Property investors may be avoiding tax but they might also be sweeping National back to power
By Richard Harman (author)
Newly released figures show that the extent of tax write-offs in the Auckland investment property market runs into hundreds of millions of dollars.
The size of the rights offs is reviving debate about perverse taxation incentives and their effect on Auckland.
The Reserve Bank has repeatedly warned of the impact of the perverse taxation incentives.
But both National and Labour have rejected any intention to introduce a capital gains’ tax during this Parliamentary term.
Only the Greens support such a tax.
And that construction boom means jobs at a time when there the dairy downturn is placing pressure on the economy.
But while the Opposition parties complain about the trax situation, the Government may well be content that the investment is powering the bigest house construction boom seen in years.
The figures obtained from Inland Revenue and released yesterday by Labour show that investors claimed $650 million in tax write-offs due to losses on rental properties over the last year.
The figures com with separate figures from a regular survey conducted by the-the real estate agency, Crockers, which showed that for just over half of the residential property investors surveyed, their residential property investments provided them with a supplementary income.
But investment property as the main source of income has risen substantially from 9% in September 2014 to 25% in July 2016.
This comes with an increase in the size of property investment portfolios.
In September 2014, 36% of residential In September 2014, 36% of residential property investors owned three or more investment properties; in the latest survey, that figure has risen to 51%.
Crockers comments that to 51% this finding indicates an increased demand for properties and hence potential pressure on house prices.
Though Labour will not move on a capital gains tax, though it has signalled it could come back to the table if it formed the next Government and conducted a review of taxation, its Housing spokesperson, Phil Twyford, is arguing that Labour would move against negative gearing – the practice that allows investors to write off losses on rental properties against other taxable income.
“Over the next few months we are consulting on the design of the policy,” he says.
The politics of housing in Auckland are becoming complex.
First, it is not clear who is losing support --- and who is winning --- because of the rapidly rising prices.
Certainly National will be unwilling to alienate property owners in Auckland who are seeing their wealth rise almost daily as the prices go up.
And National's answer to the problem which is to build more dwellings functions as a large-scale employment scheme much as the Christchurch rebuild did.
Last week Housing Minister Nick Smith more or less gave National's game away with a press release celebrating the building boom.
“Residential and commercial building work has hit an record of $18.3 billion and 29,000 homes, confirming New Zealand is in the midst of the largest building boom ever,” he said.
“We have topped 29,000 homes being built for the first time in 12 years, with a 16 per cent increase nationally on last year.
“This is the longest and strongest period of growth on record.”
Given that the Auckland Unitary Plan provides for a near doubling of annual home construction in Auckland the Government will be anxious that that continue.
And it won't be concerned whether those homes are owner occupied or built to rent --- it will the jobs they create in the buuilding industry that could well be the key to its re-election.