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This discussion on housing investment seems to be ignoring what is probably one of the most common forms which is long term investment as a savings vehicle.
As equity increases in one property you leverage it to buy another and add it to the rental market.
That is where the view that property as an investment that 'isn't taxed' comes from.
Place that money into other investments and the gains are taxed.
Yes, it increases the number of rentals but at the same time swallows up availability to buy and decreases supply.
If it was tax neutral (over long periods) then it would still be an option but perhaps not as easy as a managed fund.
The managed fund then invests back into the country increasing the amount of money available for developments.
That is a very simplistic view but I'm trying to explain that there is a middle ground between family homes and speculators. Long term investors. -
@taniwharugby said in NZ Politics:
@Crucial maybe I'm a bit naive here, but many people will have investment homes in a trust or under an LLC, meaning they will have pay tax?
I have no idea.
As I said it was more to point out that there is a middle ground between the extremes being held up in the discussion. -
To be honest I'm not sure anymore what the driver is for the posters who advocate for a CG tax on property sales. Is it to I improve "fairness" or to reduce house prices?
My take on it is that as usual the most inelastic parts of a market bear the brunt of any tax burden. In other words the tax will be borne by the party most able to pay it. Given the majority of property sellers have mortgages there are effective lowest prices in play for each. No seller will sell, without compulsion, at a price that means after they've repaid a mortgage and any break fees and relocation costs they either make a loss or can't afford to purchase a replacement property. If the tax meant that the seller would be in such a position they aren't going to lower the price. They are inelastic. Any tax would need to be additional to the price the seller wants, leading the buyer to pay. All that is a convoluted way of saying that if buyers are able to borrow more than sellers owe, they buyer will end up taking the hit and prices may increase.
It may deter people from taking on a second property, theoretically leaving more stock for first time buyers (and potentially lowering the price). But if more sellers are deterred from putting their properties on the market for fear of making a loss there could be a shortage.
Ironically in a very constrained housing market taxes could create shortages that end up inflating house prices.
Of course if everyone unloads their properties at the same time there would be a deflation in house prices.
The fact is nobody knows. As always, economics is great at interpreting what happened in the past but really poor at predicting what people will actually do.
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@taniwharugby said in NZ Politics:
@Crucial maybe I'm a bit naive here, but surely many of those with investment properties, will have them in a trust or under an LLC, meaning they will have pay tax?
Yes. Simple as that.
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@Crucial said in NZ Politics:
This discussion on housing investment seems to be ignoring what is probably one of the most common forms which is long term investment as a savings vehicle.
As equity increases in one property you leverage it to buy another and add it to the rental market.
That is where the view that property as an investment that 'isn't taxed' comes from.
Place that money into other investments and the gains are taxed.
Yes, it increases the number of rentals but at the same time swallows up availability to buy and decreases supply.
If it was tax neutral (over long periods) then it would still be an option but perhaps not as easy as a managed fund.
The managed fund then invests back into the country increasing the amount of money available for developments.
That is a very simplistic view but I'm trying to explain that there is a middle ground between family homes and speculators. Long term investors.Agree with almost all of that, but of course tax isn't taken until gains are realised. Hence some people thinking that it isn't taxed at all I suppose (already mentioned the family home side of things).
I wouldn't say that there is any middle ground. The tax laws are what the IRD stipulate and have to be paid, or you are in breach. There really isn't much grey about it. As I said "intent" isn't actually that hard to prove. Fall on the wrong side of that and you are going to have issues.
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@Kirwan said in NZ Politics:
I'm still scratching my head at someone unironically calling a home owner with a huge mortgage "rich".
The politics of envy indeed.
i assume that's directed at me, so as i said previously:
i'm using 'rich' here as a relative term. home-owners are richer than non. hopefully it's obvious that i don't think that all home owners are super wealthy and ought to be paying a wealth tax. i just think people should pay tax on all of their sources of income, particularly when some of those untaxed sources are not available to the poorest people. -
@reprobate said in NZ Politics:
sources of income,
How is a home owner richer, and more importantly generating income? What are these untaxed sources?
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@reprobate said in NZ Politics:
@Kirwan said in NZ Politics:
I'm still scratching my head at someone unironically calling a home owner with a huge mortgage "rich".
