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The looming battle over property

Written By: - Date published: 9:10 am, May 15th, 2017 - 122 comments
Categories: Andrew Little, capitalism, Deep stuff, Economy, election 2017, housing, labour, Politics - Tags:

Michael Savage helps move furniture into the first state house

I can’t predict the future so I can’t tell if Andrew Little will win this September 2017 election. But on the moral ground of confronting rent-seeking property ownership, he should. Rent seeking means using market position to make money without adding value. If you control enough of something, you can profit without offering anything beyond power itself as a justification.

Building new homes on a scale adequate to demand is politically and socially unthinkable; decreasing property owners’ wealth by decreasing perpetual price rises is similarly unthinkable. Decreasing property owners’ yield by eradicating the ability to write off property income losses against other income is an indirect attack on every bank. We are a small south seas set of suburbs faced with lancing a bubble which is in fact a boil, a boil so deep lancing would go straight to the bone.

That’s the nature of property right now and right here.

The battle by Labour and all social democrat forces was commented on by Rousseau in 1754, who boldly declared that private property was the original source of inequality in the world.

A century later Proudhon proclaimed “Property is theft!”. Although I’m sure he still  expected to find his own trousers on the floor in the morning.

A couple of years ago Thomas Piketty also claimed that the current structure of property rights is a major cause of inequality. He proposed a system of land reform that would force the ultra-wealthy to return a part of what they own each year.

Property is the eternal battle for everyone in the social democratic tradition from even the Whigs onwards. If Little wanted the battle royal, he’s named it, and it’s going to come for him one bank and one real estate company at a time.

And it’s the right fight. With most New Zealanders having given up the hope of ever owning their own home, and a cold winter coming, the rental society perfectly mimics the contracted precariat of employment: whether you’re a renter, an owner, or a property czar,  an unstable society with an unstable job and a life without a home is an ungovernable society.

Andrew Little has found the right battle, at the right time, and I hope he wins it.

122 comments on “The looming battle over property ”

  1. James 1

    So little says mum and Dad investors do not use this “loophole”.

    However he didn’t give any evidence for this. And it just does not sound right.

    • McFlock 1.1

      sorry, what loophole are you talking about?
      You managed to construct an entire comment without clearly expressing the subject that was in your brain at the time. And I’m not even sure the subject you had in your brain was anything more than tenuously related to the post.

      • One Anonymous Bloke 1.1.1

        James means negative gearing. And Little didn’t say that. Answering Espiner’s question, he said the loophole will not be exploited by long term ‘investors’ with a single property.

        Which is pretty basic – go tell the IRD your family home is a rental business and see how you get on.

        • James 1.1.1.1

          Single investment property- which is by definition not the family home. And little still hasn’t backed up his comment wIth anything

          • McFlock 1.1.1.1.1

            Whereas all you’ve backed it up with is “it just does not sound right”.

    • Craig H 1.2

      He didn’t say none of them use it, he said the vast majority don’t (I concede that this is not much of a difference from saying nobody uses it).

      IRD have the information (or at least, it can be derived from the information they hold), so it could be checked with them.

      More generally, if someone owns one rental property bought 10+ years ago, it should be making a profit by now, and not still running at a loss.

      Also, this doesn’t eliminate the ability to offset a loss entirely, it ringfences rental property losses so they can only be offset against later rental property profits.

      • One Anonymous Bloke 1.2.1

        Little defined ‘Mum and Dad’ as ‘long-term investors’ in a single property. Under what circumstances would this not be the family home?

        To put it another way, under what circumstances would the IRD consider it a rental business?

        • Andre 1.2.1.1

          Looks to me like Little’s “Mum and Dad” long-term investors in a single property includes the scenario where “Mum and Dad” decide to upgrade to a new family home, and instead selling the old home, keep it as a rental. Most of the rental property owners I’m aware of became landlords by this route.

          • One Anonymous Bloke 1.2.1.1.1

            Then they no longer have a single property, eh. They have two, one of which is clearly a rental business.

            • Andre 1.2.1.1.1.1

              That’s not the way it looks to me. An owner-occupied home can be simply a place to live rather than an investment. So to me a phrase like “investors in a single property” includes those that own their family home plus a single investment rental property, as well as those than own a single property they don’t live in and rent their living quarters elsewhere.

              • mikesh

                An owner o cupied dwelling is still an investment. The rent free accommodation that the owner obtains is the return on that investment.

              • RedLogix

                The simplest way out here would be a simple idea that I’ve long advocated and is standard in the USA … allow homeowners to deduct mortgage interest from income. This more than anything else would even up the playing field between investors and owners.

                • Andre

                  Deducting home mortgage interest from taxable income? Been there (lived and owned a home in the US), done that, really don’t like it. It encourages people not to pay down debt, it complicates taxes. it overwhelmingly benefits higher earners, it further sticks it to renters who don’t get the benefit of a similar write-off, it encourages people to take on larger mortgages than they otherwise would.

                  • RedLogix

                    OK so if you don’t like that, then how about:

                    http://www.top.org.nz/top1

                    • Andre

                      Not a fan. I much prefer a simple straightforward capital gains tax for everything. Including the family home, but with rollover provisions for when people change homes. Sadly though in NZ politics that idea seems to be a grenade with the pin mostly pulled out.

