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What happens if housing prices really go down?

Written By: - Date published: 8:00 am, November 17th, 2018 - 164 comments
Categories: australian politics, Economy, housing, International - Tags:

So what if Labour decides to go ahead with its capital gains tax?

What happens to the equity of the remaining middle class?

What happens to the equity of those who were brought in under KiwiBuild?

We will get the final recommendations from Dr Cullen’s tax review in March 2019. Here’s the interim report.

Let me cut to the chase for you: there will probably be a capital gains tax in the final recommendation on the sale of houses that are not the first home.

Expect that news to hit house prices near you.

Let’s look over the Tasman, to the economy whose banks and wider economy dominate our own.

Prices in Sydney and Melbourne fell again in October to be 8.2% and 4.9% down from their respective peaks in August and November 2017.

Like, first world problems right? And so the froth came off after a decade, right? Suck it up right?

Except, as a deeply unequal country, this is the last means available for any couple to get ahead and out of whatever rat race they are in to the next stage of their lives. Viva La Treadmill.

Analysts at UBS said this week that the Australian housing credit squeeze was spreading into owner-occupier lending, and further tightening would be almost inevitable after stricter debt-to-income requirements are implemented following the Australian Royal Commission into banking.

The next Australian Federal election is in May 2019, and with a likely Labor victory there we are going to see a lot of changes to negative gearing and capital gains tax breaks. That’s just 6 months away.

Now, our own Labour-led government promised not to bring in any such capital gains measures until after a fresh mandate from the 2020 election. So from March with Cullen’s final report to May we have a couple of months to prepare and adjust.

We are at 3.8% unemployed – about as close to capacity as we are going to get.

We have an economy that is booming.

We have housing demand that continues to outstrip supply, even with huge government intervention.

We have more sectors coming into play that are beginning to push out the drag of dairy on our economy.

We have a government that is throwing huge and increasing direct transfers in welfare and economic development and transport and other payments like the world was about to end.

We have very few banking problems compared to Australia.

We have no sign of a change of government.

We also have huge numbers of apartments being built and bought in Auckland, and a really low number of mortgagee sales nationally.

Also we do not see a Reserve Bank preparing to enforce a hard cap on lending with a debt-to-income ratio.

So far, so not Australia.

But Australia will always matter to us more than any other economy. This housing bubble will not last forever, and bubble it is since we are an outlier. Will we stay stable or will we start going down in 2019?

Anyone hoping to make their next life move based on the equity of their existing home should be watching carefully for trends in the housing market between Sydney, Melbourne, and Auckland. Within the real estate flux of those three cities lie the future of New Zealand middle class equity.

164 comments on “What happens if housing prices really go down? ”

  1. SPC 1

    What happens to the equity of those who were brought in under KiwiBuild?

    Not a relevant question, it’s not subject to any CG income tax as its primary residence and if values fell there would only be real equity loss (as with any other home) if the property was sold.

    As for the CGT, the market is based on supply and demand and affordability of the mortgage. So what will impact values is a rise in interest rates, not a tax on any realised gain.

    • Ad 1.1

      It matters if they go under water.

      • SPC 1.1.1

        No different to any other home owner.

        And no one goes under water unless they cannot pay the mortgage, and the value of the home on the market has no bearing on the ability to pay the mortgage.

        There is no government responsibility to hold up the value of homes just because it sells some (it has been selling state houses for decades), nor even to require the RB to hold down the OCR to keep mortgages affordable – one should note the equity requirements for home buying have, in reducing dependence on the RB to lift the OCR to control house price inflation, is in fact already doing this. The real question is for how long this will continue.

        • Ad

          You’re under water as soon as you need to refinance.

          The government will be held accountable for tilting the market, because that is what it is trying to do.

          Might not be fair, but Kiwibuild citizens will continue to be under the most scrutiny and their struggles and stories will be tracked by the media.

          They are all sliding down the (currently gentle) slope of moral hazard.

          • SPC

            There is no need to refinance on a floating mortgage.

            And it is very unlikely a bank will give up profitable business to another bank by not refinancing term loans. It’s only the inability to pay the mortgage that concerns the bank.

            The government wants to be held accountable for making homes affordable.

            • Ad

              You’d be surprised how life happens.
              Illness, marriage, divorce, children, death; the other big stuff of a life.
              That’s when refinancing happens, not whether you are floating or not.

              And it’s the knowledge that you are under water that turns the milk sour in your mouth. You have no options; social escalation just became the social elevator pressed for down and you can’t get out.

              Whatever the government “wants” to be held accountable for, they will find real different real fast when the market really tilts down.

              At that point there’s no first-furniture-into-a-house that will save them from the media or the opposition.

              • SPC

                That refinancing difficulty is not related to house values.

                Go on ad’mit it you want government to guarantee rising property values and allow people to keep their CG safe from income tax liability. And are reaching for an argument.

                If you were concerned abaout consequence from poor health and relationship failure on home ownership you would promote government compulsion of “income for mortgage payment insurance” (covering loss of an income due to health or separation).

              • KJT

                You really think the banks are going to lose profits, by refusing loans to those whose incomes can cover it. Dream on!

      • KJT 1.1.2

        No. Unlike the USA you cannot walk away from the remaining debt, and leave the house to the bank. In fact the bank is more likely to forclose if you have greater equity. They are more likely to get their money back.
        So long as your income can pay the debt. Why should they care.

  2. Agora 2

    Capital gains tax was introduced uncontroversially by the Keating government in Australia and is accepted as a fact of life today. The same would happen here in Aotearoa.

    Just do it, Jacinda ..

  3. Pat 3

    The main impact will come from the lost ability to use the constantly increasing cheap credit the housing bubble has afforded….take that additional churn out of the economy and what else will fall over? (remembering that this borrowing is for largely non productive consumption.)


    • SPC 3.1

      That has already occured in Auckland with propery vlauers at a plateau.

      That feeling wealthy bubble is being replaced by all those baby boomers reaching 65 and collecting super on top of their pay (all while government, living within its 30% GDP spending cap, is being starved of money for other purposes).

      • Pat 3.1.1

        yes , the plateau has only just begun however, and the impact will worsen when it begins to decline. There will be some offset with the increased gov spending but it wont be enough nor available to the same sectors.
        The RBNZ (and the banks) have one hell of a juggling act to perform….and they dont own all the balls.

