing the top marginal tax rate increased demand for investment properties, pushing house prices up. And one presumes that a reduction in marginal tax rates would make investment properties less desirable and lead to a drop (or less of an increase) in house prices.Tags: housing affordability, tax cuts, tax rates