article on NZ housing bubble - more stringent lending?

[IanW99]

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Think clearly about CGT because almost all developed nations have some form of CGT (and if CGT doesn't work, then there would be fewer countries having it).
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Just had a quick look at 35 OECD countries and 13 of them don't have any official CGT which is just over 37% so not sure I would agree with your statement.

Your statement implies that CGT works otherwise countries wouldn't implement it, works in what respect? Clearly it collects revenue for the government, so why would they remove it once implemented, does that mean that it works?

Ian

[Super_BQ]

Just had a quick look at 35 OECD countries and 13 of them don't have any official CGT which is just over 37% so not sure I would agree with your statement.

Your statement implies that CGT works otherwise countries wouldn't implement it, works in what respect?

My argument is of the major nations that have CGT, how much does their housing prices rise compared to the nations that don't have CGT. After all in the past 15 years living in NZ, i've never seen so many people having the thirst to use houses as a vehicle of making wealth, or simply for their retirement. Growing up in Canada, I knew of only a few people that were in the rental property game and the reason is that there's not a lot of $ to be made unless you were 'big enough' (that is own like a dozen properties or an apartment complex). This exemplifies what my uncle in Australia says, that prior to the recent land tax, he was able to get by with just CGT, but this new land tax has hit his disposable income a lot because he's so negatively geared.

I want to be double clear that CGT isn't the sole answer to controlling NZ's rapid rise in housing prices (but I strongly advocate it should be considered, along with a bunch of other controls. Such as opening the door for lower priced building materials, increasing the supply of land development, easing the consent process so it doesn't take so long to get a building permit, giving tax incentives or bribes to 1st time home owners (ie Australia). Lastly, we're talking houses here and not flat screen TVs or vehicles. As a developed country, every person should be entitled to have a roof over their head.

batgirl1001

Let me explain to you how simplistic and perhaps naive your assumptions are.As wonderful as computers are, they don't put 2 and 2 together and add to 4. A transaction of an item or transfer doesn't contain personal information between the parties involved and no IRD may not have the resources to research and investigate everything as they have limited resources.

In NZ today, of course they're not putting 2 and 2 together. I'm only giving you examples of how tax depts overseas put 2 & 2 together because of their CGT. That's why I say your statements will have no basis if CGT is implemented and a new system is set in place so that 2 & 2 can be put together. (ie. requiring lawyers and real estate agents to report individual's tax # and criteria, requiring foreigners upon selling their house to put up a withholding deposit prior to finishing the sale of the house, there are countless of examples to ensure CGT doesn't easily get loop holed and a lot of that is done with computers) But before you can comment further, do you have experience in CGT? Have you lived in a country and filed taxes under CGT?

[batgirl1001]

Yes I did in Australia. However you have never lived (with the exception of NZ) in a country without CGT and how other measures have actually been more effective in controlling property prices than CGT. It has mixed results and it does not bring property prices down but gives a means for government to increase revenue takings without necessarily thinking of the consequences in the long run. CGT taxes you on all gains although in NZ, it seems to be used as a political trumpet card to control property but in real terms, CGT taxes you on your profit and on your revenue and inevitably taxes you on your productivity and efficiency. There would be no incentive for businesses to improve, people to be more productive and work harder if by all means, part of their gains is taxed on top of income as well. Costs will inevitably rise. In NZ, which already have quite low productivity labour in a geographically isolated country, we would be looking at trying to destroy ourselves.

I do not think that LVR will have a real effect on restricting the rise in property though they have successfully managed to push first-home buyers with low deposits out of the market simply for good measure: these people would be committing financial suicide because of their sheer desperation. The real situation in NZ is simply supply is too inadequate to meet demand. There are not enough house stocks out there because building is getting too difficult, too expensive and too restrictive. Australia has managed to be better in this respect and building remains more affordable than NZ while real incomes are higher giving people more means and avenue for housing whereas NZ has remain rather 'stupid' in this regard.

