Why are NZ house prices so high?

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FormulaNova said..
Didn't NZ bring in new rules about investors offsetting their interest costs against their income tax?

If so, why are property prices still high? Anyone here from NZ?

lol

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I 515 said..

FormulaNova said..
Didn't NZ bring in new rules about investors offsetting their interest costs against their income tax?

If so, why are property prices still high? Anyone here from NZ?

Yes I'm in Auckland.
Now landlords can't offset interest costs ( there are some exceptions) against rental income. Our tax year ends 31 March and we file returns by 7th July.

House prices are dropping but still unaffordable for first home buyers.
We have too many people on benefits not contributing and there will be a drain to Oz as better pay and slightly lower cost of living.

So people who have a bit of get up and go, get up and go to Australia while those who take easy stay home?

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515 said..
Yes I'm in Auckland.
Now landlords can't offset interest costs ( there are some exceptions) against rental income. Our tax year ends 31 March and we file returns by 7th July.

House prices are dropping but still unaffordable for first home buyers.
We have too many people on benefits not contributing and there will be a drain to Oz as better pay and slightly lower cost of living.

Cool. Thanks.

I was watching some program and they mentioned this so I wanted to see how it was working in practice. If it was working at all I guess, but it sounds like it is.

I can imagine that it will dramatically reduce the number of people that can afford to buy a house and speculate on it, when its costing you a lot more to hold it. I know for me when I held an investment property here in Aus that the first 10 years or so were losing money, so without being able to claim the interest as a deduction, its challenging, and all new investors are in the same boat.

Does this stop interest being claimed against the costs of the property itself, or against the person's personal income? Your comment suggests not even against the rent? That's significant.

I wonder if anyone here would have the balls to try the same policy? I doubt it. They seem to pay lip-service to housing affordability and happily own multiple investment properties themselves.

I can't imagine that prices there can do anything other than going down. It may take a while for things to shift, but with interest rates increasing and the interest not being a deduction, who could afford it? It also puts owner occupiers on a level playing field with investors which is good to see.

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FormulaNova said..
I can imagine that it will dramatically reduce the number of people that can afford to buy a house and speculate on it, when its costing you a lot more to hold it. I know for me when I held an investment property here in Aus that the first 10 years or so were losing money, so without being able to claim the interest as a deduction, its challenging, and all new investors are in the same boat.

Does this stop interest being claimed against the costs of the property itself, or against the person's personal income? Your comment suggests not even against the rent? That's significant.

I wonder if anyone here would have the balls to try the same policy? I doubt it. They seem to pay lip-service to housing affordability and happily own multiple investment properties themselves.

I can't imagine that prices there can do anything other than going down. It may take a while for things to shift, but with interest rates increasing and the interest not being a deduction, who could afford it? It also puts owner occupiers on a level playing field with investors which is good to see.

Speculation and investment are different: IIRC actually speculators account for like 5% of the market, so all these new laws intended to prevent that are punishing the majority of people who are investors ie. providing a service.

The bright line test has caught a lot of people trying to do new builds and get around it, as it takes so long to get through regulations and permissions that they've ended up stuck with the same tax bill as if they'd just bought a non-new house.

You pay income tax on your income. Rent is income, so you pay tax on that too. Used to be you could offset the interest payments against the rental income tax, but that's all going by degrees. This tax law is unique to rental property ownership, other businesses can offset tax and interest....

Who could afford it? The same sort of people who were doing in the 80s when interest was 20% I guess...

Why is it good that OO are on a level playing field with investors?

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Kamikuza said..
Councils have been slow to release land for new builds.

Ladies and gentlemen, let me present the Hawkesbury River floodplain.

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bjw said..
Spot on!

NZ's reserve bank increased interest rates far earlier than Australia. This is a more likely reason for their drop in prices.

But encouraging investment in property, increases rental supply making it more affordable to rent. It's not all bad.

Have you looked at the NZ situation? The whole point is that it has created a housing crisis (before Covid). If supply is increasing, it is not much. They also have no capital gains tax. Prices there were getting out of control before the pandemic, but the government has implemented new rules since 2021 to restrict what you can claim.

This will be a test to see if the market is really inflated by speculators or not. Its a drastic change and will make a lot of people rethink the idea of investing in housing.

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Kamikuza said..
Who could afford it? The same sort of people who were doing in the 80s when interest was 20% I guess...

Why is it good that OO are on a level playing field with investors?

