For use next time Labour claims a CGT leads to more affordable housing

November 15th, 2012 at 1:00 pm by David Farrar

Labour keep insisting a capital gains tax will lead to more affordable housing. In fact I suspect it will lead to an increase in house prices as home owners will not want to sell houses they have, so they do not get clobbered with CGT. If you reduce the supply of houses on the market, prices will go up. There may be some less demand also, but as we see in Australia any hope that a Capital Gains Tax is a solution to housing affordability is a myth.

The major cost is not the house, but the land. We need more land available for urban development. Simple.

Data from this site.

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58 Responses to “For use next time Labour claims a CGT leads to more affordable housing”

  1. Cow Cocky (18 comments) says:

    Fair enough, but how much would the increase have been if they did not have CGT. CGT will have some affect, that is the way the market works, you would have to be a bit thick to think otherwise.

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  2. Alan Wilkinson (1,878 comments) says:

    Correct, David. The argument is drivel.

    Cow Cocky, how do you think taxing something makes it cheaper?

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  3. mpledger (425 comments) says:

    It looked like the market held relatively steady for 3 years. Then the effect of American finance companies making money out of nothing of value intervened and the market went crazy. Compare the same graph with NZ data might be illuminating and OZ incomes.

    Investors and new home owners compete at the bottom end of the market (in general). If CGT puts investors off homes at the bottom end will be in less demand there and the prices will reflect that.

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  4. Francis_X (147 comments) says:

    You’re onto it, Cow Cocky.

    I never ceased to be amazed at the peasants who oppose a CGT. My property investments mean I don’t have to work, and it’s all tax free. The rest of you go to work, 9 to 5, slog your guts out, and get hit with every tax imaginable?! Oh dear me!!

    Thankyou David P Farrar for ensuring that my tax-free lifestyle is uninterupted. I raise my glass to you.

    Now get back to work.

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  5. Francis_X (147 comments) says:

    Alan Wilkinson – “Cow Cocky, how do you think taxing something makes it cheaper?”

    It doesn’t, you simpleton. It’s called market signals.

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  6. Alan Wilkinson (1,878 comments) says:

    Francis_X, I call b.s. on all your claims. Income from property is not tax free. Neither is buying and selling it for gain. Market signals come from demand/supply factors, not from Governments, which the chart above demonstrates. A CGT does not alter the demand since the same people need housing. It may reduce supply, since investors may be less willing to risk investment and development.

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  7. wreck1080 (3,924 comments) says:

    Oh dear, I’m surprised you would take such a simplistic graph as proof that a cgt does not work.

    Prove to me that Aussie house prices would have not increased even more quickly without CGT. Of course, you cannot.

    The IMF, OECD, treasury, Reserve bank have all endorsed a CGT for NZ.

    I cannot imagine you’ve done any of the research or have a fraction of the knowledge of the people in the above institutions. You’re guilty of being an armchair expert.

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  8. Alan Wilkinson (1,878 comments) says:

    wreck1080, untrue re Reserve Bank:
    http://www.landlords.co.nz/read-article.php?article_id=4032

    IRD has consistently opposed it as ineffective and poor cost/benefit.

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  9. Bob R (1,377 comments) says:

    Avoiding a net increase in population via immigration is another way to ease pressure on house prices.

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  10. Reid (16,520 comments) says:

    The major cost is not the house, but the land. We need more land available for urban development. Simple.

    Partly. But the one place we have a real problem is Auckland. The reason is, 40,000 new permanent immigrants per year arrive and it seems, 99% of them wish to live in Akld. This is the only reason why we don’t have the same issue in other cities. It’s not land availability, that’s a blunt tool by comparison with dealing with those 40,000 new arrivals, each and every year. Because remember, not all of them are refugees from Somalia with no education who live on welfare. A substantial proportion have funds, in overseas currency, to buy. And they see Auckland as being cheap by comparison to their home country be it Joberg, Manchester or LA.

    Edit: Exactly Bob. So why not give them a few extra points on their application if they wish to setup in a city other than in Auckland? Simple. Remember, these people want to come here. We’re not going to dry up or even affect the revenue stream simply by incentivising them to live outside Akld.