In Australia during the time when I was there, CGT did nothing to quell the booming property price. People who bought property sold in spite of CGT because their was good profit and they sold it with CGT in mind. Rentals were abundant and very much affordable because a lot of people were negative geared and Australia became a country where the people who invested in property over those who rented were the winners in the long run. And yes so were our friends who invested in their 3 properties, they were negative geared but did not experience the need to be frugal or neither were they spendthrift, they simply were better off and balancing their investment returns.

I do not believe like you naively do that CGT will solve NZ's problems (yes, yes along with other measures) the way it works for Canada. Many countries do not implement CGT and many countries do not experience property price increases without CGT.

[IanW99]

My argument is of the major nations that have CGT, how much does their housing prices rise compared to the nations that don't have CGT.
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Interesting question, according to the OECD there are four countries where the house prices appear to be overvalued, Canada, Norway, New Zealand and Sweden of those 4 countries only New Zealand doesn't have CGT which doesn't really support your argument?

Maybe I'm looking in the wrong place, do you have any information that CGT does indeed control house price rises?

Ian

[Super_BQ]

Only 3 countries with CGT where houses appeared to be overvalued and continued to rise? If CGT was completely ineffective, then I would of expected more, like the majority of countries in this category. (not to be confused with countries that have houses that are overvalued but are experiencing a decline in price - a correction).

Belgium, Norway, & Canada are high for different reasons. It can easily be their central bank has kept interest rates too low fuelling more leveraged mortgages. Speaking for Canada, reserve central bank rate was between 0.25% to 1% today in the past 4 years. For Belgium & Norway, it could be because their CGT system was ineffective by having loop holes or excessive economic growth which over inflates everything (when everyone has too much $, they're not discouraged to invest into 'ie houses').

Maybe I'm looking in the wrong place, do you have any information that CGT does indeed control house price rises?

OECD suggests NZ SHOULD have CGT. If their reason isn't good enough, then I suppose all their statistics are pointless.

http://www.stuff.co.nz/business/indu...ital-gains-tax

[batgirl1001]

Canada has a continued increase in property prices for the past few years despite having a below average economic growth performance of between 1.5% and 1.8% in those years. In that instance, we would assume that if interest rates are the reason, the US would be experiencing a property boom/price rise as well as we are looking at mortgage rates of between 1-2% in the US. However the housing market in the US has remain in the doldrums and is likely continuing for some time now. No, interest rates are not the right answer here. Despite CGT, good supply of affordable land and relatively low cost of building, Canada is waking up to the fact that property investment is the strongest investment in this time of market uncertainty and that property prices are rising in spite of CGT. There are many places in Canada affordable to rent but paradoxically hard to expensive to buy so we are seeing the emergence of a situation similar to some respect to NZ.

OECD can recommend CGT but they are only recommending it as a means to distribute income not realising it is up to how the government to choose how they intend to redistribute income. NZ government can redistribute it by pouring more money into welfare - giving people more benefits which is ironically against what the National government is doing right now to get people off welfare and working. Such benefits for the longer term can be detrimental because once it is implemented it would be harder and harder for people to be financially independent and motivated to work if they know that they are better off on benefit and politically, it is a landmine for any government to dismantle these benefits that people have come to depend on.

Secondly the NZ government would have to reduce income tax otherwise it is just continuing to tax people who earn more or work harder. It is a disincentive for me to work harder knowing I will be taxed more and it may be an incentive for me to move my money and assets (out of NZ) since I am being taxed hard on it causing another capital flight issue here....and with CGT there would be a talent flight issue as well. NZ already pays so little wages to its own working labour, taxing them on their work, their gains and productivity, will also cause them to leave, work less or charge more to make up for the losses. In real NZ terms, CGT would and may cause serious inflationary pressure on the economy whereby we would be seeing real wages falling rapidly.