  4. Antoine 4

    It’s not at all clear to me that a capital gains tax would push down housing prices substantially.


    • SPC 4.1

      Or at all.

      Imagine if we had a CGT back in 2008 before Labour left office. Would all those investors who bought up property, because they saw a shortage of supply driving up prices, not do so because part of the CG to be made would be paid in tax? Forgo the profit that was there to be made because they could not keep all of it?

    • Matthew Whitehead 4.2

      A tax on realized capital gain, even with a provision that offsets the value of your new home for people changing family homes (ie. if you’re at a total of one home before and after both transactions go through, we should only consider the net realized gain- ie. you should pay tax if you sell an expensive home and move into a more modest home) would at the bare minimum arrest rises in house value, if not lower prices altogether.

      It would finally introduce a tax on “investment property” income, reducing the pressure to speculate on houses as a form of no-tax investment, and freeing up investment capital to be used for more productive pursuits. Combined with a now mostly domestic housing market, and any significant increase in house supply from Kiwibuild, not that I’m a huge fan of how it’s worked out, it would likely make a real dent in house prices. This might create some short-term pressure on the rental market as people who aren’t really good landlords anyway seek to sell up, but this will also either decrease the pressure on the housing market for owners, or simply result in better landlords buying them out in the medium-term. (this is, coincidentally, why Kiwibuild should really also be accompanied by either a lease-equity scheme or a scheme to build government subsidized rentals, to put similar price pressure on other parts of the housing ecosystem and relieve any pressure on availability put on by properly regulating landlords)

      • SPC 4.2.1

        No, just an absolute no. Creating a disincentive for people who own family homes to downsize, or move out of a crowded Auckland, is so very wrong. It would make things worse.

        The best way to manage investment in higher value home ownership, as a way around CGT on non resident property, is to subject homes in the top percentile to a CGT (as we apply a higher rate on top incomes etc). There is a reason this is common overseas where a CGT applies.

        • KJT

          Never been happy with the idea of exemption for “family homes” from CGT. An exemption up to a million for a “family home” is fair enough. When profits of millions are made on family homes, partly boosted by the tax funded infrastructure we paid for. There is no reason for it to escape. Let’s 10 million gain in Auckland for example.
          Also stops the proliferation of “family homes” which will suddenly be acquired, by well heeled, children

      • Antoine 4.2.2

        Matthew – I see your assertion that a CGT would reduce prices (relative to what they would have been) – but see no supporting evidence.

        It seems that the CGT will likely be introduced so I guess we can wait to see what happens. No need for speculation.


    • bwaghorn 4.3

      Who cares its about fairness I pay tax on every cent I earn why should those who are more successful than me get to dodge.

      • Antoine 4.3.1

        Well, maybe for you it is about fairness, but for other people it is at least partly about reducing house prices. Such as Matthew.


        • KJT

          Not just fairness. The problems with too narrow a tax base also.
          CGT, if applied to reduce bottom rates of income tax, make the allocation of resources in the economy more efficient. At the end of the day, only banks, and a few speculators benefit from sky high, house prices.

      • SPC 4.3.2

        Sure the intention of the CGT is to ensure this income is also taxed.

        We brought in the GST partly because some were avoiding tax by not declaring their (black market) incomes.

        • Antoine

          > Sure the intention of the CGT is to ensure this income is also taxed.

          This is _one_ of the possible motives in peoples’ minds.


        • KJT

          Well. Actually GST was a blatant tax swap from high income people to low income people paying more. But I agree, that was one of the reasons, used as propaganda, to sell the idea.

          • Draco T Bastard


            GST was simply a way to take the taxes off of the rich and place it upon the poor for the simple expedient of increasing the income of the rich without them actually doing anything.

          • mac1

            Funnily enough GST was sold to us as a form of taxation that no-one could avoid, and the wealthy who avoided other taxation would pay more as they consumed more.

      • greywarshark 4.3.3

        Yes bwaghorn basic reaction that we all have. Take the emotion out of it and look for what will work to achieve the aim of slowing and slowly reducing house prices. We have to keep our eye on the ball if we ant to win, and watch out for unhelpful tactics from the opposing players.

      • mikesh 4.3.4

        I don’t think capital gain is something that is actually “earned”. So the fact that someone pays tax on “every cent earned” is not a reason for taxing someone else’s capital gain. After all, the capital gain is being paid for by the purchaser of the property. Is the latter being compensated through the tax system for his apparent loss?

        • bwaghorn

          Your right about it not being earned but it should be taxed

          • mikesh

            And presumably the buyer should be compensated through the tax system.

            • bwaghorn


              • mikesh

                The buyer pays for the capital gain out of his tax paid income. However, since no new product is involved in the sale, the transaction is simply a transfer of tax paid income from the buyer to the seller; so if a capital gains tax is paid the same slice of income will have been taxed twice. It is therefore appropriate that the buyer be compensated for the tax that he has paid.

                • greywarshark

                  If we can cut out the idea of buying houses for capital gain that would be really good, then recompensing tax wouldn’t come into it. Also the idea that a person is lucky to be able to buy a house so people should stop trying to squeeze every bit of advantage from it. Stop griping, be happy.

                  By the time we have got it sorted out and all the didactic financiers have had their eyes crossed and ‘ts ‘ balanced, it will be a case of climate change extremes stripping the country of reserves and sapping all our resolve to get a better system; it will be survival, what’s for me and tough for everyone else.

                  /sarc but not entirely. I can see this happening if buts don’t stop being raised and butts don’t get shifting.

                • McFlock

                  I paid GST on my groceries. Do I get that back?

                • SPC


                  1. Every time you pay GST there is tax paid income used.
                  2. There is no “tax paid” transfer, if the buyer is borrowing the money.
                  3. And if you look at the valuation of the property it is the land value which rises. This is due to the lack of new supply with rising demand/population.
                  4. If there is a shortage of labour its price will rise and the higher income will be taxed, regardless of the fact the same work is being done.

                  The buyer is compensated for the higher amount for the land he has paid, by owning it, and having the right to sell it.