                    • RedLogix

                      The kind of CGT that Australia has? Which has worked so remarkably well in holding down house prices in their big cities?

                    • Andre

                      I see CGT (or a CCT) as a weak tool on it’s own for controlling housing bubbles. The US has had plenty of bubbles too. Seems to me any tax changes should be considered as only a small part of the response across a wide range of policy areas for tackling the housing problem.

                      I see CGT as more an embodiment of the principle that those who benefit from strong stable society that allows things like asset values to appreciate and profitable businesses to be created and grow should contribute back to maintaining that society.

            • Chris 1.2.1.1.1.2

              And if they kept it at two or even three maybe there wouldn’t be a problem. It’s the scum I’ve known who have 50 and believe it’s their “right”. There’s a difference here and the answer is where to draw the line. I think two perhaps three including any holiday home, but no more.

        • Craig H 1.2.1.2

          I don’t think that’s what he meant – I think he meant a single rental property, not just the family home.

          However, a boarding house, particularly one with 6+ tenants, or a flatmate situation would count, especially renting a granny flat or other second dwelling.

        • James 1.2.1.3

          Single investment property- not the family Home

      • RedLogix 1.2.2

        Also, this doesn’t eliminate the ability to offset a loss entirely, it ringfences rental property losses so they can only be offset against later rental property profits.

        Exactly. So many people rant about this ‘tax avoidance loop hole’ without understanding its purpose. It’s really best thought of as a cash flow smoothing mechanism.

        Almost all new businesses start up for a few years or so making a loss. In the normal course of events these losses are accumulated and when the business makes a profit these losses can be deducted at that time to reduce tax payable. Very common, standard procedure so far.

        The problem with rental businesses is that this startup period can be quite long, in the order to 10 -15 years. This means the loss incurred in say the year 2000, could sit on the books until say 2015 before it is accounted for in tax terms. This creates problems of accounting for inflation if nothing else.

        For this reason the idea of LAQC’s, or their successor the LTC (Look Through Company), allowed tightly held companies (typically just one shareholder) to use the rental business loss to reduce tax on other income earned by the shareholder (eg salary or wages) in the year the loss is incurred rather than wait 15 or more years for the rental business to make a profit. This is what is often termed ‘negative gearing’, but I really see that as a misleading term.

        In the long term the total tax paid remains exactly the same; there was no ‘avoidance’. But in the short term ‘mum and dad’ terms running a small business with less than 10 units (typically 2 -3) see no real distinction between the income they earn personally (much of which is being plowed back into the business to keep it solvent in those first years), and that of the business itself.

        They will also likely be putting their own personal after-tax income into the business as shareholder funds, so that when the business eventually goes cash flow positive, they will likely be pulling these funds out as drawings free of tax for many years, even further delaying the point at which the rental business itself declares a profit and can deduct the losses it incurred years previously.

        Ring-fencing losses into rental companies looks like a good idea, until you realise how many decades can pass between incurring the loss and deducting it; if ever in some cases. Locking cash up like this for so very long is also a bad idea in a macro economic sense as well.

        • Ad 1.2.2.1

          Well explained RL thankyou.

        • mikesh 1.2.2.2

          They would still be paying tax on the business’s profit since drawings do no affect the business’s bottom line.

          • RedLogix 1.2.2.2.1

            Ah … good point. I’m a little fuzzy as to whether company profit is calculated before shareholder drawings or after. I would have guessed afterwards because tax was already paid on those funds by the shareholder.

            • Craig H 1.2.2.2.1.1

              You are correct if the profits are distributed as shareholder salary – the shareholders pay tax at their marginal rate and the company pays no tax on the profit.

    • Halfcrown 1.3

      Is that going to be the catch cry now James “Mum and Dad Investor” I saw it being bandied around on the TV this morning by some dick from some investor group. That will be the day when the property investors (fucking Sharks) are really worried about “Mum & Dad Investors.”

      No doubt it will be bandied about Angry Andy is going to stuff up Mum & Dad Investors
      What an utter load of crap.

      • James 1.3.1

        Well if mum and dad investors have a single investment property based on the rules as they are now (despite angry Andy saying most don’t) it will stuff a lot of them up.

    • So little says mum and Dad investors do not use this “loophole”.

      However he didn’t give any evidence for this. And it just does not sound right.

      Well, this “dad investor” uses it (more correctly, my accountant uses it and I sign pieces of paper that I don’t really understand but which translate into IRD transferring money into my bank account every year), and I think Little’s proposal to close that loophole is a great one.

      It’s not clear to me why the government imagines it’s a good idea to have the IRD pay me to borrow money to buy rental properties, in fact it’s pretty clearly a stupid thing to do and they should stop doing it. I can’t be the only person in the country who takes the money but is aware that it shouldn’t be being handed to me in the first place.

      • RedLogix 1.4.1

        It’s not a ‘loop hole’, no tax is avoided in the long run and certainly the govt isn’t ‘paying you to borrow money’. All it means is that losses can be claimed out of other income in the year they are incurred, instead of years or decades in the future.