The politics of envy indeed.
i assume that's directed at me, so as i said previously:
i'm using 'rich' here as a relative term. home-owners are richer than non. hopefully it's obvious that i don't think that all home owners are super wealthy and ought to be paying a wealth tax. i just think people should pay tax on all of their sources of income, particularly when some of those untaxed sources are not available to the poorest people.Not overly directed, was trying to be more general.
How can a home owner at -$700,000 be richer than a renter at $0 debt? Or even $10,000 of credit card debt?
It doesn’t stack up.
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@Kirwan firstly you cant ignore assets and just look at someone's cash position to judge their wealth, that would be absurd. If you have the mortgage, you also have the house.
Secondly what I'm trying to say is that there is a significant portion of the population who are not rich enough for buying a house to be an option. Being poor excludes them from investment income, and limits them to wage income. To then not tax investment income fairly disadvantages the poor. Income is income. If you sell a house and make money, that's income, tax it like other income.
I'm not in favour of more tax, just fairer. -
@reprobate said in NZ Politics:
@Kirwan firstly you cant ignore assets and just look at someone's cash position to judge their wealth, that would be absurd. If you have the mortgage, you also have the house.
You have an encumbered asset, sure. But your actual asset is only limited to the equity you have in the house, not the whole value of the house. Most people’s equity is made up of the deposit plus the principal component of any repayments they have made. If you have a 25 year mortgage with a 20% deposit you won’t have a majority interest in the house until year 16. People who take mortgages are making a choice to tie up a major part of their future earnings for the sake of security. I’m sure you know that.
You are right that many people don’t have the chance to get on the ladder or afford the repayments, but what’s the alternative? If everybody can’t then nobody can?
Secondly what I'm trying to say is that there is a significant portion of the population who are not rich enough for buying a house to be an option. Being poor excludes them from investment income, and limits them to wage income. To then not tax investment income fairly disadvantages the poor. Income is income. If you sell a house and make money, that's income, tax it like other income.
I'm not in favour of more tax, just fairer.Investment income is taxed. Always. The issue is your definition of what constitutes investment income. A profit made on your sale of your own residence, that you may have improved using your own sweat equity using materials that you paid GST on, that you paid for your out of your after-tax earnings, is not investment income.
I honestly think you are targeting the wrong thing here. What excludes them from investment income is the lack of disposable income in the first place. They’ve got nothing to invest. No amount of taxing the people with disposable income is going to change that. Education and upskilling will do that. Maybe we should be discouraging people from leaving education without qualifications that make them attractive employees.
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@JC said in NZ Politics:
@reprobate said in NZ Politics:
@Kirwan firstly you cant ignore assets and just look at someone's cash position to judge their wealth, that would be absurd. If you have the mortgage, you also have the house.
You have an encumbered asset, sure. But your actual asset is only limited to the equity you have in the house, not the whole value of the house. Most people’s equity is made up of the deposit plus the principal component of any repayments they have made. If you have a 25 year mortgage with a 20% deposit you won’t have a majority interest in the house until year 16. People who take mortgages are making a choice to tie up a major part of their future earnings for the sake of security. I’m sure you know that.
You are right that many people don’t have the chance to get on the ladder or afford the repayments, but what’s the alternative? If everybody can’t then nobody can?
Secondly what I'm trying to say is that there is a significant portion of the population who are not rich enough for buying a house to be an option. Being poor excludes them from investment income, and limits them to wage income. To then not tax investment income fairly disadvantages the poor. Income is income. If you sell a house and make money, that's income, tax it like other income.
I'm not in favour of more tax, just fairer.Investment income is taxed. Always. The issue is your definition of what constitutes investment income. A profit made on your sale of your own residence, that you may have improved using your own sweat equity using materials that you paid GST on, that you paid for your out of your after-tax earnings, is not investment income.
I honestly think you are targeting the wrong thing here. What excludes them from investment income is the lack of disposable income in the first place. They’ve got nothing to invest. No amount of taxing the people with disposable income is going to change that. Education and upskilling will do that. Maybe we should be discouraging people from leaving education without qualifications that make them attractive employees.
