[DPF: Actually that is my assertion - Kate disagrees with me]

I do agree with you about state housing though. I understand that Housing New Zealand is now making a very low return on its assets – after doing not too badly under the last National government.

The government owning billions of dollars worth of houses to enable a select few to get cheaper rents – that’s plain crazy!

Your confusing the decision to have state housing with how it is run. If you have them you should run them efficiently it is inefficient to confuse your social welfare department with all your other departments. Whether it is more efficient than the private sector is a empirical question which is easily answered by whether the private sector is willing to purchase those buildings at a suitably high price (or contract the services at a suitably low price).

GNZ, what is irrelevantly small is the “use of money” profit. Depreciation is important. It doesn’t stand alone, it is part of a total package. If it is abolished, then capital investments and replacements must also be allowable expenses at the time of expenditure. Use of money cuts both ways.

“state housing should be a profit making enterprise”. When is the state ever a more efficient provider than the private sector? Only when there are monopoly or free-rider factors. Housing has no such issues.

Well puting the wider dispute on the backburner, in that case I guess we can at least agree that you are willing to axe the depreciation right? since it doesnt matter.

Also what percentage of the money they should have recieved will the IRD recoup and what sort of compliance level will they achieve? I’m not sure but somehow I suspect a poor performance.

Accomidation suppliment depends on where you live and your accomidation costs etc. You are therefore encouraging some people to live in more expensive areas and locations than you would otherwise. It also can apply to home owners where their home is excluded in the calculations of assets which is a little odd and is one of many areas where proterties are favoured as assets in law. Similarly the standard model of state housing is flawed because rents should not be dependant on the occupants income. FWIW if you then set the prices right (and exclude some people) state housing should be a profit making enterprise.

So exactly what are the market distortions you dislike? It appears to me on analysis that the depreciation issue is a non-issue. No-one makes an investment decision on the basis of a 0.03% variation in returns.

Wrt capital gains, property is on exactly the same footing as the stockmarket or any other investment. If the IRD has had an historic enforcement lapse then it should fix that – and apparently is so doing.

Are you also complaining about social welfare payments in support of housing needs? Is it more or less costly than providing State housing?

The distortions I object to are the building and land use constraints and bureaucracy which are a direct constraint on supply and input to excessive costs.

You are leaping to a lot of conclusions there regarding my position on the political spectrum. FWIW I would be happy to see cuts in government spending and I don’t benefit significantly from anything you mentioned.

I also prima face support Anthony’s point above that we could cut or axe the accomidation supliment how do you feel about that?.. OH wait you probably want that doubled because it lines your pocket…

my hypocrisy radar is going crazy, you share far too much with those you obviously dispise.

Alan,
there are three groups,
one is the uninformed landless people who envy land owners,
two is the uninformed landowners who want to squeeze any money they can get out of everyone else
and three is anyone who knows about economics and understands that creating a distortion in the market that encourages investment in non productive assets is a bad idea for all the same reasons why free market is generally a good idea.

Dont let the existance of the first two prevent you from listening to the third group.

Financial ignorance, stupid beliefs and prejudices are exactly what make New Zealanders poor.

Strange, isn’t it, that the very same people who rant about landlords want to make the State a bigger landlord?

Are we suggesting that a building does not produce income and there is no nexus for any expenditure ?

Anthony,
good point – also building new low quality houses seems to just lower the average quality of housing.

Calendar girl/viking2,
“The voting backlash from that group will astonish John Key and his government”
So do the number of people with one or two investment properties outnumber the number of people with no or one property? lets see less than 340000 vs um… somthing like 2 million. Hopefully the government will realise that at some point and stop listening to your idle threats and desperate attempts to defend your bludging.
Besides – who else are you going to vote for?

Cut their depreciation and let them do their worst I say – will do the country a favour if they get the pip and sell up!

So just give them a choice English, and you will find that those who rent to the unfortunate will be happy to see the depreciation dumped, any thing to keep that tax payer money rolling in.
Who are the bludging welfare types ?

We have idiots saying more affordable housing needs to be built. There are plenty of older, smaller houses suitable for first home owners that should be affordable – but often they are now owned by landlords! If those landlords got out the business then those homes would once again be affordable. Leave the new building of new homes to people who want a newer, bigger home and can afford it – and make things easier for them by cutting red tape.

Why give a deduction for depreciation that has to be paid back??? With maintenance a building lasts indefinitely and re-roofing, etc is all deductible when you are merely replacing a worn item. I say again – the tax system taxes nominal income – not real income so nominal depreciation has to be expected before depreciation should be given!

As you have been told many times above, houses do depreciate – especially if you take inflation into account. By being diligent with maintenance, you can slow depreciation, but you can’t eliminate it. There are two principal options for the long-term owner:
a) as others have mentioned, keep undertaking significant renewals or upgrades from time to time as required (replace roof, re-wire, re-clad, etc), but you have to capitalise most such work (i.e. you can’t expense it and claim it as a tax deduction, and you also suffer the negative cashflow implications of the cost); and / or
b) wait until the rental building reaches the end of its useful life (which happens eventually to almost all rental-type housing) and demolish it for replacement or sell it for removal. True value is in the land, which is not subject to depreciation.

Residential rentals are a specialised business that most people simply don’t understand. The residential landlords demographic itself is worth researching. Apart from conspicuous “wide boys” who have been investing during the recent boom, there are huge numbers of older people with their retirement money invested in rental flats, apartments and houses, often with little or no gearing. The voting backlash from that group will astonish John Key and his government.

Equally important, if the government puts the skids under the rental market with poorly-thought-through tax moves, watch residential rentals go up for the less-well-off, and watch the pressure on government to build many more state houses. Under the proposed new tax regime, the private sector will be less likely to be there with 10-year rental agreements to enable the Housing Corp itself to avoid the state housing capital outlay.

Cancelling building depreciation could be a very costly policy option, politically and fiscally. Using the politics of envy to target “rich pricks” usually is.

Landlords therefore almost always have their depreciation claimed recovered on sale. As David says it is an interest free loan to the landlord. Real estate investment promoters often include the depreciation in their tax loss calculations and forget to mention that it has to be paid back on sale.