                  • mikesh

                    Certainly the buyer is compensated through acquiring land, but the seller’s gain is, by the same token, offset by the loss of that land; so no CGT should be levied. It depends on on how one thinks of it – if the seller has made a gain there must have been a offsetting loss on the part of the buyer. If on the other hand one considers that there is no loss on the buyer’s part then the seller cannot have made a gain.
                    As far as GST is concerned I agree that it represents double taxation. I think we should get rid of it.

                • KJT

                  Why? When I do building work for someone it comes out of his/her tax paid income, also.
                  In fact there are much stronger arguments against taxing workers income than taxing unearned gains.
                  As Adam Smith said. “Tax land and rent seekers, not workers and entrepreneurs”. Makes for much more efficient use of resources.

                  • mikesh

                    When you provide building work for someone that person has not incurred a loss since he has received your finished building work in return for his payment. This is not the case where the buyer of property is concerned since the seller has produced nothing. I am assuming the house and the land are unchanged from how they were when he purchased them at some earlier date.

                    • KJT

                      The seller has got extra money, but has produced nothing. Lets face it. He hasn’t fucking well earned it!

                      Exactly. But the extra money he has, has incurred extra costs on the rest of us. From housing scarcity, city infrastructure, reduced wages from immigration, are all costs we have to pay so he can make more money on his house.
                      Earning more money just by owning something is economically inefficient, unfair and a poor use of assets.

                      Any argument against capital gains taxes, applies in spades to workers income taxes. And even more so to the regressive, tax on a tax which is GST.

                    • mikesh

                      “Unearned income” usually refers to items such as rent, interest and profit. A case can certainly be made for taxing these more heavily than income from work, inasmuch as they are in fact “unearned”. Capital gain however is a capital item, rather than an income item, and presumably should not be taxed unless one is taxing all capital. It is all very well to say that someone who sells his property, and makes a capital gain, has benefitted from the provision of infrastructure, but so has everyone else, even those who have not sold their property. Capital gains taxes are are simply too selective..

                      Capital gains taxes seem to be popular because, after one has sold an asset, one will have money available to pay them. However, simply having money available doesn’t seem a sufficient reason in itself for levying a tax so the tendency is to call capital gain “income” to provide a pretext for doing so.

                    • KJT

                      Capital gains is a “profit”.

                    • mikesh

                      “Capital gains is a “profit””

                      Ask any accountant and he will tell you that that “profit” is what one can withdraw from an enterprise without reducing its capital. When a property is sold all that one is doing is changing the form in which it’s capital is held from real estate to cash, and nothing can be withdrawn without reducing that capital so there is no actual profit. If there has been a capital gain, that gain will be included in it’s capital.

                  • Draco T Bastard

                    All the Classical Economists warned about rentier income and how it would twist the market in favour of owners. Most of them suggested taxing land and other capital rather than workers to prevent rentiers from arising.

                    Then we got the present neo-liberal paradigm that tells us that shifts all the tax onto the poor in the form of GST and PAYE while the rentiers use tax structures (i.e, Double Irish With A Dutch Sandwich) to avoid taxes.

                • bwaghorn

                  What a load of shit .

          • patricia bremner

            All income should be taxed. Earned and unearned.

        • KJT

          It is not “earned” by working is even more reason for paying tax on it. Tax payers contribution to infrastructure, and services for the excess amount of immigrants, are paying for your capital gain.

          • mikesh

            Agree that taxpayers are paying for infrastructure etc which may give rise to capital gain – though gentrification, life style changes etc, which have nothing to do with taxpayers may also be part of it – so perhaps a land tax or some other form of wealth tax may be justified. A capital gains tax would seem to be be too narrowly based though for this purpose.

        • Tricledrown

          If housing prices go down the govt would have to pay out for the capital losses
          Housing prices won’t go down in any significant way while migration remains high, there is a shortfall of 70,000 houses in Auckland at the present most of the rest of the country is suffering housing shortages as well.
          In the 2008 GFC Auckland prices dipped for 1 Yr then continued to climb till 2018.They have plateaued for now but won’t drop by any where near what alarmist’s claim.
          Kiwibuild owners are getting houses at $400, 000 below value and more so prices are going to have to drop by nearly 40% which will never happen especially in Auckland.

  5. SaveNZ 5

    If a capital gain tax comes in I think there is strong likelihood people would punish Labour and they will fall. The is because there are plenty of other ways to tax incoming and outgoing capital in this country which would effect people who don’t work here, have a satellite family here, but have a house here and are able to call it ‘the family home’ and that is fairer.

    Cunliffe lost the election as soon as the question, if the property is in a trust or company will it be taxed, and he said, no.

    So if Peter Thiel gets a tax free house for 30 million, the apocalypse people don’t pay capital gains tax on their bunker and a teacher has to pay capital gains on a rental property or Bach aka totally aimed at only honest locals…

    The other thing that will happen is that people will sell their rental property and Bach before the capital gains comes in, and guess what, even less rentals and tourists accomodations. If a person goes to a hotel in the tourist industry and all the staff are from overseas, guess what, not exactly an authentic experience!

    I’m not against further taxation as long as it is aimed at Non productive sectors who currently seem to pay sweet F all, aka satellite families and people getting welfare while living in a million dollar house that somehow is in a trust or another family member owns it and so they apparently don’t own it (plus WFF) and people who seem to be living the high life in and out of NZ but don’t pay taxes here.

    With petrol taxes and a capital gain taxes introduced we all know where the Labour led government is going, with taking wealth from local interest and making it even easier for overseas speculation here, just like immigration people are able to be drug dealers in NZ for 26 years and never put in a tax return and still become NZ residents, crazy!.https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11842563

    Pretty easy for someone to arrange a ‘family member’ to study or retire in NZ to get around the NZ rules or like the folks above just never put in a tax return and it takes 26 years and a 40 million drugs bust before sleepy NZ authorities notice anything.

    There are ways to tax higher wealth people, a wealth stamp duty for example on housing over 5 million which would get all the high value people because a stamp duty is not subjective on income which can be manipulated or taxes that are not paid, but a set charge to be paid on point of sale.

    There is more need for a tax on people in a satellite situation who own property in NZ but don’t work or live here full time but use NZ facilities and are not residents. Likewise making the criteria to become a resident much longer and more robust in line with other countries.

    When crashes happen aka US it is actually the poor and middle class that are affected the most, because richer folks have cash reserves to buy up all that cheap assets.