Yes, the equity is the equity, obviously. But it isn't made up of the deposit and repayments, it is made up of these plus the capital gain. If you borrow 200K to buy a house for 500K which is now valued at 1M, what is your equity? And what does the % share owned by the bank have to do with it? Just because it's a partially owned asset doesn't mean you can disregard it.
The fact that it is referred to as the ladder indicates the problem. if you can't get on the ladder, you can't climb it. how do you climb it? by making money because it isn't taxed properly. because it isn't taxed properly it is seen as the best/only investment option in nz, and by global standards, our investment in, and the 'value' of our housing is crazily high (despite it being largely of shit quality): https://www.interest.co.nz/opinion/106983/reminder-how-deep-economys-reliance-property-market-goes-we-ponder-labours-caution
This is currently deliberately being exacerbated by low interest rates. No incentive to save, lots of incentive to buy property - the exact opposite of what needs to be encouraged in nz.
the upgrade scenario is not the reality for much of the housing market. houses with no upgrades made at all have increased in 'value' by hundreds of thousands of dollars - this is a fact. in any case, buying something, improving it and selling it for a profit is very much investment income. when was the last time you bought a car, used it for 10 years without doing anything to it, then sold it for twice the price? only if it's an investment is that the case.
if the government needs $x tax in total, then increasing the tax in one area does very much give the ability to reduce it in another. -
@reprobate said in NZ Politics:
@JC said in NZ Politics:
@reprobate said in NZ Politics:
@Kirwan firstly you cant ignore assets and just look at someone's cash position to judge their wealth, that would be absurd. If you have the mortgage, you also have the house.
You have an encumbered asset, sure. But your actual asset is only limited to the equity you have in the house, not the whole value of the house. Most people’s equity is made up of the deposit plus the principal component of any repayments they have made. If you have a 25 year mortgage with a 20% deposit you won’t have a majority interest in the house until year 16. People who take mortgages are making a choice to tie up a major part of their future earnings for the sake of security. I’m sure you know that.
You are right that many people don’t have the chance to get on the ladder or afford the repayments, but what’s the alternative? If everybody can’t then nobody can?
Secondly what I'm trying to say is that there is a significant portion of the population who are not rich enough for buying a house to be an option. Being poor excludes them from investment income, and limits them to wage income. To then not tax investment income fairly disadvantages the poor. Income is income. If you sell a house and make money, that's income, tax it like other income.
I'm not in favour of more tax, just fairer.Investment income is taxed. Always. The issue is your definition of what constitutes investment income. A profit made on your sale of your own residence, that you may have improved using your own sweat equity using materials that you paid GST on, that you paid for your out of your after-tax earnings, is not investment income.
I honestly think you are targeting the wrong thing here. What excludes them from investment income is the lack of disposable income in the first place. They’ve got nothing to invest. No amount of taxing the people with disposable income is going to change that. Education and upskilling will do that. Maybe we should be discouraging people from leaving education without qualifications that make them attractive employees.
Yes, the equity is the equity, obviously. But it isn't made up of the deposit and repayments, it is made up of these plus the capital gain. If you borrow 200K to buy a house for 500K which is now valued at 1M, what is your equity?
Your equity is $300k. Your house valuation is meaningless. Your house isn’t worth $1m until someone puts $1m into your hand.
And what does the % share owned by the bank have to do with it? Just because it's a partially owned asset doesn't mean you can disregard it.
That makes no sense. By that argument if person A and person B each have $0, then person B overdraws their account to buy a car she is immediately richer than person A.
Money is only a mechanism for exchange of credit. Saying you have $100k in the bank means the bank has a liability to you for $100k, the other side of which is your asset, a deposit with the bank. You swap the credit asset you have, your money, for a 20% share in a house. Your asset is the 20% share. The bank takes one of its other liabilities and creates an offsetting asset: an 80% share in the same house. Your position hasn’t changed at all, you have an asset worth $100k, no more, no less. Neither has the bank’s. Over time the equity ratio changes as you make payments but so long as you keep the house your position never actually changes. Every dollar in additional equity that you create is funded by you forgoing another asset. You pay off 1000 bucks of principal by swapping some of your money for it, and with it all the alternative things you could have bought with that $1000. It’s a zero sum game
The fact that it is referred to as the ladder indicates the problem. if you can't get on the ladder, you can't climb it. how do you climb it? by making money because it isn't taxed properly.
