


By Gareth Morgan

We have long written that the problem in NZ’s housing market, which more and more people are finally acknowledging, is a crisis, is a crisis of demand not of supply.

Central to the causation of inflated demand are two factors.

Firstly a terrible flaw in our taxation regime, wherein housing is one of the best tax shelters on offer and we’re all into it likes rats up a drainpipe.

Secondly the RBNZ has misguidedly maintained a bias in its prudential management of the banks that has accentuated the demand for housing well beyond what is ‘natural’.

And from time to time we get a third stimulus to demand – immigration.

What is so frustrating about this crisis from an economist’s perspective, is just how long this has been building.

Officials have never denied either of the primary causes and privately always tell me, it’s government policy and they can’t possibly publicly comment.

From time to time the RBNZ Governor will ‘fess up but then do nothing.

From Don Brash onward, these Governors have been gutless on this issue, they are slaves to the consensual view amongst central bankers, that housing is actually a low risk asset so banks should favour it in their lending.


Reserve banks around the world who have thought that just because a housing crash hasn’t happened, it won’t, have all been caught out ... And our turn will come.

The first driver of the over-amped demand for housing is the tax break.

Let’s put it simply; if I put $300k in the bank I pay tax on the interest, if I buy a house with it I get the benefits of rent-free accommodation, tax-free.

Only suckers pay rent when those are the rules.

And on top of that I have all the benefits of my home being my castle.

Really it’s a no brainer.

The second driver is central banks’ encouraging their commercial banks to favour lending to housing over lending to business.

People can get mortgage finance at lower interest rates than they can for maintaining a business.

That cheap money just ramps the demand for housing for ever.

But it’s really toxic if you combine these two factors – favourable terms for mortgage borrowing togther with a tax break for home ownership.

Most governments don’t allow that, they try to dampen the tax break with a capital gains tax.

But not New Zealand, we’ve applied a double dose of stimulants to demand for housing for decades now.

It’s a slow-moving train wreck.

And finally we have the third driver of excess demand for housing – immigration.

This has boomed over recent years as the government has opened the spigots and used immigration as another way to stimulate demand.

Auckland property owners are thrilled – the price of their properties just got another boost.

Alongside these massive economic forces, twiddling with the RMA barely registers1.

It might have political appeal but it doesn’t stack up.

The Treasury report cited by Nick Smith totted up the costs imposed by the RMA on development – costs such as providing infrastructure, or regulations governing how high roofs or ceilings can be.

Whopee – they found that if developers could do whatever they like, then the costs of building houses would be lower.

Is the Government really suggesting unfettered development – apartments all over One Tree Hill?


Don’t bother with tenants or livestock – they just make the carpets dirty or require you to employ farm labour.

Lock the place up and wait for other New Zealanders to bid the price of both up.

It’s a no-brainer – it's the easiest way to make money in New Zealand.

Pity the poor sods trying to break into the market, it’s getting harder and harder.

Pull up the ladder Jack ...

All because voters refuse to stop the circus.

Will the market crash?

It will have its short term "corrections" but until the two fundamental causes – tax breaks and flawed Reserve Bank policy – are addressed – the simple advice is buy as much property as you can1.

Nick Smith will never be able to build enough houses, the Productivity Commission will never be able to free up enough land, to stop the prices going up long term.

I’m all for improving the RMA, but when the Government blames it for the housing crisis, we have moved into the realm of the surreal.

Or maybe they’re just happy to flatten the environment for the sake of cheap economic growth.


This article was first published on his blog, Gareth's World. It is here with permission.





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This kind of twisted logic does my head in.....      You could apply this inane logic to the use of time...       When we work we pay tax.....  when we dont work ( liesure time ) we dont pay tax....SO.... there is a tax free benefit in not working so...hey... lets tax that...
shit,... there is a tax free benefit in retiring....  because these retirees could be working , earning taxable income... there is a tax free benefit in retiring ..  How far can we take this inane logic...this twisted reasoning..  ekkk.kkk
..."the benefits of rent-free accomodation, tax free"..... shit...     no wonder economics is the absimal science...   
I suggest Gareth is the one who has moved into the realm of the surreal..

I think youre analogy is a bit off.

he is comparing the benefits of rent free accommodation to an 'earning' such as interest on money in bank.

He says free rent is equivalent to an earning that should be taxed.

What if i have a 300k car collection and benefit from lease free access to these cars, he would suggest this benefit be taxed also.

Practically the benefits of owning other personal assets are not going to as significant over time as the rent free accomodation, so from a practical point of view applying his principles only to the family home, or other significant capital assets where the owner gets a tax free benefit makes sense.

You're not right or wrong because other ppl think you're right or wrong, you're right or wrong because of the facts.

I'm starting to see some of his logic, unfortunately a domocracy means that unless joe bloggs can also see it then this sort of policy won't get a political party far.