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  11. Richard29 (377 comments) says:

    A CGT that excludes the family home (as is Labour and Green policy) is unlikely to drag down the median house price as it acts as a direct direct tax incentive to live in the largest most expensive house possible and accumulate tax free capital gains that way rather than buying or building smaller affordable rental units that would be subject to the CGT.

    A better option would be a flat land tax on all property including the family home with the money raised credited back as an tax free threshold on income tax. It would discourage land banking, discourage people living on more land than they need, encourage higher density developments in cities and does not distort decisions on when to buy or sell. It would also be a progressive tax on wealth as those living in smaller homes would find the income tax cut exceeds their land tax increase, while those in very large homes would pay more (encouraging some to downsize and save money).

    Land tax is also better than a capital tax because land cannot be expatriated (where as capital investment can) and NZ already suffers from a lot of poor quality homes – a capital tax that affects improvements is not going to help the housing quality issue.

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  12. Allyson (47 comments) says:

    But wait there’s more. CGT will also effect employment, wages and inflation, and not in a good way.

    In fact we will have to borrow how many millions to put this new tax in place, and wait how many years to receive whatever returns. We got plenty of tax tools in the toolbox to redistribute wealth, increase benefits, tax the rich p’s etc.

    Doers will tax em till they drop. Effete Wayne Kerrs will ‘um develope another tax.

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  13. Cow Cocky (18 comments) says:

    The problem with the Aus system is that they have a 50% discount, it needs to be set at the highest level of progressive tax i.e 33% in NZ and no discount. I wouldnt buy another farm or rental property if I was going to be taxed at 33% for capital gains, so I would think that it would actually increase supply. In fact many may actually sell their existing rentals to lock in tax free capital gains to date.
    Home ownership is an important goal for any society, go to any suburb with a high number of rental properties and they are ghettos. Something needs to change. Capital gains Tax at 33% wil discourage investment in rental housing and direct it towards productive investment.

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  14. bhudson (4,740 comments) says:

    Capital gains Tax at 33% wil discourage investment in rental housing and direct it towards productive investment.

    Not if there is no differential between capital gains on non-productive vs. productive investments. Neither Labour nor the Greens have suggested a difference in CGT rates between investment types.

    David Parker would have you believe that charging the same rate of CGT on productive investments as housing will lead to less investment in housing and more in productive sectors. That is nonsensical. Of course (surprise, surprise) the media never look to call him on it.

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  15. Alan Wilkinson (1,878 comments) says:

    “Capital gains Tax at 33% wil discourage investment in rental housing and direct it towards productive investment.”

    The housing stock will therefore decline in number and quality while demand remains the same. Prices and rents will rise.

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  16. labrator (1,850 comments) says:

    That graph would be interesting if it also had US, UK and NZ house prices on it. It’s a bit meaningless without context.

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  17. Cow Cocky (18 comments) says:

    The existing regime is not working, the growth in rental housing and reduction in home ownership is creating slums in New Zealand. We have to discourage rental housing as an investment and encourage home ownership, CGT will discourage investments in rental hosing and then we need to deal with encouraging home ownership. Perhaps Labour will anounce a government funded scheme this weekend funded by cutting back on Highways of National Significance. Now that would make fu#$#n sense!!!

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  18. Rex Widerstrom (5,354 comments) says:

    So it’s the capital gains tax that’s at fault? Support it or oppose it, you can’t blame Australian house prices on it. A combination of decades of inadequate infrastructure planning and investment (so there are no roads, sewers etc in place), a reluctance to release land for subdivision (and in most states, a convoluted and expensive process to obtain planning permission) and a sharp rise in demand from mining companies who have been willing to pay outrageous prices have a little more to do with it, methinks.

    Australia’s most expensive property isn’t a mansion on the water in Sydney, or in a flash tower block on the Gold Coast. It’s a 3 bedroom apartment in Port Hedland in the Pilbara – a town with absolutely nothing to do except go to the pub, but the major port for most metal exports. $213,000 a year rent.

    Developers usually refuse to sell because even though they can charge insane prices, it’s not nearly as lucrative as renting them, and anyway the resource companies don’t like buying they want to lease so they can pull out in a hurry if they have to, leaving a collapsing economy behind them (thanks, Julia and Wayne and your carbon and mining taxes).