        As I try to outline above at 1.2.2 its more like a cash flow smoothing mechanism.

        • Andre 1.4.1.1

          It’s also a mechanism to reduce taxes at a time when you’re in a high-earning (and high tax rate) situation by shifting the potential liability to when you’re retired and potentially on a lower income and lower tax rate.

          • RedLogix 1.4.1.1.1

            No … think that one through. It can be worthwhile in terms of reducing liable income at the top PAYE rate of 33% in say the year 2000, and reducing the company profit liable for tax at 28% maybe in the year 2015 … but overall that effect is pretty small.

            And this only comes about when you have tax policy which has a silly differential between the top PAYE rate and the company tax rate.

            • Andre 1.4.1.1.1.1

              If I had gone negatively geared to buy an investment property say ten years ago, my nominal losses would have been reducing my taxes at 39c for every dollar of loss. This year I’m on a very low income so income from the property only attracts 17.5% tax. If my losses from ten years ago had been ringfenced until now when I’m finally earning income from the property, they would only be worth 17.5c per dollar of loss now, instead of 39c per dollar of loss refunded back then.

              • RedLogix

                Nope the tax loss is ring fenced into the company … and only affects company tax. Not your personal tax. You can’t have it both ways.

                • Andre

                  If someone chooses to use a company structure to hold a rental property (AFAIK it’s not required, it’s just that there’s liability benefits), then as I understand it the most popular structure is a Look-Through Company. In which case income and losses pass straight through to the shareholders to be dealt with at their personal rates.

                  “Earnings from the company are taxed at the personal tax rate, even if it is more or less than the standard income tax rate for New Zealand companies.”

                  https://en.wikipedia.org/wiki/Look-through_company

                  • RedLogix

                    Exactly. So what would be the effect of ring fencing on an LTC in the long run?

                    And what do you do with the accumulated losses when the company eventually makes a profit?

                    • Andre

                      What I described above at 1.4.1.1.1.1. Because losses and income from an LTC are passed straight through to the individual to be deducted or taxed at the personal rate effective at in that year. Which may be more or less than the company rate.

                      edit; And when the LTC eventually starts to make a profit, the accumulated losses are deducted from the income to the fullest extent possible until the losses are used up. Say there’s $30k of accumulated losses by the time the LTC starts getting profitable, and the profit is $12k pa. So there’s 12k of losses deducted to first two years of profitability leaving zero pass-through income, then one year of 6k losses leaving 6k income, then full pass-through of 12k income for subsequent years. Just like the situation I had from a loss-making partnership on my return to NZ from a decade overseas.

                    • RedLogix

                      Precisely. If only income but not losses can be passed onto the shareholder, then on the face of it ring fencing seems to completely obviate the purpose of a LTC.

              • mikesh

                Isn’t this what ring-fencing prevents?

      • Anthony Rimell 1.4.2

        Psycho Milt

        +100

    • AB 1.5

      The phrase “mum and dad investors” was all over RNZ this morning.
      And somehow the demand that “mum and dad investors” should continue to receive favourable tax treatment that is unavailable to the “mum and dad renters” or the “mum and dad first home seekers” who are being harmed by the bubble created by the “mum and dad investors” – somehow this demand wasn’t seen as rankest hypocrisy.
      Breath-taking.

      • One Anonymous Bloke 1.5.1

        Well said. A point that needs repeating and hammering home.

        • Tamati Tautuhi 1.5.1.1

          Very good point why should landlords get tax advantages over and above renters?

      • Barfly 1.5.2

        “mum and dad investors”

        You know the ones that were going to buy the power company shares ?

        “mum and dad investors”

        John Key spamming that damn line oops sorry damn lie.

        “mum and dad investors”

        Were a bullshit marketing and election ploy from the corrupt National Government which was shown to be total crap when the analysis of buyers was done.

        “mum and dad investors”

        Well that’s the same bullshit cry again.

  2. Molly 2

    It would be good to hear some new ideas on housing and how to address it.

    I’ve one to get the ball rolling:
    On the issue of housing price decreases –
    To avoid the howls of dismay (which will be pain sincerely felt for many single home owners), create a government owned lending agency for owner-occupiers, NZ residents/citizens only.

    This agency will take over the commercial banking mortgages for those homes and using the same payment plans – but zero or one percent interest rates, will allow the homes to be paid off faster. (Don’t forget – Japan was offering zero percent rates – so it can be done).

    Benefits:
    1. The homeowner – while taking a hit on the house price – has additional income in later years – having paid off their house sooner – and can accrue savings and make investments in assets other than housing,
    2. The stress on homeowner/occupiers is lessened while the upward trajectory of prices may then be affected.
    3. The commercial bank has the loan repaid, but the homeowners length of indenture to the bank is considerably shortened.
    4. Communities gain more stability, especially if loans are connected to specific houses and only allowed to be transferred to another location with approval. (To avoid flipping).

    Given that the level of owner-occupiers is the lowest it has been, this approach affects only a small component of a large industry, and as such will have little direct impact on the economy – although, admittedly the successful end outcome necessarily is one of deflation for housing – both in terms of renting and owning.