And with advice like that, I think we have hit the 'blow off top' phase of the cycle. 
Did the Japanese housing bubble burst because the govt decided to implement a CGT, raise rates for housing and shut off immigration?  I forget, it was so long ago after all my mind gets a bit cloudy.

 Expaining ideas using analogy often / mostly does not work it makes things easier by eliminating the need to think. Gareth is going back to first principles. Perhaps this is why there is such a great distance between Gareths ideas and Roelofs understanding.
Elon Musk has adressed this issue many time.



plan b ..I agree with u about 1sr principles... and Thats a great quote from Elton Musk..
Ok...  firstly ...the choice is not between having money in the bank and living in a home.
The choice is between renting vs owning...( for the vast majority)    Term Deposts in a bank hve NOTHING to do with it.
Gareth says this: "The first driver of the over-amped demand for housing is the tax break.'
Bollocks..I disagree...  the first principle /ist driver is that people buy/ rent houses to live in... that is the primary reason there are house in the first place.. they existed before the word investment or tax or economics even existed...
I could go on...and on...    but yes... Gareth and I are miles apart..
ALSO... Analogy is a great way to convey meaning and understanding....Making analogies of first principles is a great way to express views.
just my view..


No.  And that's why I'm puzzled how you made money Gareth (luck? someone else did the real work?? seriously, that kind of announcement would get you a written warning in most circles.)

IF you lent $300k to the bank, you are investing by loaning them money at slight risk.  In reward for foregoing consumption and as payment for the opportunity cost the bank _promise_ you payment (an amount calculated as "interest", but it's just the rent on your money, that they pay.  Then you get your money back, they pay you a profit.   You pay tax on the profit that is available to you as a distribution.

IF you buy a house, you have consumed your 300k.  You haven't given to anyone else and you are consuming your 300k.

The equivalence with the cash is, if instead of putting the money in the bank, you stuffed into your mattress (instead of renting it to a third party).  You notice that you get no interest, and no profit, and pay no tax.

the equivalence with a house purchase is your purchased your 300k house... then rented it out to someone else (like you rented your cash to the bank in the form of a "loan").  In the cash of the rented house, then you have foregone the use of your asset (300k or house) and are taking a risk.  They will pay you an amount which is up to you as owner of the asset, and limited by what they are willing to pay.  Just like the money in the bank you still have final ownership of the house, but you have lost the use of the asset in the meantime.  They pay you "interest" on your house value in the form of rent, and you will pay taxes on the profit after expenses that is available for your distribution.

The difference is the involvement of the third party.
All money or currency is a ONLY value token, and as such carries the implict and indivisiable assumption that it has person value for consumption.
It doesn't matter if you consumed your 300k worth of house resource, or 300k of watching movies resource, or 300k worth of bottles of wine.

The rental system, btw, like the interest system, is one based on an assumed proxy.  They could pay you personally to come and make the purchase, or come buy the equipment and stand there while it is being used, but that is a poor use of time; so it is assumed "by proxy" that your ownership privilieges and responsibilities will be taken on board "as their own" by the renter.  If anything it is that proxy function that frees the time that adds value to the whole process.   Which is similar to work by proxy, where an employer buys time, training and skills from a suppling person.

How are capital gains treated in the bond market?
i.e. you lend 300K to the government / purchase a govt bond, at say 2%.  Later you need your money back, so onsell your bond.  In the meantime govt bonds have dropped to 1%, so buyers are willing to pay you more than 300K for your 300K bond, due to the extra income it will generate.
Now, the 2% coupon return is taxed as income right?  What about the capital gain on the bond?

True. If I put $300K in the bank I get a profit which is taxed. To compare this to 'free rent' would only make sense if there is some indication of the value of that rent.
$300K in bank at 5% gives one $15,000 on which to pay tax - say $10,000.
Compare that to the rental value of a $300K house. Firstly it's in an area that is getting zero capital gain (it's not in Auckland or ChCh) - besides capital gain is not Gareth's point here. You are paying insurance, rates, repairs & maintenance etc. so your down at least $4000 to start with. So rental value would need to be $14,000  to be equivilent of putting the money in the bank - around $250 a week. Just under a 5% yield (much higher than you get in Auckland).

There is no "free rent"

The money is a token of value, fungible and used to exchange.  It's entire value is that you can swap it for something conumable....if that consumable is 300k worth of "free rent"...well you just forked over 300k of tax-paid dollars for that "free" rent.  That you were going to consume the services it created, is the whole point of a tokenised currency in the first place.

Bank is a third party.
Outside tenants are a third party.

Both pay for the 300k.

Consuming the 300k in your house is what your money is for.
Sticking 300k asset under the mattress is also what your money is for.
Neither renders you interest because a third party isn't paying for your delayed consumption.

Actually... I think it really needs to be said.
Gareth.... Why do you keep thinking up ways for other people to be double taxed ?