    If the developers did sell, the graph would be even steeper. And none of it to do with CGT.

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  19. Cow Cocky (18 comments) says:

    Fair enough Rex, the solution probably sits somewhere in the middle. CGT will help, increasing supply of land wont do any harm either.

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  20. Alan Wilkinson (1,878 comments) says:

    Cow Cocky, have you tried to build anything in the last six years? The existing regime is not working because it is strangled and extorted by bureaucracy. There is no mystery whatever about it.

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  21. labrator (1,850 comments) says:

    CGT will discourage investments in rental hosing and then we need to deal with encouraging home ownership

    I don’t think you understand who is buying all of this property. Reid gave you the hint

    …they see Auckland as being cheap by comparison to their home country be it Joberg, Manchester or LA.

    For accuracies sake we should really add the likes of Hangzhou in there too. If the rest of the world thinks NZ is underpriced your CGT won’t affect anything.

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  22. Cow Cocky (18 comments) says:

    I understand that Alan, on the other hand we have Leaky Homes so there needs to be balance. I actually supported CHH when they said that you dont need treated timber in homes, just make them water tight…seemed to make sense. What a cock up that turned out to be, a bit of regulation in that area would have avoided what looks like a 11 billion dollar issue now. But I agree re supply, more needs to be done there.

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  23. Shunda barunda (2,983 comments) says:

    Gee whiz, listen to the vitriol from ‘property investus speculatus’, a nasty species that gains sustenance by being parasitic on the living arrangements of ‘work hardus for meager rewardus’.

    Remember folks, property speculation is no different to blood sucking leech and is just as driven by a sense of entitlement as the most hardened beneficiary scum bag.

    If tax will drive up the prices, your return on the blood sucking will remain similar, so why the f@ck do property investors care?

    Exactly.

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  24. Shunda barunda (2,983 comments) says:

    Increasing supply of land will not work because we have a corrupt valuations system in this country.

    Tell me, why did land values on the West Coast go up by up to 1000%? It certainly didn’t have any relationship to ‘local’ land sales.

    Some how, for some reason, the whole country became enveloped in a feverish frenzy of property speculation and the resultant ‘theoretical valuations system’.

    That is what this immoral form of investment does, it drives the market until it can’t be driven any harder until people simply can’t even afford a crappy old 100yr rotten villa.

    Property speculators have effectively purchased the next 100 years of housing.

    Tax em hard I say, it’s got to stop.

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  25. Colville (2,272 comments) says:

    I beieve the land supply “problem” to be a oversimplfied myth.
    Even if you rezoned 100 sq kms (10,000 Ha , enough for 100,000 houses) on the outskirts of Auckland as “future residential” and put basic forward planning in place for futureproofing it all that would happen is developers would land bank key pieces and some owners out of the tens of thousands of owners will hold out for silly money or hold up development.
    In my view the only way to get large scale cheap land blocks is for either govt or councils to enter the market and buy farms and rezone them. They dont need to be developers/retailers but the overriding zoning needs to be changed to allow others to buy parts and get on with it.

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  26. Shunda barunda (2,983 comments) says:

    In my view the only way to get large scale cheap land blocks is for either govt or councils to enter the market and buy farms and rezone them.

    Because it’s not like farmland is of any use in this country.

    Farrr-kin-hell.

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  27. Alan Wilkinson (1,878 comments) says:

    Shunda barunda, you haven’t a clue. Valuations are based on nearby sales. Investments lose money unless the product is wanted/needed.

    Here’s a clue for you, which you evidently need: if anyone could build another home in their backyard or block of land without bureaucratic cost and obstruction, what do you think would happen to house prices?

    Colville, the typical Lefty response. Having wrecked the market with Government interventions you demand the taxpayer stump up to try to overcome the extra costs and obstructions you have created.

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  28. labrator (1,850 comments) says:

    a bit of regulation in that area would have avoided what looks like a 11 billion dollar issue now.

    Why are councils involved in how water tight your house is?

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  29. queenstfarmer (782 comments) says:

    Increasing supply of land will not work because we have a corrupt valuations system in this country.