    Loans can be made available by a series of criteria:
    – Length of ownership,
    – Linked to the average price of a house in that location,
    – Linked to the number of dependents or residents in the house, taking special note of aged care or high-needs carers.

    If these loans were also linked to programmes for upgrading and transitioning houses to alternative energy sources, then there could be a direct movement of people paying off their mortgages earlier and directing those future payments towards creating a better quality of housing stock.

    (Ad, please move to Open Mike if you don’t think this is on topic. Just didn’t think you wanted this post to solely become a Andrew Little conversation)

  3. BM 3

    Why does Labour think it’s a good idea for young people to buy a 500-600K first home?

    Up to your eyeballs in debt to foreign banks for the next 30 years is a terrible idea also this doesn’t really seem like the target demographic is your average lower income Labour voter?

    • One Anonymous Bloke 3.1

      Why do you think that’s the only thing Labour intend to do? The demographic you’re talking about are more likely to rent.

    • Craig H 3.2

      In Auckland, that counts as a starter property – I assume that cheaper areas would have cheaper houses. Personally, I’d like to see the houses sold at a loss, but that probably won’t happen.

      • BM 3.2.1

        I’d prefer young people bought an existing house as a starter, getting too far into debt is a really bad idea.

        Both personally and for the country, all that money going to banks instead of local business.

        Selling houses at a loss would be electoral suicide.

  4. Andre 4

    I’m fascinated by the outrage over the proposal to ring-fence losses to that property, so they can only be deducted against future income from that property.

    If someone buys a rental property with negative gearing, ie the rental income is less than the ongoing expenses, that’s a strong implicit statement of expected capital gains. If you buy a property with the intent of enjoying the result of the capital gains at some time in the future, then the profits of those capital gains are taxable as ordinary income, per the IRD’s intent test.

    How many of the people howling about the ring-fencing proposal are intending to defraud the IRD by misrepresenting their true intentions and expectations at time of purchase?

    • Craig H 4.1

      Well said!

      Going into business to run at a loss for years on end hardly strikes me as a viable business model for small rental property investors… Best left to Xero.

      To expand on the point about implicit expectations of capital gains, buying for 3% yield when 6%+ is easily available makes it rather clear what the intentions are.

      • Andre 4.1.1

        If anyone really wanted to stoke the fires, how about codifying that principle so that purchasing a property that initially runs at a loss automatically makes it liable for capital gains tax on sale? Including purchasing shares in organisations like Xero that perpetually run at a loss? 😈

        • Ad 4.1.1.1

          All new business requiring capital would die.

          • Andre 4.1.1.1.1

            Why? It’s less harsh than a full capital gains tax, which almost all other countries have some form of.

            • Ad 4.1.1.1.1.1

              Punishes risk.

              Most early businesses run on losses for first few years.

              Fine if it’s just property.
              Agree with making property less attractive as a whole investment class. Residential particularly.

      • mikesh 4.1.2

        If one really wanted to “punish” excess gearing why not make interest non deductible for tax purposes. In theory interest should not be deductible anyway since it does not contribute to taxable income, as required by the Income Tax Act.

    • infused 4.2

      Because lots of businesses use a property as equity. A big thing many people are missing here.

      • Andre 4.2.1

        Are you referring to using home equity as security for a business loan? In that situation, the business is liable for the interest and deducts it from the business income. The home only comes into the picture if the business falls over owing money and the only way to repay it is selling the home.

        • Ad 4.2.1.1

          Pretty common cause of mortgage foreclosure. Mortgage equity is the big source of small business equity here.

          Faster the rental landlord kingdoms are broken up, the faster NZ equity can get more democratized.

      • Kevin 4.2.2

        Only because banks no longer use plant and equipment as equity for a business loan. A huge number of small business owners have been forced into using their family home as the guarantee on their business.

    • It’s not so much about the capital gains as about the renters paying the mortgage for you, ie equity. And making a loss might just mean you carried out some expensive maintenance this year.

      But yeah, I don’t give a shit about whether the rent fails to cover the costs, because IRD will pay me for it – that’s obviously a pretty stupid way to run a tax system.

      • Andre 4.3.1

        Well, the IRD pays you back a third or less of what you nominally lost. In situations outside of property investment, I’ve always been amazed at how some otherwise rational people get enthusiastic about spending a dollar simply to incur a tax loss which pays them back thirty odd cents. With property of course, the payoff is simply a long way in the future.

  5. Halfcrown 5

    “Best left to Xero.”

    Fucking brilliant This could be off topic and I apologise if it is. I could never understand why people were putting money into Xero shares with the price always rising when they are still making losses There is a strong smell of something rotten here with a gigantic fiddle going on, the same type of fiddles property speculators have run for years. It is time to stop.

    • s y d 5.1

      Ha, Xero indeed……Best ask citizen Thiel about making money out of xero.

      The company also seem to have IRD actively drumming up customers via the updated provisional tax proposals.

      An indeed there is sense that some have special knowledge about when to jump on and off the bandwagon

    • infused 5.2

      Look at any tech business.