If you want to pay more tax, just make a donation to IRD.  They have a code and fund for that.
Keep your paws out of other peoples' wallets.

the above house vs bank, is a rather obvious (and I hesitate to call it such) "dilemma".
but you would have people pay PAYE on earning money, then some other TAX on their consumption of their own earnings.   It's bad enough that we have PAYE then GST on peoples' spending, without finding more ways to slow the economy.

cowboy have you read this yet?  I think you will find you might he's not for more tax, just a more efficient system..

A read some of it.  It was bollocks and based on completely unfounded (and incorrect)principles and assumptions so I tossed it out (second copy).

It's one of those cases where someone targets a worldview about how they want things to run, and then justify them, rather than test them out on a wider stage.

Here's some more bollocks for you to toss aside ;-)

I have done many years research into systems and looking for missed gaps in theories and have a few ideas about "negative taxation" myself.  Although I prefer to look at Scandanavian countries for practical issues, and fictional universes for ideas of exploration.

The TL;DR is "the human world isn't ready for it."

We end up in a Police State situation like in Star Trek "Federation", where real scarcity issues become completely unmanageable. 

Look through the logistics and demographics of the proposers, look for any real economic or productive skills.  Peek behind the curtain, Look for the NSA's behind the Zuckerbergs.  The rich parents for the Bill Gates's.  Not every source has a wealthy background, but they do have clear economic support, guidance and like any environment  they must adhere to the resource management "game".   For every "supply creates demand" look for the warehouse full of unsold Betamax players or Edsels - for every boom company, check the husks of the OPM folks of their competitors.   

Sure you can have free incomes (from where).  But are you going to be the one supplying the product and services to the purchasers?  Where are you going to get your resources if demand rises?  Where are the funds going to pool or will the creation process create a continually rising price?
 I worked out many of the answers, which is why I know how to forensically look at transactions...do you think many others have shown that skill?  Would you trust -their- word then, to release the genie?  have you asked them how they intend to reverse the free corn and circuses if things don't go as they expect (which is normal for most such interferences - eg housing subsides and rent caps actually reduce housing which is the opposed to what the experts predicted)

Yeah,but isnt Gareth point that you give the bank 300k and get the get back in 10 years inly 300k.  Obviously you earn interest - which is taxed.
But if you put 300k in housing you get back maybe 900k plus had the benefit of living there for free - which is not taxed.
Where as the poor sod who gave the bank 300k has to live somewhere and would have paid tax on his interest received and the rent paid to the land lord.
For example, i made the mistake of selling my house, earning interest of 750k which disqualified me from collection working for families.  If i kept the house - i would have got working for families.
I think G point is the tax motivations are wrong is correct.

SS...  ok...  Money depreciates....    why does'nt Gareth  argue that the tax incentive that gives Real Estate its' bias is because there is no depreciation allowance  on savings that  earn interest..????
there is a disincentive to save because there is no depreciation allowance on money...
the main reason Housing looks so good is because it generally maintains its value in regards to the declining purchasing power of money... ie. the depreciation of money

"But if you put 300k in housing you get back maybe 900k"

Using the town of Carterton, please demonstrate you maths for this claim.

I try to get the full argument from GM.
Where it gets confusing is that the difference between owning your own home (presumed a beneficial state) and buying on a large mortgage to rent out ( of doubtful community benefit) is not argued successfully. GM  would like to see changes but please differentiate.
Here are some:
Set  the capital that banks have to back on investor mortgages way higher than it is now so that banks have to keep lending below 50% of the property value and even lower possibly. GM suggests aligning with commercial business rates.
Deal with the absent investor problem by penalising ownership or outright ban. How many Auckland properties are already in dummy ownership by residents for foreigners.
Penalise land banking within the tax system retrospectively. It is a business and undeclared profit has been made hence tax penalties on the value of the stock (the land). If I hold stock in my business I have to make it part of end of year value for tax. Do the same with land.
Penalise holding empty habitable houses in demand areas.
All I ask is "If not, why not?"

Your trading stock can be valued at purchase price for COGS.  fundamental accounting principle used to place costs of transaction in the period they occurred, to ensure fair and correct view of business.  optionally you can get stock re-valued  to write down old stock which is dated.

The difference is that your stock is unlikely to appreciate as well as the fact that your turnover should  mean it passes through only one tax end of year
I know nothing but how do farmers have to treat livestock?
That would be comparable for dairy at least where the cow lives for maybe  10 years.
Again what about forest trees?
Enlighten us please.


(to answer your question they can use two systems forced on them by the chair warmers at IRD, based on cpompletely arbitrary figures.  My business is focussed around buying and selling the animal, and without the reproduction valueadd, so I use a simple historic value system (since most aniamsl should never be in stock (sorry for the pun) for more than a year, two at most)

Gareth is right , Houses are a one- way bet , you cant lose .......... over 1000 new faces arriving every 7 days over and over and over again ,week after week , month after month  when we already have a housing shortage , buying houses and making money is a one way bet .
Just watch your gearing levels if interest rates move north !