By convincing someone to buy your property for more than you paid for it. Then using the difference for a bigger deposit on your next property.
because it isn't taxed properly
It is
it is seen as the best/only investment option in nz,
True. But you don’t make the other investment options better by making that one worse.
and by global standards, our investment in, and the >'value' of our housing is crazily high (despite it being >largely of shit quality): >https://www.interest.co.nz/opinion/106983/reminder-how-deep-economys-reliance-property-market-goes-we-ponder-labours-caution
No argument there
This is currently deliberately being exacerbated by low interest rates. No incentive to save, lots of incentive to buy property - the exact opposite of what needs to be encouraged in nz.
Agreed
the upgrade scenario is not the reality for much of the housing market. houses with no upgrades made at all have increased in 'value' by hundreds of thousands of dollars - this is a fact.
Because people are willing to pay that much for them. That’s a function of the market. If you want to discourage people from offering stupid money for shitty houses give them an alternative, increase the housing supply. Maybe the government should be concentrating on removing the barriers to building more houses.
in any case, buying something, improving it and selling it for a profit is very much investment income.
Only if you count the improvement work you did as having no value. And if you do that often so that it is your business you get taxed alright.
when was the last time you bought a car, used it for 10 years without doing anything to it, then sold it for twice the price? only if it's an investment is that the case.
if the government needs $x tax in total, then increasing the tax in one area does very much give the ability to reduce it in another.Sure it does. But the issue is with the word “needs”. The government chooses how to spend the money. It could make choices that allow it to reallocate spending without changing the tax mechanism at all.
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@JC said in NZ Politics:
@reprobate said in NZ Politics:
@JC said in NZ Politics:
@reprobate said in NZ Politics:
@Kirwan firstly you cant ignore assets and just look at someone's cash position to judge their wealth, that would be absurd. If you have the mortgage, you also have the house.
You have an encumbered asset, sure. But your actual asset is only limited to the equity you have in the house, not the whole value of the house. Most people’s equity is made up of the deposit plus the principal component of any repayments they have made. If you have a 25 year mortgage with a 20% deposit you won’t have a majority interest in the house until year 16. People who take mortgages are making a choice to tie up a major part of their future earnings for the sake of security. I’m sure you know that.
You are right that many people don’t have the chance to get on the ladder or afford the repayments, but what’s the alternative? If everybody can’t then nobody can?
Secondly what I'm trying to say is that there is a significant portion of the population who are not rich enough for buying a house to be an option. Being poor excludes them from investment income, and limits them to wage income. To then not tax investment income fairly disadvantages the poor. Income is income. If you sell a house and make money, that's income, tax it like other income.
I'm not in favour of more tax, just fairer.Investment income is taxed. Always. The issue is your definition of what constitutes investment income. A profit made on your sale of your own residence, that you may have improved using your own sweat equity using materials that you paid GST on, that you paid for your out of your after-tax earnings, is not investment income.
I honestly think you are targeting the wrong thing here. What excludes them from investment income is the lack of disposable income in the first place. They’ve got nothing to invest. No amount of taxing the people with disposable income is going to change that. Education and upskilling will do that. Maybe we should be discouraging people from leaving education without qualifications that make them attractive employees.
Yes, the equity is the equity, obviously. But it isn't made up of the deposit and repayments, it is made up of these plus the capital gain. If you borrow 200K to buy a house for 500K which is now valued at 1M, what is your equity?
Your equity is $300k. Your house valuation is meaningless. Your house isn’t worth $1m until someone puts $1m into your hand.
And what does the % share owned by the bank have to do with it? Just because it's a partially owned asset doesn't mean you can disregard it.
That makes no sense. By that argument if person A and person B each have $0, then person B overdraws their account to buy a car she is immediately richer than person A.