There are many countries that have no CGT that have managed to control their property prices from spiraling. Take the Malaysian example where only citizens are allowed to buy houses/land at a cheap price and foreigners have to pay a massive levy. Coupled with the low cost of building and plenty of land too, property prices for the general population in Malaysia have been on the rise but has remain stable while real incomes have risen too. Thailand forbids foreigners from buying properties. Singapore taxes stamp duty when locals buy their 2nd property while all foreigners are taxed 15% on the onset of their first private property purchase. This is a hefty sum. In the meantime, public housing supply is increased and meant only for Singapore citizens and PRs.

Countries which do not implement CGT but have found various other means to "tax" and still be quite productive and economically viable.

Whereas your Canadian example is quite the opposite as CGT did not dissuade people from investing in property and prices from rising. Quite the opposite, you just lost your arguement there.

And yes I have lived in Australia in 2 years and during that time I did witness with bird's eye view the effect of CGT on the Australian property market. It's effect.......completely nothing because Australia was booming then and all the CGT did was make the government coffers bigger and property prices spiral out of control.

[Super_BQ]

In that instance, we would assume that if interest rates are the reason, the US would be experiencing a property boom/price rise as well as we are looking at mortgage rates of between 1-2% in the US.

batgirl1001, the housing market between the US & Canada is entirely different. Canada's market was quite insulated to the US mortgage fiasco as Canadians banks have strict requirements making them among the most stable banks in the world. We know US's housing market collapsed for entirely different reasons than CGT. Mortgage rates in the US DID NOT drop to 1 - 2%.

Despite CGT, good supply of affordable land and relatively low cost of building, Canada is waking up to the fact that property investment is the strongest investment in this time of market uncertainty and that property prices are rising in spite of CGT.

Whereas your Canadian example is quite the opposite as CGT did not dissuade people from investing in property and prices from rising. Quite the opposite, you just lost your arguement there.

Major cities across Canada DO NOT have a good supply of land. Vancouver is fully built (from Marine Drive to False Creek - no large empty sections apart from Stanley Park). But forget about the supply issue. CGT is not the sole deterrent for Vancouver's rapid rise. I'm in agreement that CGT would not change the situation because on the world scale, Canada ranks very high for the rich to park their $. In Vancouver's case, it's the closest N. American city to China. A well established chinese community. Immigration laws that are friendly to rich asians to migrate to Vancouver where they buy their home. China having 1.3B people and becoming the biggest economy in the world, no doubt some will want to go to Vancouver. No amount of CGT (or tax) will discourage the black $ flowing there.

Perhaps have a visit in Vancouver and try talking to the locals. Well you'll find there aren't many locals as foreigners have pretty much bought up the whole city. The rapid rise in the past 20 years has made long time Vancouverites (retirees) to grab the $ and dash to other parts of Canada (ie. towards the east but within Western Canada, Okanagan, etc). Those that choose to move or stay in Vancouver choose to do so under conditions like wanting to rent because they can't stand the cold winter months elsewhere in Canada.

Another thing is although the OECD report says Canada is one of the few with highly overvalued housing prices, i'm quite confident that this will not hold for long. Unlike the NZ real estate market (which seems to go only up), there have been many times where the housing market has collapsed in Canada. If CGT had any bearing, at least for the many developed nations (THAT ALLOW FOREIGNERS TO BUY) that aren't experiencing overvalued housing prices may be because of CGT.

OECD can recommend CGT but they are only recommending it as a means to distribute income

There are many countries that have no CGT that have managed to control their property prices from spiraling.

I've never maintained CGT is the golden rule. As in the example of countries you've mentioned, other forms of taxation can be as effective. But leave out those countries that don't allow foreigners or non-citizens to buy as NZ doesn't fit in this category.

[Super_BQ]

Whereas your Canadian example is quite the opposite as CGT did not dissuade people from investing in property and prices from rising. Quite the opposite, you just lost your arguement there.

You can nix my previous reason for Canada's overvalued housing price. If you have the patience you can read here which explains overall, Canada's housing is quite affordable:

http://en.wikipedia.org/wiki/Afforda...sing_in_Canada

A 2012 report produced by the Bank of Canada argues that affordability of housing "has been consistently favourable by historical standards since the late 1990s. . . Despite increases in house prices, generally favourable labour market conditions (gains in real income) and low interest rates have supported affordability and contributed to the significant increases in home ownership and mortgage debt."

