National’s media spin team is at it again. They have launched a petition against what they describe as Labour’s “tenant tax”.
What they are talking about is the Government decision last year to remove interest deductibility for tax purposes.
Previously an investor would buy a property, mortgage it to the hilt, often get to the situation where the unit was cash flow negative, then sit back and let the capital gain make them lots of money. They were not in a business to make money from rental, the rental was a secondary consideration. Instead they were banking on making money when they sold the property and then pocketing a tax free capital gains profit.
Aside from the questionable morality of this sort of behaviour it had terribly distorting events on the market. First home buyers were unable to out compete landlords at auctions and prices kept rising.
Recently this has changed. Last year Government measures to remove interest deductibility and bringing in a ten year bright line test, an effective capital gains tax in all but name, came into force. And the measures are having an effect. The QV House Price Index has dropped 7% since December last year. Median rentals have increased from $520 to $545 since October last year which given current inflation rates is a decrease in real terms. And recent anecdotal evidence is that rentals are dropping as housing supply improves. Who would have guessed that the market would respond in such a way?
We still have a crisis and this will take years to fix. But the alternative, essentially crashing the real estate market, would have unleashed all sorts of carnage. In my view a gradual reduction is the least risky and best option.
As for the claim that Labour said there would be no new taxes, this is a deliberate misrepresentation of the policy. This is not a new tax. It is the removal of the ability to reduce tax liability that was having a retrograde effect on the housing market.
This is strange posturing from National. It may go down well with their base but being really nice to landlords is not something I thought would be a vote winner.
And they are crowing about Labour recently exempting new builds from the policy. I have no problem with this. Anything that increases current housing stock is a good thing and the more houses on the market the greater the downward pressure on prices and rents.
For the first time in decades the property market is correcting itself and reversing previous trends that made housing more and more unaffordable. Why am I surprised that National thinks this is a bad thing.