Money is only a mechanism for exchange of credit. Saying you have $100k in the bank means the bank has a liability to you for $100k, the other side of which is your asset, a deposit with the bank. You swap the credit asset you have, your money, for a 20% share in a house. Your asset is the 20% share. The bank takes one of its other liabilities and creates an offsetting asset: an 80% share in the same house. Your position hasn’t changed at all, you have an asset worth $100k, no more, no less. Neither has the bank’s. Over time the equity ratio changes as you make payments but so long as you keep the house your position never actually changes. Every dollar in additional equity that you create is funded by you forgoing another asset. You pay off 1000 bucks of principal by swapping some of your money for it, and with it all the alternative things you could have bought with that $1000. It’s a zero sum game
The fact that it is referred to as the ladder indicates the problem. if you can't get on the ladder, you can't climb it. how do you climb it? by making money because it isn't taxed properly.
By convincing someone to buy your property for more than you paid for it. Then using the difference for a bigger deposit on your next property.
because it isn't taxed properly
It is
it is seen as the best/only investment option in nz,
True. But you don’t make the other investment options better by making that one worse.
and by global standards, our investment in, and the >'value' of our housing is crazily high (despite it being >largely of shit quality): >https://www.interest.co.nz/opinion/106983/reminder-how-deep-economys-reliance-property-market-goes-we-ponder-labours-caution
No argument there
This is currently deliberately being exacerbated by low interest rates. No incentive to save, lots of incentive to buy property - the exact opposite of what needs to be encouraged in nz.
Agreed
the upgrade scenario is not the reality for much of the housing market. houses with no upgrades made at all have increased in 'value' by hundreds of thousands of dollars - this is a fact.
Because people are willing to pay that much for them. That’s a function of the market. If you want to discourage people from offering stupid money for shitty houses give them an alternative, increase the housing supply. Maybe the government should be concentrating on removing the barriers to building more houses.
in any case, buying something, improving it and selling it for a profit is very much investment income.
Only if you count the improvement work you did as having no value. And if you do that often so that it is your business you get taxed alright.
when was the last time you bought a car, used it for 10 years without doing anything to it, then sold it for twice the price? only if it's an investment is that the case.
if the government needs $x tax in total, then increasing the tax in one area does very much give the ability to reduce it in another.Sure it does. But the issue is with the word “needs”. The government chooses how to spend the money. It could make choices that allow it to reallocate spending without changing the tax mechanism at all.
I'm sorry but there's a clear fallacy here. Your equity in that situation is not 300K. That's not what the bank sees it as if you want to borrow further. It's 800K. It's paper money for sure, it's not realised and it shouldn't be taxed, but the gain in theoretical value over time counts as equity. Equity is the difference between the value, and the mortgage, both current states, by definition.
It is this increase in equity that is the difference between person A and person B in your example - it's not immediate, and I have never said that it is.
My example is, say person A buys that house - to do that they need to have 300K. Person B who doesn't have 300K can't buy the house. 10 years later, person A sells the house and has made 500K, untaxed. Person B has earned wages, and been taxed. At the start person A was 300K richer than person B, at the end 800K richer. Why are they richer? Because they were richer to start with. That extra income should be taxed, because if it is not then you are offering an advantageous tax ride to the person who was richer to start with, which is the exact opposite of what a tax system should be delivering.It's just completely false to say that all additional equity is created by an owner putting more money in. Some of it is, but looking at the housing market in NZ in the last decade, it's pretty clear that a shitload of it is not. This is the part where you 'convince someone to pay more for it' thus making a profit, which should be taxed.
You absolutely do make other investment options relatively more attractive by making the one massively over-subscribed one less attractive. So given that you agree that NZ is too far down this path, and that the incentive is in the wrong direction, it makes sense to address this.
Yes the government chooses how to spend money, they also choose how to collect it. They should look at both, particularly when NZ is out of step with most of the developed world and has a clear and acknowledged problem in this area.Agreed on the need to increase housing supply, and addressing the cost of building in NZ would be a big help on this front.
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@booboo said in NZ Politics:
@reprobate quick question though. Do you agree that you shouldn't pay tax on owning the house with a merely theoretical value?
Absolutely, tax should only apply after selling and income received.
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@reprobate said in NZ Politics:
@booboo said in NZ Politics:
@reprobate quick question though. Do you agree that you shouldn't pay tax on owning the house with a merely theoretical value?
Absolutely, tax should only apply after selling and income received.
Oh good - not that I necessarily agree. Was getting all conflated with that nutty Greens policy.
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