I think when people invested in property in the 80s, it relied on the rental returns, and the initial purchase was more modest as prices hadn't gotten out of hand. Therefore the numbers would stack up. Now, who wants to invest in property when the losses are likely to be there for 10 years or more?

Housing is meant to be a resource for people to live in, not a way to extort more money out of people that happened to miss the boat by pure luck. Costs of housing feed into all sorts of things and are not particularly productive for the economy. If a family spent 50% of their income on rent, it is not good for the rest of the ecconomy.

'Why is it good that they are a level playing field?'.. because these 'investors' are not investors and are relying on the tax advantages to profit from houses increasing in price, driven by speculation. If they are on a level playing field, the investment must stack up first. At least its fairer.

You could go the other way and allow OOs to claim their interest too if you believe their house is adding to supply. If you were to claim that an existing property in the hands of a landlord 'adds to supply' then you could equally claim an owner occupier is 'adding to supply'. They are equally logical.

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FormulaNova said..
I don't know about the number of speculators being only 5%, but here in Aus it feels like everyone is a speculator. If they take a mortgage on that is interest only and the losses outweigh the returns, they use their income to subsidise it. Why would someone do this? If they think they can always sell it for a gain later on down the line. If that's not speculation, I don't know what is.

In my opinion, that's the majority of 'investors' in the Australian property market, If they were new builds, it would be different, but many (most?) are just existing properties.

I don't agree with the idea that people are 'just providing a service' if the house they rent out is one that already existed and would otherwise be a house for someone to live in.

Economics-wise, using housing as a major investment vehicle shifts a lot of capital across to an asset that is not very productive. The capital that is used to buy the same house over and over again could be better spent on actual investment, whether it be a new house which actually adds to supply, or investment in anything else.

I feel that Aus has had a spurt of growth in property investment when the capital gains tax discount came into being. If NZ has none, then surely that's an incentive to speculate on housing?

"Speculators" has a specific definition, and the number is very low compared to people investing in property*. The difference is in how long they plan to hold onto the property... or rather, which of the two the government or press is trying to demonize.

Why would they do that? Capital gains is usually the answer. You invest for the long run, like you do with any other form of investment.

LOL if you're renting out a house then by definition someone is living in it.
I don't about you, but I didn't walk out the front door of my parent's house and straight into my own home and I needed somewhere to live so ... I rented. Wouldn't have been able to study or work if I couldn't.

Who is buying the same house over and over again? If you're talking about speculators or flippers, you can still do that with people living in the property.
Actual investment in ... what? How would it be better? And who decides what's better?
Not productive ... how?

There is a capital gains tax, the Labour government that promised they wouldn't introduce a capital gains tax has just called it something else. That's a large part of what's fueled the rush to buy over the past few years.

If you're worried about first-home buyers, you might want to have a word with the government -- they were caught in 2020 or 21 buying up housing suitable for first home buyers at 5 to 10% above market rates, squeezing actual first home buyers out of the market -- the group they supposedly introduced the laws and taxes to protect.

* as a rough idea -- in 2019 there were 1,701 properties sold under the 10-year bright line test (thereby subject to capital gains tax) thatdemarcatesthe government's definition of "speculator". There were 76,875 residential sales total in 2019.

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FormulaNova said..

Kamikuza said..
Who could afford it? The same sort of people who were doing in the 80s when interest was 20% I guess...

Why is it good that OO are on a level playing field with investors?

I think when people invested in property in the 80s, it relied on the rental returns, and the initial purchase was more modest as prices hadn't gotten out of hand. Therefore the numbers would stack up. Now, who wants to invest in property when the losses are likely to be there for 10 years or more?

Housing is meant to be a resource for people to live in, not a way to extort more money out of people that happened to miss the boat by pure luck. Costs of housing feed into all sorts of things and are not particularly productive for the economy. If a family spent 50% of their income on rent, it is not good for the rest of the ecconomy.

'Why is it good that they are a level playing field?'.. because these 'investors' are not investors and are relying on the tax advantages to profit from houses increasing in price, driven by speculation. If they are on a level playing field, the investment must stack up first. At least its fairer.

You could go the other way and allow OOs to claim their interest too if you believe their house is adding to supply. If you were to claim that an existing property in the hands of a landlord 'adds to supply' then you could equally claim an owner occupier is 'adding to supply'. They are equally logical.

Did they?
Houses and properties were smaller, resources, consents and building costs lower... prices aren't getting out of hand. They're being driven up by market forces and government regulation.
Likely? Says who?