In the same way Demographia International Housing Affordability Survey finds that Canada has the most affordable housing. The "Median Multiple" is used to rate housing affordability. The median multiple is derived from the "median house price divided by gross before tax annual median household income.

and your experience in Australia - Sydney has not been immuned to the experiences that Vancouver has.

British Columbia

Vancouver had the least affordable housing market in Canada by 1980; the average home cost 5.7 times the average family income (Statistics Canada, 1983a, table 7; Statistics Canada, 1983b, table 19) cited in (O'Toole 2007).[33] O' Toole calculated that given the high interest rates in 1980, "an average family would have to devote more than 70 percent of its income to pay off a mortgage on an average home in 30 years." [46]

The Governor of the Bank of Canada noted that affordability of housing has been eroded as wealthy Asian investors seeking diversification and hard assets purchase housing in Vancouver. Consequently, "[t]he average selling price of a home in Vancouver is now nearly 11 times the average Vancouver family’s household income, a multiple similar to those seen in Hong Kong and Sydney—cities that have also become part of a more globalized real estate market." [14]

Which means no amount of CGT (or property tax) will discourage this. But as a country on a whole, Canada's housing prices are really quite affordable to those living and working there. Could it be because of CGT? Probably not - but it does not mean that in NZ, some controls should be in place to encourage more affordable housing. As we speak, NZ gov't has done little to dampen things down.

http://blog.greens.org.nz/2013/04/10...is-time-round/

Figures like: Seventy-three percent of household wealth in New Zealand is invested in housing. This compares to 56 percent in Australia.
and
the Bank increased the OCR by 350 basis points, mentioning concern over increasing house prices 17 times in their accompanying statements, yet New Zealand still experienced, in the Governor’s own words (p23), “the most rapid house price appreciation in the OECD during that period”.

Now Batgirl1001. Tell me there's not a housing price problem in NZ?

[batgirl1001]

I am pointing out that despite CGT, rapid housing prices in Canada has make homes unaffordable to the average person and that though Canada is in a better position than NZ in terms of housing affordability, nevertheless it is not exactly an example in which you can use as an excuse to implement CGT and why it will work. Because it doesn't......and being overly optimistic that property prices will go down eventually in the long run is just again crystal ball gazing by you to point out the obvious, there is no evidence that CGT will cause or stop property prices from rising. It is rather economic factors such as production, output gross income earned, world demand which determine whether property prices rise or fall. As the saying goes, "It's the economy, stupid".

The issue with NZ has to do with lack of supply to meet demand. Even in this period of better economic conditions, demand is still outstripping supply in almost all cities across NZ with sellers (being very positive and optimistic about price rises and demanding no less than what they want). During the 2008 financial crisis, housing prices did fall (although they did not fall as much as some people anticipated or wanted) in comparison to the highs of 2007 housing prices if you compare quarter on quarter. So in real effect, when you have low housing stocks, capital flowing into the country (from investments and foreign income), people migrating to the country, you are bound to experience price increases.

CGT doesn't reign in property prices, OECD recommends CGT for redistributing income, not as a means for price affordability of housing and neither do the countries that have CGT have successfully used it to control housing prices which is what the situation in NZ is right now........using CGT to reign in the price of housing. It is a fallible argument to think CGT would work in NZ when there are so many fundamentals which are already not working for NZ right now.

[kiwieagle]

Secondly the NZ government would have to reduce income tax otherwise it is just continuing to tax people who earn more or work harder. It is a disincentive for me to work harder knowing I will be taxed more and it may be an incentive for me to move my money and assets (out of NZ) since I am being taxed hard on it causing another capital flight issue here....and with CGT there would be a talent flight issue as well.

Paging Dr. Friedman, paging Dr. Friedman, your economic mythology has made it to NZ.