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.

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.

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

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

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.

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.

[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.

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.

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.

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

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?

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.

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

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.

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.

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.