    What nonsense. Go learn basic economics. And rateable values may be “corrupt” (in the sense of being inflated/deflated in some case) but no-one has to buy at or above official valuation.

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  30. Colville (2,272 comments) says:

    Wilkinson, me a lefty? now that is funny. :-)

    When you guys have a week or so spare try sitting in front of a computer and pulling up all the owners of the land just outside the town boundries of whatever city you live in or closest to. Its not farmland its all “lifestyle blocks” with farking huge mansions.
    Then try organising a piece of dirt big enough and at a value that would make it worthwhile in a development.
    Its just a fact that unless “someone” buys up land with a 20 year horizion toward development then the system as it stands is pretty well fucked. If you want cheap land that is, which I personally dont.

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  31. Cow Cocky (18 comments) says:

    Labrator, Who should be then? There has to be some regulatory body overseeing. Its a serious mess at the moment, I wouldnt want to be one of the throusands of kiwis with a rooted house.

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  32. Bob R (1,377 comments) says:

    Population growth appears to be way ahead of housing completions.

    http://www.debtdeflation.com/blogs/wp-content/comment-image/37307.jpg

    High immigration cities in Australia have seen higher price increases. Another factor is increased overseas ownership.

    “It is possible to detect jumps in properly prices where particularly high net migration has occurred. For the years 1950 and 1979 average total net overseas migration was 84,430 per annum. Between 1985 and 1989 the annual average was 137,580, the highest on record post WW2. Between 1995 and 1999 average total net immigration was almost as high, at 106,024. In cities and regions that do not have high immigration, property inflation is much less and there is none of the ratchet effect which we can see in the high immigration cities. To the contrary, although prices rise moderately from time to time, there is always a market correction. The comparison can be made internationally.

    …The Fraser Government began to liberalise the Foreign Acquisitions and Takeovers Act in 1975. It has been progressively liberalised since, and to this has been added deregulation of banking. From less than 10% in 1972-75 under Whitlam, foreign investment in Australia increased to 49% of GDP in 1990-91. By 1986 more than half was destined for real-estate investment.

    http://www.cooperativeindividualism.org/newman-sheila_what-and-who-is-driving-population-growth-in-australia-2002.html

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  33. SPC (5,643 comments) says:

    You do polling as a professional and yet you call this an arguement? This is a base attempt at a political con of the public, media commentary at its worst or is that provocative talk back radio at its best? You do not supply evidence that the length of time investment property housing is held by owners has increased since a CGT. You do not provide comparison to other markets, the OECD is full of nations with a CGT.

    What we know is that in recent years a credit expansion fueled speculation on housing globally – great profits were made by some whereas great losses impacted on the viability of many banks and finance companies.

    The losses were socialised, but at least CGT revenue in those countries over recent decades compensated government for some of this cost.

    Whereas here in New Zealand, the income from CG is often not being taxed, and other taxpayers have to bear the cost of this. Hardly fair.

    PS Someone who sits on a property to avoid a CGT on realised CG, forgoes other investment opportunities – is a fool. Most investors are not so stupid.

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  34. Shunda barunda (2,983 comments) says:

    Shunda barunda, you haven’t a clue. Valuations are based on nearby sales.

    No Alan, you haven’t got a clue. I am very aware of how valuations are supposed to work, and also very aware of what is happening in reality.

    Valuations of the West Coast went up exponentially as the frenzy kicked in. As an occupier of leasehold land, I was shocked to receive a 500% increase in land rental. I got into a disagreement with Quotable value who started quoting prices at me from Timaru of all places.

    Land in the Greymouth CBD went up by more than 1000% in some cases, which is crippling the town as much of it is on Mawhera leasehold land.

    No one was paying either those land prices or the housing prices here, until the speculators rolled into town and snapped EVERYTHING up.

    In my street alone 6 house were purchased in one afternoon and the bastard from quotable value tried to tell me they were ‘standard market sales’. What utter bullshit.

    There was nothing organic about how the market developed here, it is all driven by external property speculation.

    Oh, and if you want to see what happens when councils take a sympathetic approach to opening up land for developers, look no further than the Grey District Council, we are inundated with industrial parks and residential enclaves and they are almost empty, and that was before the issues with coal mines.
    And guess what? all those maintenance agreements with the developers are now expiring and guess who gets to foot the bill for all that new, unused landscaping and service infrastructure? the Grey district rate payer that’s who.