Well I largely agree with you Gareth.  But I still fear buying lots of properties because it seems unreal and likely to bust at some point.  But then cash in the bank is a risk too.
PS The batch renovation is looking stunning.

Gareth is wrong about the tax .........he fails to point out it was a  Labour administration who incetivised the private sector to provide rental stock when the State realised it could no longer do so .
To remove those incentives for investment are just plain dumb in my view , beacuse the Government is in no better shape now to build houses for everyone as it was then.
Furthermore Capital Gain Tax is an insidious tax that has only ever been introduced by Left wing Governments , its a resentment tax that eradicates all you tall poppies out there , who want to get ahead in life  .
And it keeps you from ever accumulating any decent amount of Capital for your retirement

Well GST is a tax on food, I think food is more important then capital gains, yet the money I spend on food is taxed, the money I make to buy food is taxed, why shouldn't capital gains be taxed like every other form of income?  Just because only the rich get capital gains doesn't mean it is not income, all income should be taxed equally, lets not call it capital gains, lets just call it "income" and tax it.  Why not?

I must admit I don't see why food is GST'd.  It's a survival item.
And residence (houses, rent) should also be GST'd....or not GST'd.

Capital gain isn't income, as has been explained to you several times, because it is devaluation of currency, not asset value change, so the "profit" is illusionary.  It is just the rest of the world has got less valuable, and this can be demostrated by horizontal trading in an asset class.   
Development, even self development, OTOH, should be considered.  But often such improvements (as many PI's will affirm) actually cost money, and is only offset by the devaluation effect !   This can be the ruin of many DIY wannabe property hoppers.

Pretty weak arguement, especially in the case of Aucklan housing.  Expenses including deveopment of a property are always treated as expenses and deducted from profit before tax is calculated.  When you sell a property for a profit that is income, and it comes from capital gain.  Same as if you sell a share for a profit or a lamb, calf etc, simple stuff really.

that is because of the difficulty isolating what is development gain and what is capital gain.

Capital gain in auckland is devaluation of NZD and other NZ assets due the influx of foreign credit.  It's the same devaluation you would get if NZ started printing more cash (creating inflation, prices go up like auckland houses are, but the actual value of the asset stays the same.

 You got several countries worth of fresh print foreign cash, pouring into a magnifying glass focusing sunlight-like effect into Auckland, and a government who is so ignorant (or if they're not ignorant, then corrupt) letting that occur.   That is what is creating that price effect.  Sell house in auckland, buy similar house in auckland, what capital gain will you make?

Development, otoh, where it leads to capital gain is a profit...but how to isolate that from the inflation gain that the government isn't even capable of recognising yet.

You never isolate inflation from profit, why would you?  In the '80s when you could buy a few deer on credit and then sell them for double in a couple of months that was profit, inflation be dammned.  I understand that you like how the profit on housing is treated differently to the profit on everything else, that doesn't mean there is a logical reason for it though.

So if you get 1% return on a term deposit, with inflation at 2%, you will still consider that profit?

Exactly, its not rocket surgery.

you would because buying a house at 200k and doing nothing to it, it is the same house 10 yrs later, 10yrs older even, so if the sale price is now 300k.... it is clearly not a profit on the house, the money has shrunk.

It might be that the area has improved, but that is found by looking at other properties in similar situations.

Re: The deer.... why did yo buy them?   To resell at a profit, as a trade item.

do you pay tax on the deer in the paddock, no ! Because they're just an expense waiting to drop dead of something random and eating everything while they're in the paddock.  

But you buy them as part of a trading enterprise, not for personal use.

Just.Like.A.House bought for trading.  When it is bought for trading, then the profit IS taxed, and is already being taxed under existing laws.

Just,Like,A,House bought for rental, the rental income is taxed.  If the fixed asset is disposed of at greater than book prive, and less than purchase price (including increase due to Capital Works) then that  _profit_on_disposal_of_fixed_asset_  is taxed !!!  you know that right??

It is only when the property is above it's cost+improvements, that it is the market that has clearly shifted, and as such there are no definitive way to calculate what is devaluation, and what is profit on disposal ...remembering that unlike other assets the house still has it's full 50yr projected lifespan in front on it (unlike most purchases).   Since there is no way to have a definative profit, it can't be taxed.

If their aren't logical reasons, then that means you aren't understanding the way the system has been set up so re-examine your assumptions.

What you have described more closely resembles Labours CGT minus the family home, then it does our current tax system which has a loophole excluding real estate based on your intentions at the time of purchase.
The rest is just drivel.

Gareth is right about the notion that houses are a risk free investment.
They are not risk free  , and prices could drop .
This has happened everywhere before ............... except here .