      It’s about capturing customer data and market penetration. There are a long list of tech companies who have never turned a profit.

    • Craig H 5.3

      Xero is expanding their customer base and markets with an intent to make a profit at some point down the road, and they probably will eventually. Small time property investors don’t have the same motivations…

  6. dv 6

    If you buy/sell a property
    Do you have to have an IRD no,

    And is the purchase/sale price passed on to the IRD?

  7. Ethica 7

    There were some good comments in Andrew Little’s speech about building communities of housing. These would be like the state house communities of the past – and he said he would carry in the first dining room table just like Savage did – but some houses would be for rent and some would be for sale. With the money raised they would keep building houses to keep creating communities. The media has concentrated on single houses but the idea of building communities is more important.

    • indiana 7.1

      Welcome to world of housing estates like England…hope they same troubles with those estates don’t come with them.

      • McFlock 7.1.1

        Well, if they’re fool enough to go with single/double-barrelled corridors and switchback staircases, the problems will come.

        If they’ve learned the lessons of the last 40 years of high-density community development, on the other hand, things might be a bit different.

    • Draco T Bastard 7.2

      but some houses would be for rent and some would be for sale.

      Selling them is actually a bad idea. Simply renting them out is a much better idea as it allows us to address the poverty that is a direct result of capitalism.

  8. Draco T Bastard 8

    Perhaps we can get Labour looking back to the first Labour government. National’s response to it seems the best:

    The National Opposition (1936) was astonished by the use of Reserve Bank credit for housing, which disregarded traditional principles of budget finance. Forbes (George Forbes ex Prime Minister 1930-5 Great Depression era) admitted confidentially to Stewart (William Downie Stewart Jnr – Finance Advisor);
    “This places them in a unique position, the houses after erection carry no interest on capital cost, and for instance a thousand pound house can be let for 5s per week and be a financial success. The millennium seems to have arrived and it makes one wonder why we had to struggle in the bog, when there was such an easy way out of our troubles, houses, after being built with the highest paid workers in the world, at the lowest cost heard of, makes our policy of orthodox finance seem almost prehistoric.”

    Build houses using government reserve money (sovereign money) that utilises our own resources and thus allows them to be rented out for SFA and still be financially viable.

    We can address the housing shortage (and a lot of other ills brought about by capitalism) by simply addressing the banking system.

    • Ad 8.1

      How would you alter Kiwibank?

      • Draco T Bastard 8.1.1

        It would essentially become the retail arm of the RBNZ:

        The third part is a state bank which creates the money it loans out ex nihilo. This bank will make both mortgages and business loans available to the public. It will neither charge interest or fees and will be supported through general taxation. The loans will have strict conditions on them thus limiting money creation through regulation rather than, as at present, through interest. As any default would have to be soaked up through general taxation this bank would have to have a close working relationship with the RBNZ.

  9. Bill 9

    If my home was worth $300 000 when I began buying it, then why does it matter whether it’s now worth $700 000 or $250 000? It’s my home. I live in it. End.

    Of course, if I’ve been an idiot and used the supposed monetary worth of my home to get huge loans on the punt that the monetary value of the bricks and mortar would keep rising… Aye well, them’s the breaks for gamblers, innit?

    Crash the fucking market and be done with it. There’ll be winners and there’ll be losers and there’ll be those who take the radical option and just live in their homes.

    I guess there those who will object on the grounds that too many people have bought their house as a way to provide for themselves in retirement. Well, they can join with the many, many more who’re becoming sharply aware, that for them, any pension whatsoever will be a concept belonging very much to yesteryear. Or maybe be the sole preserve of those wealthier cohorts in society who could embrace the liberal dream and purchase retirement investments to go alongside their private health insurance and whatever else…for such time as those investment and insurance scenarios remain viable – which isn’t too much longer.

    • RedLogix 9.1

      That’s the kind of TINA manifesto to win elections mate!

      • Bill 9.1.1

        🙂 Nah. It’s just a loose comment borne on frustration that’s essentially venting.

        Sea level rise on its own is going to sink the insurance industry pretty soon…along with a hell of a lot of agricultural land (that which is at sea level and on fertile deltas).

        Meanwhile, we’re running around in a way that’s less about re-arranging the deck-chairs on the Titanic than it is about arguing over the bloody afternoon hiring rates…

        • RedLogix 9.1.1.1

          Yeah I get that … I only deal with the all pervasive, ubiquitous fucked upedness by compartmentalising. I slice it up into little bits I can deal with, or make a difference to.

          Personally I’m a lot more impressed with the TOP policy in this area than I am with Labours. In many ways it’s a good deal more radical.

  10. johnm 10

    The FIRE economy – built on finance, insurance and real estate – is now the world’s principal source of wealth creation. Its rise has transformed our political, economic and social landscapes, supported by a neoliberal regime that celebrates markets, profit and risk. From rising inequality and ballooning household debt to a global financial crisis and fiscal austerity, the neoliberal ‘orthodoxy’ has brought instability and empowered the few. Yet it remains remarkably resilient, even resurgent, in New Zealand and abroad.

