The Kiwi Dream of homeownership is slipping away. Only a quarter of adults under 40 own their own home, compared to half in 1991. Homeownership is at its lowest level in 65 years. Out of control house prices are putting homeownership beyond the reach of middle New Zealand.
Speculators flicking houses for quick capital gain are out-bidding families looking to buy a home for themselves and forcing up house prices at a dangerous rate. The current government’s policies have been half-baked and half-hearted.
The current government implemented a bright line test last year, requiring property investors who sell a house within two years of buying it to treat any net gain on sale as income for income tax purposes. This has had little impact on the rapid rise of house prices because two years is too short a period to affect speculative behaviour.
Overseas speculators are a significant factor in the out of control rise in house prices. Kiwi homes should not be gambling chips for overseas speculators. The current government’s requirement that foreign buyers have an IRD number had only a temporary effect.
- Tax speculators by extending the bright line test to five years.
- Ban foreign speculators from buying existing New Zealand houses.
- Create a level playing field for families to buy their first home by removing a tax loophole that speculators use to avoid paying tax.
The current exemptions from the bright line test will continue. Labour will never apply the bright line test to owner-occupied homes or inherited properties. It will be grandfathered, so the extension to five years will not apply to houses bought before the change comes into effect.
Labour’s ban on foreign speculators purchasing existing houses will be based on the Australian policy. Under our policy only citizens and permanent residents will be able to buy existing homes. The ban will also apply to foreign trusts and foreign corporations. Removing this speculative demand from the market will help stabilise prices and give Kiwi families a fair shot at buying a place of their own.
Negative gearing can be used by speculators to make taxpayers subsidise losses on their properties. This is effectively a subsidy for speculation. Speculators will no longer be able to use tax losses on their rental properties to offset their tax on other income. This move has been recommended by the IMF and the Reserve Bank. The biggest users of this loophole are large-scale speculators who own multiple rentals and use losses on new acquisitions to continually reduce their tax. This change will be phased in over five years, with loss deductibility reducing by 20 per cent a year. Removing the speculators’ tax loophole will save taxpayers around $150 million a year once fully implemented. Labour will use this money to help 600,000 families heat and insulate their homes to modern standards.