Obviously you weren't around in 1985 when second mortgage interest rates topped 22%. Anyone who was never wants to see that happen again.

here is Auckland? not New Zealand, because prices are down over most of NZ at the moment.

If i buy a boat for personal use instead of paying to lease one, should i also pay tax on amount of money I'm saving per year by not leasing a boat?

He wants all capital taxed, do we then have to get valuations done on all cars boats motorbikes each year to figure out out tax bill? If we don't use the boat 1 year, we haven't saved any money as we wouldn't have leased 1 that year anyway, so should we then log every use of every asset?

Tax needs to be practical so ideals are never going to get u far.

capital gains, not capital so only on the profit.  And no not per year you pay a CGT when you sell, though since we have rates which is based on an existing valuation system there is no reason why not, ie perfectly practical just tack it on.

I'm pretty sure GM wants a tax on capital not just capital gains

And if a home owner loses their job I sure Morgan will be there with a tax bill for their sensible choices.  Yeah, I -do- have a real hate-on for people like that.

"People can get mortgage finance at lower interest rates than they can for maintaining a business"

Ok.  calling foul.  Who is the clueless hack that wrote that article.

If you had $300,000 that you had somehow contracted to lend to me for some unknown reason.   The Interest rate is contracted at 5.7%, would you feel happier lending to me on:

(a) My home in which I must live and place my family, that can be resold easily on the market with excellent confidence of recovery near or full purchase price, with little exposure to market changes....   (well secured)


(b) My random business which carries risk with all other business (bank lending has the risk spread across the whole packet of lenders to allow flexibility), that I finance from sales, pay myself a wage, can fold any time, has constant exposure to market and compliance and stock, vandalism, libel, employer and tax and ACC legislation, management and market and inflationary risk.  That if liquidated could result in anything from a tax-liabillity of gods know how much to any amount but probably nothing. (ie effectively unsecured)

seriously if you can't see the difference in risk and thus interest lending criteria between the two you shouldn't be in business let alone ginving investment or tadx advice !!!!!!

Yes - what % of new businesses go under in the first 2 years? What % of Auckland houses lose 100% of their value in 2 years? Why is there the slightest inkling of suprise that banks regard houses as a safer investment?

Ask youself  'why' Interest rates were forced down worldwide and Gareth is seeking a safe haven for his dosh. Carefully creamed off others.
First principles and first homes for first home buyers have gone out the window.
The window of opportunity is gone. The rich get rich, screw the rest.
Such a caring society we have created. (NOT).
Greed won.

In the US the housing market is now relatively stable, and it never really got to Aucklands levels.  If you want to talk about tax incentives, in the US you can claim the interest on your mortgage against your tax and you can fix for 30 years with no break-out fee if you want to change.  So your effective interest rate is zero (if your tax is high enough), if our tax system is behind this mania in Auckland, then why is there no mania in the US?  The shortest answer is confidence
In the US they had a period where 'house prices always go up' was part of the vernacular.  We all know what happend next. 
The sudden oversupply in oil, dairy, copper, iron etc came as a total surprise to everyone, including those who are spending mega-bucks on these things.  It was all about the endless demand.

yep, I think there are clearly two sides here, the demand side and the supply side.  The right and most business and many economists are demand side it seems, convinced that no matter what, ppl will pay up endlessly.  That I think in the last few years has with demand destruction of oil demand etc been cleary shown not to be true.  Kind of interesting how deluded ppl can become and how un-shakable that delusion seems to be, until that is they actually end up being impacted that is.  the Q is then do they see reality, or take on another delusion.
Delusions, the thing I have been wondering on for some years  is with china growing at 10% per annum which doubles its ecponomy every 7 years just where is that output sold to and how many doubling can be got, I think we are finding out right now, its "no more".   Yet somehow market ppl, talking heads and econmists seem convinced this game wont end.

I started fuming while reading this article, but in reading all the feed back You've all said it for me. thanks for that, now can some one buy him a cat for his birthday? (or two?)

ah well....I actually agree with him.
So why do you think its so bad?

you want to pay tax on your assets you are free to do so.
Keep your grubby mitts off other peoples property thief.

tax isnt theft....
and yes Im voting for a CGT.
So I'll take great delight in reminding you the day its passes.

Tax is theft.

my property, my ownership, government or council or "society" or you are not permitted use or claim on it.  It is mine by fair private trade or by my creative endeavours.

collection and paperwork require my time, which belongs to me. you want my time, then you bid for it just like anyone else.

taking what does not belong to you without the owners' freely given permission is THEFT.
Or maybe your mother just didn't teach you right.


You give your consent to be taxed when you use currency, don't want to be taxed, stop using currency.  Simple stuff. 

CB. Those who thrill over new taxes are often nett debtors. 

The point of a CGT is the fix an imbalance in the tax system that makes ppl invest based on tax minimumisation instaed of return, not raise more tax.