    In 1995 Jane Kelsey set out a groundbreaking account of the neoliberal revolution in The New Zealand Experiment. Now she marshals an exceptional range of evidence to show how this transfer of wealth and power has been systematically embedded over three decades.

    Today organisations and commentators once at the vanguard of neoliberal reform, including the IMF and Financial Times journalist Martin Wolf, are warning the current model is unsustainable. A post-neoliberal era beckons. In The FIRE Economy Kelsey identifies the risks posed by FIRE and the barriers embedded neoliberalism presents to a progressive, post-neoliberal transformation – and urges us to act. This is a book New Zealand cannot afford to ignore.

    http://www.goodreads.com/book/show/25980982-the-fire-economy

    basically we need a draconian CGT and end the property get rich casino! I don’t think Labour will do this! 🙁

    • garibaldi 10.1

      Exactly. Property should be taken away from being an investment source, as is done in Germany.
      We do not , as a society, get rich by selling pieces of our Country to each other, but the banks do (and their profits go overseas).
      Investment must be directed to productive activities, not unproductive property ‘swapping’. This has been a major fault in this country for many years and has cost us dearly.

    • Draco T Bastard 10.2

      Yet it remains remarkably resilient, even resurgent, in New Zealand and abroad.

      Does it?

      I’m pretty sure that the majority of people want to change it but it’s the politicians that refuse to do so.

    • RedLogix 10.3

      No need for anything draconian. Just tax assets on a fair basis with income.

      • In Vino 10.3.1

        This is the problem. Garibaldi above is absolutely right, but most Kiwis accept property investment as being the steadiest and most profitable way for individuals to get ahead. It results eventually in too much money diverted from productive investment, and the inflation of housing costs that make both renting and house ownership ridiculously over-priced.
        Sorry RedLogix, without draconian, nothing will change. There will be no benefit from a minor tax change that protects current property values. The currently squeezed will remain so, and the current profit-gougers (politely called banks and investors) will continue to profit-gouge.

        • Ad 10.3.1.1

          As far as the people I know with more than three properties, what Labour is proposing is not only draconian from the get-go, it is financially devastating.

          They see the increased capital value that they had banked on completely deflating.

          They see the ability increase rentals consistently evaporating.

          They see a collapse in large sectors of the real estate market in Auckland, Christchurch, and Wellington.

          They see nothing short of Labour unleashing the Terror.

          And we haven’t even heard from the Property Council, the retail banks, Real Estate Institute, and the banking analysts and financial media commentators.

          We have not yet seen the enemy rise.

        • RedLogix 10.3.1.2

          Get your horse before your cart. Crashing the property market bus and then looking about for an investment model that better serves the country is not likely to have a happy ending.

          I’m perfectly aware that speculating and selling houses to each other is not a future. ( We either built new or heavily renovated all 8 units we currently own so I’d argue we created new value.) I was always aware it was less than ideal, but as others have said, what better choices did we have?

          The political trick here is to manage a long term gradual transition from property being the ONLY form of safe retirement investment (which has led to the current ghastly distortions) to one that is on a level playing field with many others. As you say Germany has already managed this quite well. Australia has a massive Super fund industry and so on. But our current tax and fiscal settings privilege property speculation over all other forms of wealth generation.

          And I’m going to bang on about this, but it’s really only Gareth Morgan who has consistently had anything constructive to say about this. His model is based on a horizontal equity that treats different forms of wealth generation as equally as possible, removing that distorting privilege.

          We should have been making these changes a decade ago when the transition would have been easier. We have as usual left it a bit late for comfort.

        • Nic the NZer 10.3.1.3

          “It results eventually in too much money diverted from productive investment”

          This is actually based on a miss-understanding. There is not some giant pool of NZ capital which is divided up by investment decisions. The problem with access to finance is instead that the productive opportunities don’t arise so readily in NZ. If they did, or to the extent that they do, they are able to get finance to operate.

          The problematic blockage here on the other hand is on the demand side, where due to a lack demand (spending) many businesses which might exist and develop quickly fail. This kind of environment is surely going to persist for as long as NZ continues to function as a low wage economy with significant inequality and a lack of domestic demand.

  11. David Mac 11

    We’ve made houses the go-to investment. For someone with about 40% house deposit to invest: Where is there to go? An investment away from property attracts responses like ‘Geee, that’s risky’ or ‘Safe, but the returns are snake belly low’ and they’re right.

    We’ve done it to ourselves. If our under the mattress money isn’t in a house, we’re a mug. Just one usually, we’ve made it the Superior Superannuation policy, AMP haven’t got a hope of matching it. Only 4000 of us own more than 1 investment property.

    As Garibaldi said above, buying my Pet Rock back from you for $5 more than you paid me for it is making neither of us better off.

    The problem with snipping the fuel lines on housing is the immense and cataclysmic fall-out. Collateral damage of tsunami proportion.

    A better mouse-trap is called for. The vote winning way of approaching the situation is not to hobble housing, it’s to offer something better. Preferably something to do with houses, we love houses.

    Kiwibuild. Make investing in Kiwibuild a more attractive investment to Mums and Dads than having a tenant help them pay off a 2 beddy in New Lynn. Then our investment funds won’t be about passing the same Monopoly cards between ourselves, we’ll be adding two new streets to the board. I think we should patch them in between Park Lane and Old Kent Road.