    If we follow through from the US Global Financial Crisis then we now have the Trump situation, the democrats under Obama bailed out the banks ignored the victim and many of the banks actually became richer.

    So when Trump said, make America great again , people who were screwed a decade ago were receptive to that message.

    However if Sanders had got in and campaigned to “Make America fair again” there would probably have been a different result and the US would not have the current social divisions in the US or government.

    Hillary Clinton is not trusted because she represents the global elite that helped with global financial crisis and bailed out the banks while the people who were the victims of that approach, lost their jobs and houses.

    • SPC 5.1

      Yeah sure … the less than 10% of New Zealanders who own more than one property would turn an election against Labour it brought in a CGT … .

      Seriously how many people currently voting Labour own more than one home – my guestimate it would be no more than 1% of the population. And at least half of that would support the CGT.

      And you do realise a lot of the foreign money comes here because we do not have a CGT, and such a tax would include them.

      • SaveNZ 5.1.1

        Half of parliament probably own more than 1 home! The government told everyone to buy another home to ‘save for your retirement’ in the 1990’s as they the said the country could not afford super…

        65+% of people own their own home, so any changes in housing will effect a lot of people and most people secure their business again their home as well.

        If you look around Auckland as well, the demographics show very clearly who in winning the tax war in NZ as the Asian population has increased to about 40 -60% of Auckland, only a matter of time before that spreads across the country.

        There are many loopholes for people who are not living in NZ who can use regarding taxation .

        I know a Korean family been here 20+ years from overseas, only worked about 1 year of that on minimum wages, gets super, welfare and has got her children, their parents and the parents of their marriages and so forth into NZ and although owning million dollar homes still get WFF and accomodation supplement somehow. Their children now grown up all got free education in NZ, health care and work overseas but buy property here, and don’t pay any taxes as the property just gets put in whoever is most convenient person’s name for tax purposes. It’s crazy. A capital gains will do nothing to them as they are all NZ residents who somehow don’t own anything and pay no taxes while being able to get all the benefits of living here like someone on welfare who actually needs the money!

        Likewise most of NZ’s biggest companies are significantly owned by overseas interests, from property to agriculture to banking to pretty much any large company that has assets here.

        So the wealth transfer is significant to overseas interests and new residents into NZ and that is where the unfairness is and zero interest from government in cracking down on this practise which is taking money from the poor and middle class of NZ, in fact they keep dreaming up more ways to tax the honest people the most.

        • SPC

          Sure I get it that many former and current MP’s have made a lot of money out untaxed CG – they are part of the less than 10% who own multiple properties.

          They have been, and still are, part of the problem in there being a just tax system.

          I don’t see home ownership rates being an issue, given a CGT is unlikely to impact on property values (unless there was a retrospective CGT, but even the impact would only be temporary – a large number of sellers prior to the introduction taking offers below market value, which would be great for some first home buyers of the rentals and lawyers arranging sales within families).

          • SaveNZ

            The point is we have rich people who are virtually untaxed in NZ aka satellite families and rich satellite retirees and there is no taxes in the pipeline for them by the sounds of it. Not only that, the tax system is blind to people who are going between NZ and their parent country and not being taxed in NZ while those honest people in NZ who are working are paying for the people above. Obviously the problem is worse for migrants who do not have free health care or education in the country they are from and so that is increasing the problems for mid wives , health care workers, teachers etc who are doing ‘double duty’ on people cherry picking the welfare of NZ but not contributing much to the economy. So they might have a family home but under the scenario they don’t pay a capital gains tax on it. Even a stamp duty is better because at least it gets the money out of those people.

            Lefties advocates do not seem to understand that capital gains tax is very easy to avoid tax, lengthily disputed by the richer folks and in the countries that they introduce capital gains it does not generally increase their tax take or reduce speculation, in fact increase the price of luxury housing, which is the opposite of what people need in NZ.

            NZ now needs a massive increase in landlords renting affordable houses, so not sure how a capital gains will work out. Just like unitary plan and Kiwibuild it is clear that people’s renting situation is getting worse overtime the neoliberals come up with yet another disingenuous idea to ‘help’ them.

            The housing crisis is from lazy immigration and NZ did fine with rental housing until the last 6 years when immigration was ramped up to ridiculous levels.

            if you want to know how NZ can somehow have record low unemployment but more people on welfare that is why. If you are rich, you can migrate here and not need to work but you still need health care, roads, education to your children and so forth. That is our future scenario of no workers because with all the rich people not working taking up the resources and poor people who are better off on welfare and middle class leaving the country too disgusted with being taxed more and more, from petrol taxes to capital gains, while rich folks not working are living the life of Riley on the back of other people’s working long hours or carefully investing for the future.

            Lazy immigration will destroy NZ and our government are asleep at the wheel.

            • solkta

              NZ now needs a massive increase in landlords renting affordable houses

              No it doesn’t, it just needs lots of affordable houses. Why are you opposed to high home ownership rates?

    • KJT 5.2

      A poll said 80% supported a CGT.
      The majority against, is only in house rich Parliamentary La la land.

  6. Sanctuary 6

    It has always been held to be an axiom that falling property prices are political suicide. If house prices do fall, and the coalition wins reelection, then it signals the end of the vice like grip the boomers have had on our politics.

    • Craig H 6.1

      Agree – as an obvious point, if house ownership rates go down, the percentage of voters who care about house prices also drops.

      • Pat 6.1.1

        There appears some irrational thinking there….”Boomers” are around 12% of the population….and have a home ownership rate of around 70%.

        Think a new scapegoat may be in order.

    • SPC 6.2

      A fallacy.

      National was re-elected in 1978 and 1981 despite the fact that house prices were stable from 76-81 (and in those inflationary times that meant a significant fall against incomes).

      National again was re-elected in 1993 and 2011 when property values were flat at best over the previous 3 years.

      As for the Liberals, they have been behind Labour in the polls for so long, maybe only a significant change, such as a property value correction, gives them any chance.