Does that include all those National Party voters thrilled at the GST and Petrol tax increases?

Given petrol is droping now is the time to put in carbon tax.
Since GST is regressive yes most Natuional voters were probably happy

Gareth is clearly not very bright.
A first home buyer in general does not have $300k in the bank and therefore they do not make the decision to buy in order to avoid paying tax on interest they might otherwise earn!  In reality they have a small deposit and will probably pay more in mortgage interest than they would in rent!
The people Gareth would be targeting are those that have owned their homes for decades and paid off their mortgages by scrimping and saving their already taxed income.
If this idea of rent taxation was fair, why wouldn't the same be fair for car owners?  Should you pay $600 tax a year for owning a $30,000 car because you have a tax advantage over someone who chose to lease a car and invest the money??

.....umm i think he is very bright...maybe too bright for some. 
Is his point to subtle for you? Put $300k in the bank, it receives interest and is taxed. Buy a home, it's value rises, you are provided with accomodation and there is no tax.  If you cannot afford a home, whatever savings you may have are taxed, and you need to pay rent with your tax paid income.  Thus the homeowner is at an advantage..
To be equitbale, there needs to be an asset tax on the value of your home.  The choice of the depository of your funds needs to be taxed on an equitable basis - be it a home or a bank.
Unfortunatley people equate an asset tax with an increase in tax.  Implemented as it should, it would spread tax to those who are asset wealthy - and currently avoiding.

Basially I think its because they dont want to see, also this is how many of the commentators on here seem to be making money, hence the comments ie by paying little tax.
Bring on a CGT IMHO.

why do you think he is bright? he can't even do a equitable comparison.

You receive interest from the bank because they are a third party who is renting your money.

If you buy a home you are consuming that money for a purpose.  Would you pay tax on a hamburger because you aren't hungry anymore,  or for petrol when you are at your destination (but didn't pay the bus company for the trip)?    money IS personal consumption, WHY OH WHY are you so keen to pay extra taxes on it???????????

^ This is just babble and irrelevant.

If you cannot afford a home.   Then you rent from a third party. they pay tax on their profit. (1)

If you invest your money in a bank, put it on the stock market, or lend it to a friend, you get interest. You pay tax on it just like the land lord does on his investment profit. (2)

Your "tax paid income", your time and skills are your property, you sell these to a third party known as "your employer".  You pay taxes on the _Profits_ of your transaction with your employer. (3)

NOTE:  Your time and skills are YOUR PROPERTY.   Do you think you should pay taxes on possession of that time and skills.   If you are an IT person, and you're working on your own computer, doing your thing, should you pay the government tax on you selling yourself your skills??  Should you pay them if you possess these skills and _choice_ not to profit from them by sleeping or sitting on a couch. (4)

You've crunched together 4 entirely _different_ topics !

The homeowner isn't "at an advantage".  They had 300k.  Someone had to pay taxes to create that fund, for it to be their property.   They put it in a house, it is theirs to enjoy because that's what money is for.   YOU can also buy a house when you get 300k.
Farms, houses, and 300k's don't just magically appear; they are created by people taking risk, making long slow and/or risky investment.

Now tell me why you want to pay more tax please ?

You don't have to save up 300k for a rental house, so you're at an advantage?
Or is it like the Russian who had Communism explained to him.  He was told if a farmer has two tractors we take one and give it to his neighbour as this is fair under communism. the Farmer was excited, he didn't own a a tractor (yet).      
  If a farmer has two cows we will take one and give it to one of his neighbours.  Again the farmer was estactic, for he had lost all his cows to starvation in the previous winter and had no cows.
And the official was getting excited by now and said "if a farmer has two chickens then we will take one and give it too his neighbours ! At which point the farmer was "no, no, no that is all wrong.     
 Why? said the official.    I have two chickens said the farmer.

Is that you?  you think the homeowner has an advantage simply because you don't own a home yet that those with the "advantage" need to be taxed?

The reasons to encourage residential property investment over more liquid assets bought with borrowed money:
1. With full recourse, homeowners are the ones assuming most of the risk, largely protecting the banks.
2. OCR alterations passed on by banks directly affect the purchasing power of the population which allows inflation targetting.
The higher the cost of housing, the more debt is assumed to be in it, the greater the affects of the above.
As commercial loans to limited liability companies for other assets don't allow this as they are more likely to be unwound if not returning or written off if they turn bad.
It is all just an economic manipulation device.

There are lots of well written rebuttals as to why too much bias to housing is bad.  Not least of which is lending into housing isnt very productive to jobs and GDP as opposed to businesses.

businesses doing what?

Absolutely brilliant commentary. Thank you all for making me laugh out loud, particularly cowboy. Gareth should do an article every Friday afternoon.

why ?  as a troll?  or to prove he doesn't seem to understand those basic differences?