    I for one am sick to death of subsidising these pricks, it is an immoral form of investment on multiple levels and it’s got to bloody well stop.

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  35. Shunda barunda (2,983 comments) says:

    What nonsense. Go learn basic economics. And rateable values may be “corrupt” (in the sense of being inflated/deflated in some case) but no-one has to buy at or above official valuation.

    Oh what crap.

    Why did oil prices spike and cause a crisis a few years back?

    Spec-u-farking-lation.

    Go learn about economic reality.

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  36. thedavincimode (6,803 comments) says:

    NZ factors

    1. Tax rorts (thanks Liabwhore)
    2. WFF rorts (thanks Liabwhore & Peter Dunne)
    3. Fucked tax regime discouraging offshore investment in equities.
    4. Fucked local equities market.
    5. Fucked wild frontier local finance company market
    6. Unusually low interest rates courtesy of GFC (get capitalised into house prices)

    Oz factors:

    1. Family home exemption
    2. Loss of liquidity due to CGT
    3. Historically stronger economic growth

    Liabwhore solution

    1. CGT with family home exemption.
    2. Whoops, maybe remove the exemption for rich pricks.
    3. Increase bene giveaways

    Liabwhore outcome #1:

    1. WFF benes upgrade with more cash in pocket. Maybe a new boat to park on the lawn.
    2. Increased prices under whatever exemption cap is introduced. Prices become more unaffordable in the price bracket Liabwhore are actually targetting in terms of easing entry cost.
    3. More rich pricks just fuck off overseas.
    4. More poverty stricken Liabwhore voters (immigrants) with no skills are imported to “balance up” migration.
    5. More bene payments to imported Liabwhore voters.
    6. More demand for housing in target house entry point.

    Liabwhore “whoops” response:

    1. Give more money away

    Liabwhore outcome #2:

    1. Extra dosh handouts increase demand and competition.
    2. Prices increase further in target price bracket

    Repeat LOOP until anyone with any money has just fucked off.

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  37. Alan Wilkinson (1,878 comments) says:

    Shunda Barunda, I wouldn’t know anything about Greymouth, but why did those “speculators” pay high prices? If they are over market value they will just lose money.

    Colville, your argument was the Lefty one. As for the lifestyle blocks, blame the Greenies and their planners who made it impossible to subdivide into smaller pieces therefore forcing large expensive blocks affordable only for those wanting to build a mansion. Just as I have blocks of 25 hectares on which I am allowed to build one house.

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  38. Colville (2,272 comments) says:

    Alan Wilkinson, I dont care who you choose to blkame but the fact is that land around major population centers is fragmented and you need “someone” with deep pockets and a long time frame to bring it back together otherwise all cities are ring fenced with no go zones.

    Anyways….i am off to find a bambi so I can send it a .223 cal 75 grn copper jacketed spinner at 3300 feet/sec :-)

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  39. SPC (5,643 comments) says:

    da vinci mode,

    not one mention of the amount of money – at zero deposit made available to home buyers? This is why, despite the high OCR here causing a recession before the GFC, house prices doubled 2002 to 2007.

    WFF came in well after the housing bubble began. It merely enabled those with mortgages already to afford them as Bollard kept lifting the OCR to dampen house inflation – caused by zero rate deposit lending by banks that he did nothing about.

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  40. thedavincimode (6,803 comments) says:

    SPC

    There were a number of contributing factors; not just one. Tax rorts were around for ages, including some rorters getting tax deductions for living in their own houses, or rental investors deducting interest from other income to get tax-free capital gains plus depreciation deductions along the way (a relatively small benefit) – that one is as old as the hills. WFF lifted it to a new level, but more importantly, because WFF benes had more disposable income, they did what Kiwis always do – they upgraded their houses. Peter Dunne presided over that bullshit and did nothing. The outcome when Liabwhore primed the pump was entirely predictable. Moreover, the great Kiwi tradition is to continually upgrade the family home as a retirement savings plan. The state of the domestic equities market and the stupid tax treatment of overseas equity invetsments only encouraged that behaviour because investing in equities was too hard or relatively unattractive.