  7. Herodotus 7

    Should there be any house adjustment of 7-10% then look out for the failure of spec builders ( many are already struggling to sell at cost, with a few failures in recent times), that for many will not mean anything. Except for a reduced building volume & those who are owned money e.g. sub trades, building suppliers, NZ manufacturing and real estate agents. With banks dramatically reducing their expose into the market, same as 2007 when developers and builders had their their line of credit facilities reduced.
    The winner using 2007 experience was renovation work increasing. As owners “added to their homes e.g. add extra bedrooms instead of selling and buying a new larger home that fitted the families changing dynamics.

    • SPC 7.1

      A recent Herald editorial, for once with perception, noted that Kiwibuild would at least ensure continued finance for building if there was a downturn and private finance was constrained (some of the housing shortage is due to the lack of new supply post finance companies and some developers going under in that 2007 era and then the subsequent GFC related tightening of bank lending).

      • Herodotus 7.1.1

        All small spec builders have nothing to do with kiwibuild. The requirements and reporting are too detailed and the compliance is prohibitive for the 2-20 homes a year coy. Just another opportunity for the big boys to play. And remember the 1st Kiwibuilder was unsure of making any profit.
        The sub trade business owners I have contact with so far have avoided kiwibuild, due to penalty clauses that are passed down from the principle builder, and a few of these builders who have applied to be “Kiwibuild builders” don’t have the best of history in paying on the 20th, and being difficult.

        • greywarshark

          Thanks for this background Herodotus (just reading about early Rome and came on your mentor?) There is not a good business climate in NZ for any important businesses to the people. Though of course we are the most openest in the world, like a swingeing window without a catch banging back and forth in a gale. It makes you cold just thinking about it.

          And the ability to pass the weight of responsibility off the principals onto the small guys makes those who have a head for survival go carefully.

          It would be better for Labour Coalition to press forward on another line, with people being trained on the job while they act as labourers working on their own homes, under a fully experienced and responsible builder. That would not be killing two birds with one stone, but turning it around and supporting fledgling workers and homeowners in one small project.

        • Graeme

          The last time there was an intervention in the market like this was in the 70’s and that was in response to a very similar situation, with pretty much the same talking points.

          Then it was the big guys like Neil, Universal and Keith Hay doing the work. All developed products specifically for the subsidised work and competed strongly for that work. those outfits were the only ones who had the economies of scale to make it work. The “subsidy” then was capitalising the Family Benefit and a State Advances loan at 3%. A qualifying family could get into their own home with virtually no deposit.

          I worked for one of the three trying to save a metre of pipe in the subdivision, there were people down the corridor trying to save a couple of nails in a subfloor and sales people in town doing their best to get people, usually young families of very modest means, into their own homes. It was a very well oiled machine.

  8. bwaghorn 8

    It would be far cheaper and easier to just have a flat cgt on all properties(including 1st home) set at a low rate of 5% .
    People will sulk but will accept it and it leaves nowhere to hide and dodge.

    • SPC 8.1

      A reverse stamp duty, paid by the seller not the buyer.

      Those likely to be (or already are) subject to a higher rate tax will love it.

    • Draco T Bastard 8.2

      All income, no matter where it comes from, needs to be taxed at the same rate else we end up with financial structures that avoid paying taxes.

      • Herodotus 8.2.1

        So you are happy for all losses to be deductible ?
        I buy a home/painting/car etc and make a profit pay tax BUT if the same purchase incurs a loss I am able to claim a loss and receive a refund ?
        The tax working group in its discussion paper was Not willing to allow losses to be claimed and refunded but carry over them over for a limited time _ That is NOT fair.
        There is nothing for inflation adjustment on the purchase value.

        • Draco T Bastard

          I buy a home/painting/car etc and make a profit pay tax BUT if the same purchase incurs a loss I am able to claim a loss and receive a refund ?


          That’s you taking a risk and accepting that such risks come with losses. Proper business expenses are, of course, tax deductible but that does not include losses.

          To put it another way:
          You took a risk knowing that there could be losses. The risk itself was tax deductible as legitimate business expenses.

          To then demand a refund on the risk you took is demanding a profit despite the fact that you lost the wager.

          • Herodotus

            So if i read your commentary – take a risk and “win” i.e. cap gain you expect a CGT , same situation and make a “loss” bad luck ?
            Losses in a business are able to be carried forward and offset from the next years profits, taxes are only paid once all carried forward losses have been offset.
            “You took a risk knowing that there could be losses. The risk itself was tax deductible as legitimate business expenses.” but for a home interest paid etc are not deductible for businesses they are. So your statement is not the same for households in NZ – other countries they are deductible.

            • Draco T Bastard

              Losses in a business are able to be carried forward and offset from the next years profits

              That’s because we still have a tax system based upon 19th century paper. Modern computers and networking can make even large corporate taxes operate in real time.

              but for a home interest paid etc are not deductible for businesses they are.


              So your statement is not the same for households in NZ

              Yes it is. I said all income needs to be taxed no matter its source.

        • KJT

          Can’t claim loses on PAYE income either.

      • Herodotus 8.2.2

        So you are happy for all losses to be deductible ?
        I buy a home/painting/car etc and make a profit pay tax BUT if the same purchase incurs a loss I am able to claim a loss and receive a refund ?
        The tax working group in its discussion paper was Not willing to allow losses to be claimed and refunded but carry over them over for a limited time _ That is NOT fair.

        • KJT

          see above.

          • Graeme

            Business losses can be “carried forward” but in a CGT situation this may not be the right way to go as it would de-risk paying a stupid price at the top of a cycle, and make property cycles even more vicious. But that logic only holds if you think that a CGT will moderate a property market, and the Australian experience casts considerable doubt on that in a very similar financial culture.

            The only case that I can see for a CGT is to move investment from residential property to more productive forms by removing residential property’s tax free status and putting it on the same footing as other investment.

            • Draco T Bastard

              IMO, the problem with many CGTs around the world is that they’re treated as as special and not as part of the persons income. Treat it as part of a persons personal income and part of PAYE. With today’s record keeping capability its not even difficult for it to be calculated over multiple years.

              Yes, the largest part of a reason for CGT is to rebalance investment into productive areas and out of speculation.

            • KJT

              We’ll. We don’t really know if the Ozzie property market would be more heated without a CGT, but, in all probability CGT has, at least dampened it somewhat.

              • Graeme

                Anecdotal from the Aussie family that own the holiday house next door is that the CGT has probably made Australia worse. Aussies tend to hold the property, do up and over capitalise, using the increased equity to borrow more, where we flick and move up. So it’s created a different market behaviour that’s still just as fucked, if not more fucked.

