Sticks and Carrots to help the housing market (pn705)

With Government due to make a major housing policy announcement next week, Jeneé Tibshraeny discusses some stick and carrot options in interest.co.nz while Finance Minister Grant Robertson says the policy package will include a “mixture of both incentives to go [invest] elsewhere and disincentives within the housing system.” and  Reserve Bank Governor Adrian Orr said people need to look for “alternative places to invest.. We didn’t say, go out there and buy only homes."

 The carrots 

Jeneé  summarises the options experts recommend: 

•  Reduce the amount of tax paid on KiwiSaver by cutting the bottom two rates by  five basic points. It is estimated this would put an extra $630m in low-income earners' pockets over five years.
• Take a broader view to tax capital income less than labour, for example, by  income,  by taxing income earned from capital (IE dividends and interest) less than income earned from labour which would encourage people to keep their wealth in the country and innovate, increasing productivity, wages/salaries and compound interest, and make investment in residential property less attractive 
• Broader reform could include a comprehensive capital gains tax, and taxing retirement savings when they’re withdrawn.

The sticks

As for potential policies to disincentivise property speculation:

• Extend the bright-lines test. Anyone buying or selling investment property within five years has to pay income tax on any gains made.
• Restrict bank lending, especially the use of interest-only mortgages by property investors.
• Put a cap on the  interest that can be claimed for expense deductions, especially by housing investors.

Now we'll wait and see what Government proposes, watching closely for what is air and what promises to be substance.   

My own view is that some form of a capital gains tax is needed, and  money needs to be diverted to housing from immediately less essential needs (if it can be agreed about what they are.)  Resource consents delays and the skilled labour and material shortages also need to be addressed.

A broader view would include also looking at where  the houses are to be built. This should provide an opportunity to decentralise,  with proportionately more houses built outside Auckland, which in turn would have other spin off benefits.   -- ACW