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  41. SPC (5,643 comments) says:

    WFF was largely irrelevant to the rise in house values – it was phased in after the 2005 election in the period till 2008/9. It merely compensated home owners for Bollard’s lift of the OCR. The house market peaked in 2007, while WFF was still being rolled out.

    Of greater impact was the cut in top rate of tax when GST was lifted by National. There was no GST paid when those on higher incomes used higher after tax incomes to upgrade their property while interest rates were low. Thus the top end of the market remained strong.

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  42. Bob R (1,377 comments) says:

    @ thedavincimode

    Also note population growth in the high immigration cities according to the link above, plus increased overseas ownership.

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  43. SPC (5,643 comments) says:

    As to wealth tax, the one we need to look at is one on land available for, but yet to be used for housing. Aren’t yet ready to develop the land for housing, then pay a price for cutting off supply to others who are!

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  44. ross69 (3,652 comments) says:

    That graph looks like the Auckland property maket…but hang on, there’s no CGT in Auckland. Clearly other factors must be at play…

    Out of interest, how much does GST of 15% distort the property market, bearing in mind that GST is paid on some property sales and is paid by EVERY seller who uses a real estate agent? Has David Farrar complained about GST on real estate transactions? If not, why not? Has Mr Farrar done Economics 101? It appears not.

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  45. thedavincimode (6,803 comments) says:

    SPC

    I disagree re WFF. Its a distortion in the market today and it is inequitable because it discriminates, in particular, against those just starting out. As to your point re GST, I don’t understand what you are saying. Of course GST would have been paid.

    As to wealth tax: more tinkering. If you fixed the distortions in the market, your wouldn’t need to tinker. Are you a communist? Do you not believe in the private ownership of property?

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  46. thedavincimode (6,803 comments) says:

    ross69

    Have another chardonnay. You deserve it for being so clever.

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  47. SPC (5,643 comments) says:

    GST is not paid by anyone when they use the lowering of tax rates and a lower OCR to upscale and buy a more expensive house.

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  48. SPC (5,643 comments) says:

    Land banking is a distortion of the market. What about that do you fail to comprehend?

    Ensuring that more land is readily available for housing means that the cost of land for new housing is lower.

    The only question is whether the land available for housing subject to a land tax/wealth tax should include parts of the large residential sections that could be sub-divided for another house.

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  49. Luc Hansen (4,573 comments) says:

    The (outdated for a reason?) graph does highlight how perhaps the CGT of our neighbour is in fact restraining their market as compared to ours. Take a look at this:

    http://www.interest.co.nz/property/58595/opinion-house-prices-likely-keep-going-year-not-sustainable-long-run

    Check out the graphs, especially the last relating to Auckland/New Zealand comparison that allows comparison over the same timeframe as DPF’s graph.

    Bear in mind that Australians have benefited from a stronger economy over the same time period, widening its income disparity with their baby brother (us) each and every year.

    So at first glance it looks like DPF’s theory falls at the first hurdle but, sure, closer analysis, preferably from a less openly politically motivated source, may well be more informative.

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  50. Anthony (796 comments) says:

    It’s a concessionary CGT – especially from 1999. I note:

    [The Australian] CGT operates by having net gains treated as taxable income in the tax year an asset is sold or otherwise disposed of. If an asset is held for at least 1 year then any gain is first discounted by 50% for individual taxpayers, or by 33.3% for superannuation funds. Net losses in a tax year may be carried forward, but not offset against income.

    Personal use assets and collectables are treated as separate categories and losses on those are quarantined so they can only be applied against gains in the same category, not other gains. This works to stop taxpayers subsidising hobbies from their investment earnings.

    Capital gains tax was introduced in Australia on 20 September 1985, one of a number of tax reforms by the Hawke/Keating government. The tax applies only to assets acquired on or after that date. Gains (or losses) on earlier assets, called pre-CGT assets are ignored.

    The rules introduced initially allowed the cost of assets held for 1 year to be indexed by the consumer price index (CPI) before calculating a gain (calculation of a loss used only the unindexed cost though). This meant the part of a price rise due only to inflation was not taxed. This rule was only current between 1985 and 1999 when it was then frozen.