                In both cases there’s a perception that you can create more “wealth” from your little castle than from a productive investment. The Australian CGT doesn’t remove that. If a CGT is going to work it needs to be much broader and stronger, and that will be politically interesting. Banking regulation to dampen / extinguish the do-up phenomenon may be needed with the Australian tax design.

                • KJT

                  Adding real value to a property instead of just mowing the lawns and reselling it for an, untaxed 200k more. And the same with businesses.

                  Seems to me that is a plus.

  9. Antoine 9

    I agree. Say 5% on the inflation adjusted capital gain (ignoring gains pre 2019).


    • bwaghorn 9.1

      Yip I could live with that non retrospective no offsetting unavoidable .
      Maybe losses could be credited .
      But of course that’s to simple so they’ll make it so complicated it will cost huge amounts to run and wealthiest will be able to dodge it .

    • SPC 9.2

      If it were my decision, I would make a CGT retrospective (with due inflation adjustment on the original cost and extensions) and paid at the company tax rate.

      • Antoine 9.2.1

        And there would be rioting in the streets


        • SPC

          Income is taxed in the year it is made. And that is the year property is sold and a gain realised.

          Neither threats of violence, nor scare tactics should deter governments from doing the right thing.

          • Antoine

            But they do

            (Edit: but threats of violence are a red herring, my point is that your proposed policy would be massively unpopular and so will not happen under this Govt)


            • SPC

              Would it be unpopular?

              It’s the right thing to do and if govenment is concerned about consequences it could determine the retropective aspect via a referendum.

              Just say what it would do with the money from such a CGT and let the people decide – less than 10% would be subject to the tax.

              • Antoine

                > less than 10% would be subject to the tax

                I would have thought that all homeowners would be subject, if and when they sold their family home or any other property. (You are talking about a tax that includes the family home, yes?)

                Plus shareholders and small business owners.

                In short, well over 10% of the population would be affected or might think that they would be affected in future. Everyone except some perpetual renters, in fact.


                • SPC

                  No. There is no CGT in the world that includes the family home.

                  Whether the CGT includes shares, or small business sales or farmland is another matter. The numbers owning shares, farms or small businesses is not large either.

                  There is a case for phasing in the areas brought under a CGT – starting with non residence property, then including other areas at a later time. This to encourage more entreprenuership and reduce our borrowing money from offshore to bid up the value of land for homes.

                  • Antoine

                    > No. There is no CGT in the world that includes the family home.

                    Oh, right. Sorry, my original comment was in response to bwaghorn’s suggestion of “a flat cgt on all properties(including 1st home)”, only I mucked up the reply button so it didn’t come out nested. I thought that was what you were talking about too.

                    Well, in that case I don’t feel so strongly about your suggestion.

                    Still, I can’t really see the attraction of taxing the real gains over decades, for e.g. a rental property or bach bought in 1990. Let alone at 30%! At that point, the owner will probably just (a) not sell it, or (b) use some dodge to claim the family home exemption.

                    I think you have to accept that excessive profits were made on the real estate market between 2000 and fairly recently, and that these profits have now been extracted and lost to the tax system. And try to avoid such massive real estate inflation in future.


                    • SPC

                      I’d rather not just accept the history to 2020 and that attitude in government is IMO required for the younger generation to regain trust in it.

                      A lot of wealth in the hands of those with multiple properties and no tax made on the gains, while they struggle to afford a home.

                      Just holding values where they are, is not going to be enough when/should mortgage rates rise. Government is going to need to get its hands on the resources to help (shared equity and more state housing for those who retire without homeownership).

                      PS Sure a lot of multiple property owners would make change of ownership arrangments before CG was liable for tax, this will create below market buying opportunities for first home buyers.

                    • Antoine

                      > I’d rather not just accept the history to 2020

                      I don’t think you can go back now and grab the gains that were made then. The opportunity has passed.

                      > Sure a lot of multiple property owners would make change of ownership arrangments before CG was liable for tax, this will create below market buying opportunities for first home buyers.

                      Not necessarily, not if they were smart about it. I, for instance, would swap houses with my friend. Presto, no CGT liability for pre-2019 gains for either of us.

                      Or are you going to tax people for gains before 2019 _on properties they no longer own_? Surely not.


                  • KJT

                    CGT, on businesses and farms, encourages owners to run them as a successful going concern. Not as a capital gains earning tax dodge.

                    A good thing for all our futures, I would have thought.

                    • Antoine

                      I think people will still be happy to take a capital gain even if it is taxed at 20% or whatever. 80% is still pretty good.


                    • KJT

                      At present there is an incentive to sell your business and get an immediate untaxed capital gain rather than carry it on and get taxed on the earnings.

                      Farming, in particular, these days is more about the capital gains on selling the land, than the income stream. Land values, capital gains farming, have pushed borrowing for farms beyond any reasonably sustainable level.

          • mikesh

            Capital gain accumulates over many years, not just in the year it is realised. But then, it is not actually income. In reality, it is a “transfer payment” from the buyer to the seller (who receives no compensation through the tax system for that transfer). The buyer pays for the capital gain out of his own tax paid income, so if a capital gains tax is levied it gives rise to a duplicate tax situation.

        • AB

          You could increase the popularity of it by redistributing all collected tax to everyone over 18 in equal amounts. Sort of an acknowledgement that one particular cohort/social class has been massively enriched with unearned income since 2008 at the cost of denying life chances to everyone else. Time to redress that injustice.

          • Antoine

            Maybe you come from some other country? You will discover that this is not how things work in NZ. We don’t do the Robin Hood thing.


            • AB

              “Evil is unspectacular and always human,
              And shares our bed and eats at our own table”

            • KJT

              We used to.

            • McFlock

              it’s that sort of comment that makes people think you’re right wing.

              In NZ, the “Robin Hood thing” as you put it has been slowly weeded from our society over decades, but it’s still there. For every business owner who sprays water on the homeless to move them along, there’s someone prepared to call that tosser a tosser.

              • Antoine

                I’m centrist,

                You’re just not going to get a government here that takes all the money off the top 10% and redistributes it among the 90%. One might naively think that it would go down well because 90% is more than 10%, but no, not even close. Both sides court the centre, which is aspirational and doesn’t like policies that stiff the rich.

