Trevor fails Maths 101

Trevor posted at Red Alert:

My calculation is that the average residential rental property will inolve a loss of about $45 to the landlord v current depreciation arrangements.

(Average house price 416k but I’ve used median 360k. 2% depreciation = $7,200. 33c tax rate = $2,400 say $45 per week)

Can John Key guarantee that all families that rent their houses and get this increase as well as that in their GST will not be worse off.

Now Trevor has been slaughtered in the comments there for his basic errors, he has done a partial retraction:

Comments below have suggested that my estimate is high because I haven’t taken out land prices. Other emails have suggested that there are higher depreciation rates and that because a proportion of rented premises are apartments land is not quite the issue some suggest. I’m happy to use the property investors $34/week figure for the purpose of the discussion. The post goes to the principle.

Trevor retreats behind principle, after going on TV talking about his $45 a week figure. Shame on the media for running with it, without checking it out.

What are the mistakes Trevor made.

  1. The no depreciation on land is the big one. The median house value is $360,000. Looking through the WCC property database, I would estimate this averages out to $190,000 building and $170,000 land. So Trevor’s figures are already out by close to 100%
  2. The depreciation rate is 2% straight line or 3% diminishing value. For an exercise of this nature, SL is better in my opinion, so no problem there.
  3. The other massive mistake Trevor has made is overlooking that the depreciation has to be repaid when the house is sold. The gain to the landlord is not the tax rebate on the depreciation, but the interest free use of that money for some years. Now that can still add up to a useful amount (as I calculated here) but way way less than the tax rebate itself.

So taking 1 and 3 together, Trevor may be out by literally a magnitude.

Putting aside Trevor’s faulty maths, how great is it to see Labour championing the cause of landlords to claim non existent depreciation? If Labour has a strategist in their ranks, he or she must be in tears at Labour’s inability to run a coherent message.

UPDATE: If you thing I have been harsh on Trevor, read Keith Ng at Public Address:

Of course, this means ’s own back-of-a-napkin adventures were even more full of shit.

As he acknowledges in his update, he included land values, so he massively overstates the cost, and he didn’t even consider clawback. The curious thing is how his clearly, completely and massively wrong estimate ended up being in the same ballpark as the Property Investors Federation’s completely unsubstantiated figure…

Oh. Right.

Full. Of. Shit.

I love it how Labour have become shrills for the Property Investors Federation.

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