    From 20 September 1999 indexing of the cost base was discontinued, and instead the present 50% discount on the plain gain above the cost base was introduced. For assets acquired before that date the taxpayer can choose between indexing (up to the CPI at 30 September 1999) or discount.

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  51. RightNow (6,994 comments) says:

    Luc, these graphs are better: http://properazzi.co.nz/insights/the-5th-anniversary-of-the-housing-slump

    Two things seem to stand out:
    1)there’s not much difference between us and Australia over a 20 year timeframe, so their version of a CGT doesn’t seem to have impacted on prices.
    2) Our housing market hasn’t been nearly as badly hit by the GFC as the US and UK – and bear in mind Australia’s mineral boom.

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  52. unklefesta (13 comments) says:

    Long term there are no ways to make land in NZ cheaper.

    Amount of land available is finite, size of population wanting to buy land increasing its a simple supply and demand equation. Also you have to factor in most of our cities sit smack bang in the middle of some of the best and most valuable farming land on the planet … and then we wonder why it costs a lot … duh!

    Short of eliminating a large number of people (war, famine etc) the price is only going to go one way and there is nothing we can do about it.

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  53. Anthony (796 comments) says:

    The land is what landlords usually bank on to make their tax free capital gain so taxing that gain surely must make existing houses less attractive to landlords and so help ease prices. Conversely, maybe there should be tax breaks (certainly not the large fees some councils charge) for building new houses that actually increase the supply of houses. I get really sick of saying that landlords do nothing at all to increase the supply of housing! But most people, including DPF, can’t seem to comprehend that.

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  54. Reid (16,520 comments) says:

    Short of eliminating a large number of people (war, famine etc) the price is only going to go one way and there is nothing we can do about it.

    Yes there is. Read my 1:50 and learn.

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  55. SPC (5,643 comments) says:

    The ability of foreigners to buy housing here, as an investment, is not helpful.

    Any successful attempt to restrain population growth in Auckland would also help with housing affordability there.

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  56. Luc Hansen (4,573 comments) says:

    @

    RightNow (4,536) Says:
    November 15th, 2012 at 9:06 pm

    That’s a nice link, thanks.

    However, now I know why DPF’s graph stopped at 2005 – after that there was quite a divergence between NZ and Australia for quite a time.

    I’m still not sure that an indices comparison fully reflects different circumstances and one I would like to see, for example, is an index of house prices adjusted for the change in median wage.

    My point remains that if Australia’s rise matches ours, but their incomes were increasing faster, then it stands to reason that something must have been inhibiting that increase.

    In the meantime, if DPF is correct in saying that the CGT in Australia has no effect on house prices then surely that a CGT is neutral as regards house prices and the Australian treasury has raked in loot that our government could use right now (excuse the pun) if we adopted the same policy.

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  57. unklefesta (13 comments) says:

    Reid, stopping or lowering immigration will be yet another short term fix, releasing more land short term fix, lowering subdivision costs short term fix … and do you really think current owners are just going to suddenly accept offers lower than their purchase price and expect no return on their investment.
    Every single owner of fringe land is just waiting for two things … the right to subdivide and the price on those sections to make them loads of profit. Even the government buying the land in bulk and selling it cheap is a short term fix … if anything it will make NZ more desirable to buy in and more people will flood here.
    As long as more people want the land and the available land stays the same prices will rise.
    How about you READ and LEARN

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  58. Mark (1,488 comments) says:

    CGT is not the panacea for House prices. The biggest influence is supply and demand however it has greater elasticity on the supply side and the contraction in supply happens very quickly when markets weaken. People simply withdraw their properties from the market.

    A bigger influence on house prices is the supply of debt. When banks tighten lending then the market slows quickly. The whole tax regime around residential real estate is weak and removal of the right to depreciate did fuck all to solve the problem. It is still available to wage and salary earners as a tax offset through 100% leveraging and combined with tax free capital gains means the taxpayer is a major contributor to the returns.

    Simple answer was to ring fence losses and as an additional leveler limit deductibility of interest to a maximum level of debt of 67% of the cost of the property at purchase plus any capital expenditure.

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