"extort" So housing should be provided free of charge?!
Who's missed the boat? I rented for however many years because I didn't have the salary to pay for a mortgage, let alone qualify for one. That's not missing a boat.
"50%" then move to a cheaper house. Weirdly, I chose to live in less luxurious housing because I wanted to spend more of my money on things other than rent. I also chose to pay rent rather than live cheaper at home (with a crap landlord) outside the city and spend more money on gas etc and more time on commuting.

"Not investors" says you.
If you borrow money to start a business, you can write off the income tax against the interest on the loan... but you can't if your business is rental property. That's not a level playing field. And what's fairness got to do with it?

OO are not getting income from the property they're living in so there's nothing to pay tax on to offset against interest /rolleyes
That's the least logical thing you've said so far.

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Mark _australia said..

FormulaNova said..
Housing is meant to be a resource for people to live in, not a way to extort more money out of people that happened to miss the boat by pure luck.

Yup
I know, I've whined about it before..... but in 2005 I followed the 'just buy anything to get into the market' advice. EVERYONE said that.

Lost $60K value in a few years, plus deposit, plus all the payments so say $200K down in 5yrs, sold at a loss.
Fkn real estate people, fkn investment people, financial planners, they're all ****s. I'm almost 50 years old and back to square one just now.

I wanna kill the next prick on TV or some google ad who says "I had $200 in my pocket and now I'm a millionaire"

Its rich mum n dad, or pure luck. Nothing else.

Baby boomers getting rich off housing, supported by rich politicians, makes me sick.

I think you fell fowl of people in WA thinking that the market here is the same as Sydney and Melbourne. It's not. Very different. I am surprised when I meet people that think it is.

When I went looking for a house over here there were so many people that bought in the booms and were only 'almost' at the same price 10 or 15 years later.

I went looking at an apartment near the CBD recently and the real estate agent told me 'get in before the interest rates go up'. Are they fkn nuts? No, they don't care, they just want you to buy whatever and they get their commission. Sadly a lot of people would have assumed that 'get in before interest rates go up' was logical instead of stupid.

There was a story on news.com.au the other day about some 22 year old that was on his way to a property empire after buying just two houses. How does someone do that at that age and make a gain? Something is wrong. Not even a baby boomer, and can make money by getting loans that are offset against their tax, so the people not doing it are effectively subsidising it.

I think the politicians are at fault, but to be fair Labor tried to change this at the last election and lost, probably as there are way more property investors than first home buyers, and the first home buyers are too stupid to realise that its a structural problem and not just a need to save more.

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Kamikuza said..

FormulaNova said..

Kamikuza said..
Who could afford it? The same sort of people who were doing in the 80s when interest was 20% I guess...

Why is it good that OO are on a level playing field with investors?

I think when people invested in property in the 80s, it relied on the rental returns, and the initial purchase was more modest as prices hadn't gotten out of hand. Therefore the numbers would stack up. Now, who wants to invest in property when the losses are likely to be there for 10 years or more?

Housing is meant to be a resource for people to live in, not a way to extort more money out of people that happened to miss the boat by pure luck. Costs of housing feed into all sorts of things and are not particularly productive for the economy. If a family spent 50% of their income on rent, it is not good for the rest of the ecconomy.

'Why is it good that they are a level playing field?'.. because these 'investors' are not investors and are relying on the tax advantages to profit from houses increasing in price, driven by speculation. If they are on a level playing field, the investment must stack up first. At least its fairer.

You could go the other way and allow OOs to claim their interest too if you believe their house is adding to supply. If you were to claim that an existing property in the hands of a landlord 'adds to supply' then you could equally claim an owner occupier is 'adding to supply'. They are equally logical.

Did they?
Houses and properties were smaller, resources, consents and building costs lower... prices aren't getting out of hand. They're being driven up by market forces and government regulation.
Likely? Says who?

"extort" So housing should be provided free of charge?!
Who's missed the boat? I rented for however many years because I didn't have the salary to pay for a mortgage, let alone qualify for one. That's not missing a boat.
"50%" then move to a cheaper house. Weirdly, I chose to live in less luxurious housing because I wanted to spend more of my money on things other than rent. I also chose to pay rent rather than live cheaper at home (with a crap landlord) outside the city and spend more money on gas etc and more time on commuting.

"Not investors" says you.
If you borrow money to start a business, you can write off the income tax against the interest on the loan... but you can't if your business is rental property. That's not a level playing field. And what's fairness got to do with it?