                It shouldn’t be necessary to say this stuff, it seems like common knowledge.


                • KJT

                  No one. Except the rich. Likes the rich avoiding their fair share of taxes. Especially as they are the ones who benefit the most, from our tax payer subsidised society, and infrastructure.

                  And. Most people like left wing policies. Otherwise the pretend leftward swing both National and Labour do running up to each election wouldn’t happen

                  • Antoine

                    > No one. Except the rich. Likes the rich avoiding their fair share of taxes.

                    Quite correct. So it comes down to what is perceived to be ‘fair’.


                • McFlock

                  Yeah, when you frame “progressive taxation” as “takes all the money off the top 10%”, that sounds totally “centrist”.

                  • Antoine

                    I’m cool with a degree of progressive taxation. When you start trying to claw back capital gains made years ago, retrospectively, as was suggested upthread, that in my view is no longer reasonable.


                    • McFlock

                      In some circumstances a windfall tax is a bloody good idea – e.g. enterprises privatised at bargain prices with surprisingly good returns on investment.

                      But again, none of that is like taking all the money off the richest people, which is what your little straw man was.

                    • Antoine

                      > taking all the money off the richest people, which is what your little straw man was.

                      Which lots of commenters here would be in favor of, I suspect


                    • McFlock

                      lol “lots”.

                      Tough to find anyone who would say the top 10% should be stripped penniless. You’re welcome to look for volunteers. Might get one or two who are prone to categorical and frankly histrionic outbursts, but I doubt you’d even get to “lots” in the troll numeric system.

                    • Antoine

                      I’m abandoning this argument to go and talk sh*t about prostate cancer on another thread


                    • KJT

                      As one of the 10% not very keen to be stripped penniless, however I am fine with paying my share, to ensure equality of opportunity, and the removal of poverty.

                      I was helped by New Zealand’s, formerly excellent, education and training systems. As well as our developed infrastructure. My family were originally certainly not, in the top 10%.

          • SPC

            Yup. I once wrote to Cullen and suggested what he do with the surpluses – give everyone an account and place a $1000 dividend in it each year while there was one.

            He decides on the tax credit in Kiwisaver that the government has to pay even when in deficit (why English took it down from $1000 to $500).

            • Antoine

              > Yup. I once wrote to Cullen and suggested what he do with the surpluses – give everyone an account and place a $1000 dividend in it each year while there was one.

              Didn’t do it, though, did he.


            • greywarshark

              Jam tomorrow in other words. Another link in the austerity chair barrier.

            • greywarshark

              Wouldn’t that cause inflation unless targeted towards the purchase of some worthwhile infrastructure, say housing, or a tech class even just the initial one for newbies, and once satisfied, another one with a job at the end of it. When you haven’t got much the temptation to splurge might be overwhelming.

          • greywarshark

            Yes redistribute with loans to new young family house purchasers approved as stable. And the government to match everything that comes in from the CGT tax or whatever it is called. Would that be a positive with few downsides?

            • SPC

              Such CGT money could be used to kickstart government involvement in shared equity. This would allow those on lower inomes to buy (kiwibuild) homes and still afford the mortgage.

              One could exempt shared equity investment from CGT. So people could save for retirement in a way that helped others into their own home.

  10. newsense 10

    Also Australian investors can buy in NZ. Their market goes down that may hurt ours.

  11. Draco T Bastard 12

    What you seem to be saying is that house prices need to keep going up so that the middle class have unearned income, to be able to keep borrowing on their house so that they can keep spending. This, of course, means that debt must keep going up and the private banks that create that new money get to keep the unearned income of charging interest on the money that they create.

    The inevitable result will be another financial crash as private national debt gets well beyond what can actually be serviced. In other words, we’ll have another GFC.

  12. Siobhan 13

    “Except, as a deeply unequal country, this is the last means available for any couple to get ahead and out of whatever rat race they are in to the next stage of their lives. Viva La Treadmill”

    …at the expense and to the detriment of the ‘couple’ who are left as life time renters, a blight of uncertainty and of an ever increasing punitive cost that get’s passed on to their children etc. And a group that is growing at a faster rate than homeowners.

    Though why you think its a good idea to keep down this path of massive private debt is a complete mystery. Its almost as if you want people to sign up for mortgages at artificially low interest rates while the economy runs full speed on to its next collapse.


    • mikesh 13.1

      There used to be people renting back in the days when there was an adequate supply of housing, and housing was affordable, so there is a market for rental accommodation. It is not good, though, that at the present time that market is augmented by persons who rent only because they cannot afford to buy.

  13. McFlock 14

    If we want home ownership to be more accessible, house prices need to come down in real terms.

    This will have a cost for some current home owners, maybe even drive them back to the rental market with additional debt.

    But it will provide greater security for more people than it dispossesses. So if CGT helps with that, cool.

    • KJT 14.1

      House prices, and the associated private debt, are a huge drain on the incomes of most people. I don’t see why we should prop them up (prices) , so a few can have untaxed, and unearned, extra income.

    • Antoine 14.2

      > If we want home ownership to be more accessible, house prices need to come down in real terms.


      > So if CGT helps with that, cool.

      Yes although I’m not convinced it will. Need some more incisive tools


  14. Pat 15

    There are an awful lot of assumptions being made……a quick read of the summary by the working group would be of a benefit.

    “Housing affordability
    It is also evident that New Zealanders are deeply
    concerned about the high cost of housing, and its
    impact on wealth inequality, social cohesion, and
    social capital. Consistent with these concerns, the
    Group has been directed to have special regard to
    housing affordability in its work.
    The cause of unaffordable housing is, in one
    sense, straightforward. New Zealand has been
    unable to build enough houses to satisfy demand
    at current rates of population growth. This shortfall
    reflects a number of interlinked problems in the
    supply of housing – including land use constraints,
    infrastructure constraints, and high building costs.
    The tax system is not responsible for constraints in
    the supply of housing, but it does influence demand
    for housing. Certain features of the tax system –
    such as the inconsistent treatment of capital income
    – have probably exacerbated the house price cycle
    in New Zealand, even if the tax system is not the
    primary cause of unaffordable housing.
    The Group’s work on housing affordability is
    closely linked to its work on the taxation of capital
    income. There is an open question as to whether an
    extension of capital income taxation would have a
    material effect on the housing market. A concern for
    the Group is to understand these impacts further”

    The affordability or not of our housing is not tied to this groups work….indeed there is a good chance that Ad’s “housing prices really go down” well before this groups final report is released or actioned.
    ask youselves…who controls prices in an undersupplied market?