    • Ad 11.1

      getting taxpayers to invest in a state-funded or state-supported building Kiwibuild is just telling taxpayers to stick their face over a fire hydrant.

      We are trying to totally cool the whole idea of housing as a thing to invest in.

      Kiwibuild should solely be an instrument for getting houses built, and in fact reversing the populist surge towards investing in housing.

      • Andre 11.1.1

        “We are trying to totally cool the whole idea of housing as a thing to invest in.”

        Which points to the need to make other investment options in New Zealand more attractive as part of dealing with the housing problem. I’m ok with my investments in the US sharemarket (apart from having to deal with Foreign Investment Fund tax rules), but I look around at alternatives to property in New Zealand and they almost all look like viper pits.

      • David Mac 11.1.2

        The best way to cool it is to build masses of them, anything else is fiddling.

        The capital investment required to make a worthwhile difference is immense. Right now, it needs all the $ and skilled people we can muster.

        That doesn’t mean to say that we shouldn’t be looking for ways to make NZ the Silicon Valley of Green Tech. Right now, we need houses. I’m suggesting that for a while we put devices in place that direct people’s investment money towards new builds rather than flicking the same places to each other.

        Kiwibuild is in a position to make that happen. I think it’s an approach that could enjoy popular support, Kiwis building NZ together etc.

        • Ad 11.1.2.1

          Labour’s approach already takes this into account with an explicit policy to form Urban Development Agencies that include private equity. That is fully part of Kiwibuild already.

  12. David Mac 12

    Would my old age prep money be better off in a tired 600k Glen Dene unit or a govt guaranteed anonymous half share in a new 1.2m pad with a view of Rangitoto?

    Investment sugar options up when you’re the govt.

    • Ad 12.1

      That’s already happened in Hobsonvile Land Company, which is effectively a state Urban Development Agency with private partners in there from the beginning.

      Plus, it doesn’t just make people money.

      It’s also got a fully integrated primary school, secondary school, ferry terminal, health centre, comity centre, shops, bus network, etc etc.

      Hobsonville has to be the nationwide benchmark for what is coming under a Labour administration. And Hobsonville was started by Labour.

  13. Ian 13

    The 100000 kiwi battlers that own 1 investment property will be wondering why they have been Be Littled. What a stupid policy. I listened to a conversation today between a sharemilker who owned a couple of cheap rentals ,obviously working his ring of to better himself and maybe buy a farm one day. He explained to the ms mau that he was able to offset losses in one side of his business against his other business streams.
    So Labour want to kill the entrepreneur , the kiwi battler and anyone with a bit of get up and go.
    Great policy labour if your a loser.

    • David Mac 13.1

      Those jokers will be ok Ian. No 5 minute noodles in their trolley.

      A rental house has to be treated as a business. Anyone that doesn’t treat it as such is asking to have their heart broken. Overhead increases don’t stop with the business owner, they don’t cut their Netflix sub. Old muggins at the bottom of the heap picks up the increase.

      Labour policy needs to culminate in battlers getting a lift, not a rent increase letter. The best way to achieve that is feed Kiwibuild rocket fuel. The spin-off benefits are immense, they start with a WINZ job board covered in building related trainee positions. Demand so strong it prompts potential employers to be more interested in applicants’ ability to lay slate or carpet than whether or not they smoked a joint in the weekend.

      • Ian 13.1.1

        Your frikking dreaming. Joints are so yesterday. Amphetamine and building a house don’t mix. The only way to move forward with the so called housing crisis is to bring in more tilers and carpet layers from the Philipines and other states with a work ethic.

        • One Anonymous Bloke 13.1.1.1

          In 2007, the unemployment rate was 3%. Now it’s nearly double that, even after the figures were fiddled.

          What is it about having a National government that makes so many more people decide to be lazy, Ian? Or is your entire worldview a crock of paranoid bitter bullshit much?

          • Ian 13.1.1.1.1

            Did you not watch the telly program last night about how since 2007 methamphetamine has taken over Gisborne and the East coast. Can’t build an economy with junkies.

            • One Anonymous Bloke 13.1.1.1.1.1

              You seen it on television Ian? Then it must be completely true eh.

              Why do so many more people use methamphetamine under a National government, Ian? Can’t build an economy with a paranoid bitter bullshit worldview and Bill English?

              • McFlock

                What I love is that they so obviously believed their “economic losers are druggies” excuse that they force-tested unemployed people.

                Their own invasive regime proved them wrong. What was it – less than one or two percent failed or failed to appear for a test? Lolz.

                • One Anonymous Bloke

                  Fewer than 1% tested positive, but Ian seen it on tv!

                • Ian

                  So you don’t think amphetamine abuse is a problem in Gisborne ? Talked to Meng Foon recently ?

                  • One Anonymous Bloke

                    It’s a problem everywhere. Out of eight thousand unemployed people tested, twenty-two of them failed.

                    Twenty-two, Ian!