OO are not getting income from the property they're living in so there's nothing to pay tax on to offset against interest /rolleyes
That's the least logical thing you've said so far.

You aren't reading and answering these things on your mobile phone again are you? You are getting down to personal attacks already and not debating the topic. You don't need to comment on how logical you think my comments are, but if you can't counter it, you are not really thinking about it.

I think at issue is the decision if a house is meant to be a resource available for people to live in or an asset for people to make money from. I personally think that it needs to be both, so why not new-builds only?

If you think that houses should only be for people to make money from, then just say so and I can stop typing.

In a business you can offset your interest as a cost against your profits. But you also pay tax on your profits. Should it be the same? At the moment in Aus, you can get a 50% reduction in that tax after 1 year.

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FormulaNova said..
The 'capital gains tax' you are suggesting is a tax if you sell before 10 years, or earlier depending on when you bought I think. That's not a capital gains tax, but its still a tax.

Seriously though, you would have to be silly if you didn't notice that housing prices are pushed up by speculation. I think NZ, Aus, and Canada are top examples of where this has happened.

It's literally taxing capital gains.

2% of purchases are driving up the whole market? Show your working.

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Kamikuza said..

FormulaNova said..
You aren't reading and answering these things on your mobile phone again are you? You are getting down to personal attacks already and not debating the topic. You don't need to comment on how logical you think my comments are, but if you can't counter it, you are not really thinking about it.

I think at issue is the decision if a house is meant to be a resource available for people to live in or an asset for people to make money from. I personally think that it needs to be both, so why not new-builds only?

If you think that houses should only be for people to make money from, then just say so and I can stop typing.

In a business you can offset your interest as a cost against your profits. But you also pay tax on your profits. Should it be the same? At the moment in Aus, you can get a 50% reduction in that tax after 1 year.

...personal attacks? LOL
If you say something illogical, how else should I point that out?

You can think whatever you like.

Only? When did I say only?

Why shouldn't it be the same? The only difference here is the business involves rent as income.

You can say you think its illogical because of... Otherwise we can just trade insults for all that it matters.

I guess we are arguing and its a moot point. NZ has made the rule changes and we will see the effects.

My position is that I think its unfair that first home buyers are being overrun by investors/speculators and being priced out of the market. Not because the investors are adding value, just because people can socialise the losses and get the windfall at the end, so they are happy to pay more each time.

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FormulaNova said..
Okay, can you give me some examples of market forces affecting the NZ property market?

What is the net immigration into NZ and is housing supply increasing?

Speculation is going to be easy to spot. If "investors" start dropping out of the NZ property market, it gives us the answer.

I am getting weary of people thinking that investment is the idea of just making money. Investment is meant to be a productive use of capital, not just a way to ride a speculative wave of prices.

You say 'not speculators' but they are and calling it investment is just another way of looking at it.

I did, in my first reply.

Dunno, IMHO it's not a big enough factor to account for much.

What would that look like?

Says you. Any money you put into something expecting a financial return above what you put in over a period of time, is an investment. Where is it written that it should do something productive?

You're conflating two terms that have specific meanings. Both invest, but with different goals. By intending to punish "speculators" who are being scapegoated for the current situation, the government is instead punishing... everyone.

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Kamikuza said..

FormulaNova said..
Okay, can you give me some examples of market forces affecting the NZ property market?

What is the net immigration into NZ and is housing supply increasing?

Speculation is going to be easy to spot. If "investors" start dropping out of the NZ property market, it gives us the answer.

I am getting weary of people thinking that investment is the idea of just making money. Investment is meant to be a productive use of capital, not just a way to ride a speculative wave of prices.

You say 'not speculators' but they are and calling it investment is just another way of looking at it.

I did, in my first reply.

Dunno, IMHO it's not a big enough factor to account for much.

What would that look like?

Says you. Any money you put into something expecting a financial return above what you put in over a period of time, is an investment. Where is it written that it should do something productive?

You're conflating two terms that have specific meanings. Both invest, but with different goals. By intending to punish "speculators" who are being scapegoated for the current situation, the government is instead punishing... everyone.

Let's agree. Investing and Speculation are essentially the same in this context. I will accept that investing does not need to be productive and its just about trying for a profit.

Are people really going to be punished? If they are long term investors, then after ten years they have provided a service and have gotten their profit tax free. Sounds good to me.

Does this bright-line test mean that people trying to produce new housing stock are able to write off their interest costs against their income tax?