Brilliant analysis from Gareth...he can on tangents sometimes, but he nails it on this topic...National are right that supply is a casual factor, but they have a blindspot for immigration, taxation for investors and bank lending...it's not a simplistic as National are telling us.

Im not so sure they are blind to immigration, I think they are doing excess on purpose to bring ppl in trying to boost the economy. Happy to be proven wrong, but with a too high un-employment rate I just have to wonder.

Steven - the unemployment rate can be an irrelevant misleading stat - what counts is the labour force participation rate and NZ's is one the highest in the western world currently (despite all the immigation which has assisted GDP).  Mind you the same can be said about NZ's actual unemplyment rate, something Mr Littel was ignorant of as well

Um, no, well, depending on what you want to look at.  Plus its a trend thing for me not a single point. So yeah sure maybe as a specific factor it isnt the best, but the trend is we are higher than it has been and should be if only as a social value and not economic. 

Agreed Steven about trend, but the trend is down, and this point of time is a period when half the western world is in recession or damn near to it - and an unemployment rate of 5.4% and a participation rate of 69% wit therefor trends are outstanding in this environment IMHO.

It is indeed down, which is good, however maybe it could have been faster.  And yes I'll agree we are doing pretty well, not sure if its despite National or not.

Well you can never really judge that accurately Steven, but hopefully they've just got out of the way and let the private sector do the job. However, we have to be careful not to find fault on some parts of the economic peformance that we don't like (e.g. housing) and then question whether the good parts have anything to do with the Govt - kinda two-faced otherwise.  

oh and why?

Is immigration good for us.   Can't see it myself.
Maybe it increases turnover but is it good for us ?  It's the same with GDP.  Apparently GDP is  going up, but the citizens are finding things tougher.
And is it smart immigration.  Are we selecting people who create a gain for us.  Seems there are thousands of people from India.  Using education as a pretext, when the major intention is to get a job and residency.  And who all stick close to the airport where they get off.  Is the subsequent pressure on housing assisting us.

If immigration was good for us , then common good of the whole country would be getting better,,,, have you seen any evidence to support that?  No.  Immigration is good for a few people, bad for most.

Cowboy I'd love to see the evidence you obviously have for that please

Where is the country getting better with more ppl?
Now per capita wealth, yes that has some traction. Otherwise more ppl need more public services etc etc that doesnt really make ppl richer, it dilutes I suggest..

Bankers and real estate do better with bigger populations (more turnover and higher demand), as do upper level government employees (bigger support base that old 1% of 100 income streams, chestnut)

But the rest of the country doesn't get those bonus.  Heavier burden on infrastructure, higher resource deamdn, lower portions, lost personal space and competition for wild areas.  I still remember the days when deerstalkers would just go bush for a days or weeks at a time, these days they have to notify and obtain permissions because there are so many of them up there.  Parks and pools and beaches weren't carpets of heaving rolling humanflesh

how does real estate do better with more people?  More people = more real estate agents.  It doesn't change the number of houses sold per agent.

Yes Cowboy, better still, let's bring in a one child policy and live even better 

it will come


Would probably be best to follow Gareths advice "While the politicans go chasing ghosts, you should do as I do – buy lots of houses and farms."  Gareth has usually been right and he and his son are buying real estate with those Trademe millions they both pocketed! There is no better way to make money in this low interest rate environment.

I think the advice is given tounge firmly in cheek, and you can be assured that nobody wants to be blamed for bursting the Auckland housing bubble.  So it wont come about by political means, normal market functions will pop this bubble.  Just as they have done to every bubble in history.

Basic sales rules.

People will buy for their demographic.

Some will buy expensive items purely because of the expense lets them show things off and get recognition purely from the expense or the brand name.  Some of these are rich or old money so never really have to worry about the mechanics due their resources. Others like my cousin Anthony (who is awaiting trial in Bali) and his brother just lived for the moment like the Greeks do and never really gave much thought to _why_ things are like they are, they just wanted the cool toys and never considered why they were offered.

Some people are poor and budget and some of these work full time and some work part time.  they have difficulty mentally processing ownership, responsibility of ownership, and leverage, because the thought of owning an asset or investment is beyond their horizon.  For them, a budget is something to work out if you can afford cat food this week or next week; and things like HP and Credit cards are just a mindless trap for them (aka "the never-never").  They have no choice but to buy purely on cost.

In between is the middle class.
They have options, but they can't just buy top shelf if they feel liek it.
This is the bulk of the population and a significant majority of the workforce.  Regardless of your personal circumstances, any planning or budgeting you do needs to take this group into account because they are driven by choice, not by need (the poor), not by outside influence (the spendthifts).
 The simple fact is:  If you offer two equivalent items to this group they will take the cheaper option.  they want 2.7m studs and large rooms, balcanies...until they see they price tag.  They want free range food...until the expense and convenience costs show up on the price tag.   They want beach houses, big views...and end up in bungalows in suburbia, or flatting/apartments.
What we are seeing in Auckland is because too many of our decision makers come from the first two classes.   They want safe houses, they want tight zoning, they want endless committees being consulted, they want security and guarantees, they want legislation to cover every conceivable angle.  But the people selling them these things aren't the payers, they are the profiteers in the deal.