                    • Tamati Tautuhi

                      The P dealers have been trading with the local gangs, crayfish and paua in return for methamphetamine, this has been going into the NZ restaurant trade, I was given this information from one of the Local Honarary Fisheries Officers about 7-8 years ago, even told me the name of the restaurant in Kingsland Auckland.

                    • Tamati Tautuhi

                      Methamphetamine is only detected in the blood/urine for two days following ingestion, whereas marijuana is present for 40 days, whereby residuals can be detected in the blood/urine. Hence P (Speed) is the drug of choice for truck drivers as it’s residual affects are minimal and the chances of get caught in a drug test are minimal.

                  • McFlock

                    don’t be a dick – most drugs are a problem in most economically depressed areas, including alcohol and meth.

                    But there are still plenty of sober people willing and able to work, as the unemployment drug tests show.

                    Druggies are a byproduct of the economic mismanagement that made those places economically depressed.

              • Ian

                Yeah right. I can see why you are anonymous. It’s OK fella as long as you don’t do it in public view.
                You got to be a serial wanker if you blame rampant amphetamine use on Bill English.

                • One Anonymous Bloke

                  When adults discuss drug and alcohol abuse, it falls into the ‘mental health’ category for public policy purposes.

                  Did you know that the level of mental health in a society is directly proportional to the level of income inequality in that society, Ian? The NZ Treasury thinks that economic policy affects these things. Who am I to argue with them?

                  You probably put these things down to bad individual choices and all the other bullshit you’ve been spoonfed, but I wonder why you’ve never asked yourself what drives these choices, and why so many more people (according to your television) have started smoking ‘p’ recently.

                  Then you can recall that twenty two of them are unemployed, and that thing you’re having right now is called “cognitive dissonance”. Enjoy.

            • David Mac 13.1.1.1.1.2

              We are all junkies Ian, it comes with being human.

              Some of us can’t keep out of the fridge, some of us can’t keep out of the church, some of us can’t eat food without vomiting. Some of us can’t sit in front of a computer without masturbating.

              We all have our vices Ian, are you sure you want to chuck the first stone?

            • Tamati Tautuhi 13.1.1.1.1.3

              The P dealers have been trading with the local gangs, crayfish and paua in return for methamphetamine, this has been going into the NZ restaurant trade, I was given this information from one of the Local Honarary Fisheries Officers about 7-8 years ago, even told me the name of the restaurant in Kingsland Auckland.

          • Tamati Tautuhi 13.1.1.1.2

            Remember it is the “Brighter Future” ?

        • David Mac 13.1.1.2

          Please don’t throw me into the briar Ian.

          While these lucky adventure seeking people are solving our housing crisis will I be forced to rid the bay of snapper, slice up waves and fiddle with my wind driven sculptures? Please don’t do this to me Ian.

          Why is this bad? Grant industrious house builders residency when they’ve built 10 residences. We’re hot baby, calling NZ home has a price.

          Right, who is coming fishing?

          • Ian 13.1.1.2.1

            We all go fishing on the days off DM . Nothing is wasted. The heads are fought over.You can fiddle with what ever you like while rome burns.
            The housing crisis is a wet socialist dream .

            • David Mac 13.1.1.2.1.1

              Now I think you’re just being contrary because you enjoy the attention. Astound your so called friends, they just pretend to like you Ian, they all talk behind your back, they sense your Marxist leanings. Astound the fuckers and declare “I’m Voting Kiwibuild” Go on mother thingie, I’ll genuinely love you for it.

            • Barfly 13.1.1.2.1.2

              Are you allowed to drive? Only having one eye that is – must be hell on depth perception. Mind you from your spiel it would seem that all forms of perception are a challenge for you.

    • Ad 13.2

      Methodone Programmes generally don’t work.

      • David Mac 13.2.1

        Yeah, I think that is because nothing looks remotely as good as tooting on a lightbulb.

        I feel a responsibility to float options.

      • David Mac 13.2.2

        Ha, I buzz read your comment Ad and in doing so missed your point. You’re not talking about meth meth.

        Methadone, gotcha. Weaning someone down from the back of their devil with a diluted devil.

        I think the key to tearing anyone away from a demon with barbed teeth is all about a search of finding something better. Methadone is ‘I’m not an alcoholic, it’s only light beer.’ I think the best way to shake that stuff is seek something better. Jumping out of an aeroplane is a buzz.

        • Ad 13.2.2.1

          It was an analogy to our addiction to mortgage debt as our way to gain wealth. Even those with a mere 1 rental

          But great to see everyone spin out.

  14. Why did people let RWNJ’s subvert this thread into one about drugs?

    And why did people let RWNJ’s use this forum to justify English and Keys contempt for New Zealanders with their comments about drug addled NZ workers and importing cheap immigrant labour and then derail what the main article is all about?

    We’ve all got a great future ahead – we are looking at a Labour led govt post September general elections , – so forget the RWNJ’s and focus on the good things to come.

    RWNJ’s know their time is almost up – and worrying about what they have to contribute is a pointless exercise.

  15. Tamati Tautuhi 15

    Little could be the reincarnation of Mickey Savage ?

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    BeehiveBy beehive.govt.nz
    6 days ago