  15. CHCOff 16

    A House is a Home

    It is worth more to the NZ society, that the primary function of housing is to provide Homes for the population. The societal wealth that is generated by home ownership in the population far outstrips that of the finance industry as relates to property investment.

    The development of tiers of Homes, as relates to various job vocations, seasonal and the like, is also highly desireable in creating investment classes where there are previously none, in home ownership.

    These factors, along with the promotion of creativity where it is lacking in societal wealth, are all reasons why New Zealand will be better when a House is a Home.

    A House is a Home.

    • Pat 16.1

      that is one of the fundamental changes needed…..how good are we at putting Genies back in the bottle?

      Indications to date suggest not good at all.

  16. mike 17

    real estate has been in a bubble for years the simple realty is NZ incomes can not support the current prices the housing debt is only serviceable at record low interest rates. its all going to end in tears that is inevitable and we will just need to pick up pieces i just hope we follow the Icelandic example

  17. Timeforacupoftea 18

    Still a better tax system has been looked at a transaction tax.
    No more income tax
    No more GST
    A cashless society.

    The only way to beat this system is supplying labour for free or for a meal or a bedroom etc.
    Growing your own meat and veggies. Even those will have a transaction tax on the seed, sprays and fertiliser needed to grow them perfectly.

    Some say a transaction tax as low as 1% could easily run this country.

    So how does it work.
    One dollar goes through many hands every year.

    Your employer pays 1% of your wages to the Govt when doing the transaction into your account.
    Every bit of every transaction goes into a bank and comes out after the bank feeds off it, whats left when you take it out by buying something the Gov’t takes the transaction tax i.e. 1%.

    For the bank who worked over your account ( could say stole ) when they spend that money by transferring it they pay 1%, and say some taxed money goes to the shareholder and the shareholder spends it at the pub 1% goes to govt.

    The wealthy transfer money often to get a better return so the dollar is sold many times in one year and then repurchases another investment on every repurchase they would pay the 1 % tax each time.

    • mikesh 18.1

      Such a system is hardly tax neutral since some manufacturing processes will incur more tax in proportion to costs than others.

  18. Ad 19

    Good quality and civil debate thank you people.

  19. Tamati Tautuhi 20

    If prices drop there will be more opportunity for first home buyers and new immigrants to purchase the stock, or existing investors can buy up the properties at mortgagee sales.

    The previous owners will have to downsize or rent it is quite simple.

    The market is the market, the Banks will not want to take a wholesale haircut and I don’t think Winston will approve of the taxpayers bailing out Foreign Banks IMHO.

    • Antoine 20.1

      Whether prices go up or down, the number of dwellings will not change. Just the houses will change hands between different owners. Deckchairs on the Titanic?

      If we want to house more of our people, we need:
      – more dwellings built, or
      – less people (than there would otherwise have been), or
      – more efficient use of our existing housing stock.

      This price rise/fall stuff is interesting but I wonder if it is a bit of a sideshow.


  20. Tamati Tautuhi 21

    Property investors have always had an advantage over Home Owners here in New Zealand as they can claim the interest as a tax deduction.

    • Antoine 21.1

      You mean, renters have an advantage over home owners.

      If mortgage interest was made non-tax-deductible, then rents would go up accordingly. Investors, as a class, would be no worse off, but renters would pay more.


      • mikesh 21.1.1

        Perhaps. But it may also mean that many landlords, particularly those highly leveraged, would sell up and get out of the market. This would probably mean more houses available for first home buyers.

        In any case we have to assume that rents are controlled by market forces and not entirely by landlords’ costs.

        • Antoine

          > In any case we have to assume that rents are controlled by market forces and not entirely by landlords’ costs.

          An ‘across the board’ cost increase should be reasonably easy to pass on.


          • mikesh

            Not necessarily. It would depend to some extent on renters’ ability to pay.

            • Antoine

              Yeah, well, ‘a rent increase for all renters except those who are literally unable to pay’ doesn’t sound like a great outcome. Not a good advertisement for removing the ability to claim mortgage interest from landlords…

              (Anyway if you did that, rental housing would just move into corporate structures where you could still claim interest on the mortgage)


              • mikesh

                If interest was made non deductible it would still be non deductible in the hands of a corporation.

                You say that rent rises only for those who can afford them is not a great outcome. Perhaps not, but under the present circumstances we probably need to “cut the gordian knot” and countenance such a situation anyway.

                Maybe the government could impose rent controls. If landlords did not like that they would simply have to sell up – the government could offer to buy, paying for the purchase with low interest government bonds.

                The government could get rid of rent subsidies at the same time.

                • Antoine

                  Well, it’s a long way from the world we live in


                  • mikesh

                    So you think “the world we live in” to be satisfactory. But if one invests in property (or shares) one must accept a certain amount of risk.

                    • Antoine

                      > So you think “the world we live in” to be satisfactory.

                      I never said that!

                      But if you want to have a realistic discussion about things that could plausibly happen in the short to medium term, then I think you have to start from the status quo and apply incremental change.

                      (If on the other hand you want to have a blue skies discussion about a completely different world, then go for it, but count me out.)


                    • mikesh

                      “Incremental change” is one of those meaningless, do nothing words that people use when they are faced with a situation which requires changes more radical than they are willing to countenance.
                      My suggestions may be “blue sky” but I think there is a chance they may provide a solution, which is more than I could say for ” incremental change”, whatever that implies.

                      And I will be first to admit that there may be other solutions, but I think they would be equally radical.

  21. Tamati Tautuhi 22

    Basic High School Supply/Demand Economics tells you if there is a shortage of houses the prices will rise, if there is an oversupply of houses the prices will fall.

    If interest rates go to 18-22% which is what 1st mortgage rates were in 1986 it may put some families under financial pressure.

    It is not Rocket Science ?

  22. Infused 23

    Cgt went push down priceshere. It will push them up. No labour won’t do it

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