Cheap [foreign] money bids for limited housing stock - you will get inflation.
Higher quality and more inspections and more rewrites and more contributions the base price must rise.  That is the simple rule of production....the more you add in, the more features and checks and wants you add to your order the more it is going to cost to produce... which isn't a problem if you're not the payer....and sounds fine if you're in the spendthift group.  but it's disaster for everyone else.    But lower those barriers...and all the middle class and all the poor will pour in like a broken dam into the lower cost option - driving the market to the cheaper lower quality competitior  because that's the way the system is set to work - all other things being trival, the lowest price wins.

If you want an economy beyond that there needs to be two things:
(1) more disposable _non-interest_ tokens to spend
(2) incentive to spend on consumption (ie entertainment) rather than invest.

At the moment everything is geared to the oppostie of this.  It is more sensible to invest for future returns and forego entertainment because we are a taxed to death non-leisure, non-style culture  (ie only the spendthift class can afford culture).     And business and competition are driving wage margins down (too much other non-discretionary costs to employers.).   Employers _should_ be rich.  Employees should be encouraged and ways created for their wealth to grow (not stolen out of the system by super schemes which just create problem (1). )   This means we _should_ be seeing inflation, and it's that inflationary pressure that needs to be taxed, to feed back into our school leavers and poor.  We should be seeing our FHB into cheap homes, not putting interest bearing training loans on their sparsely funded backs !  (charge the ones that can least afford it?? wtf ! )

I wonder if y'all are missing the point of Gareth's article.  I think y'all are missing the sarcasm in his advice.  Whether his notion re rent free accomodation is right or wrong aint the point.  
Piss assing around with the RMA is pointless if we aren't willing to address the main factors driving demand.

I would say that tinkering with the tax code would have a similar effect to tinkering with the RMA.  If you can buy an asset that appreciates at 7-15% pa thats a fantastic investment.  If you can do it with only 20% deposit a 10% increase becomes 50% return on equity.  Impressive yes, and tax free is just the cherry on top.  You can add all the expenses on and still make a nice profit, but the price can only go up as long as people can afford the higher costs.  There are already some formidable barriers to new entrants, and bubbles like this starve without new entrants, and soon those expenses outweigh the ever diminishing appreciation gains.  This will sort itself without any help at all.

There is a lot of errors in Housing and yes, Farming if truth be told.
RMA and Governments bending over backwards to hold up building. 
At instigation of their over lords.
Suppliers hold up import costs.
Fonterror holds up milk supplies. Trickle feeds.
Banks hold up the exponential debt components, ever expanding. Multiples of the difference between savings and borrowings often from overseas interests, looking for yield.
QE...to all and sundry.
If Capital Gains are all that is required, just do no work, borrow heavily, wait for Immigrants to turn up, hey presto.
We are all as rich as the next man.
If you can keep on leveraging, No Problem.
Except when you compare what other countries can do, have done, for centuries.
Debt works, especially if Tax deductible, prices go up, always. Until they don't.
Ask a Sub-Prime, negative equity stalwart, what the problem is.
It is very easy to cut costs..but we are not allowed, we must always follow the inflation mantra.  Fueled by lots of speculation, naturally. (At different exchange rates and derivative values)
Money ain't real, but here in New Zealand debt rules still apply.  You do not meet the payments bancruptcy applies.
Hence why several poor farmers over burdened with debt have left this mortal coil, recently.
Another simple statement.
Why do not Banks own all Real Estate worldwide and rent out to us poor suckers, if Housing and Farms and yes, even Commercial Buildings are the perennial solution with population growth.
No need to make us debt slaves. And fiddle the interest rates on a downward spiral so idiots can over leverage on even more debt. For marginal gain.
And futures are another story.  And X-change rates.
Fees...and fleecing. A little bit of a lot is worth having...Bank on that.
Then tax it.

Gareth and most of the commentators here that side with him overlook a simple fact. Owning a home is already taxed - it's called rates. On top of that there is maintenance and up keep. To extend Gareth's arguement should people who rent pay tax if they are paying less rent than someone else and therefore have some level of financial advantage? In reality this is a capitalist arguement gone mad. And the economic theory of capitalism is in the process of proving it is as fundamentally flawed as communism is.

All capital items are paid with tax paid income.  The tax has been paid in advance of any deposit or repayments - often with savings allready subjected to Resident Withholding tax.  Yes a business/PI can claim back depreciation to match the assets expense against revenue for the period but any excess depreciated claimed at disposal is taxable income.