Or we could build our own houses. Part 1

Instead of expecting the Government to sort our shit out. 
So the big announcement at Labour’s conference, intended to steer speculation away Shearer’s leadership is to be around “affordable housing.”

Annette King:


King has described affordable housing as the “missing rung of the housing ladder” because new private sector-financed houses tended to be large and expensive.
“It’s time for a long-term housing policy, which includes a real partnership with local government, starting by including housing as part of their core services.
“We need to have more houses in the $350,000 to $450,000 range built, have quality and efficiency standards in rentals, have more social housing and introduce a capital gains tax to deter property speculation.”

King is dreaming about property prices. She’s ten years too late. My husband and I went looking for an “affordable property”, in 2006. We thought we’d pay $350,000 and had to go up from that to the top end of what King is saying is affordable.We were naive and shocked.

The horse has bolted on property prices and it is largely the actions of the fifth Labour government and outside influences that caused NZ house prices to double from 1998 to 2007. There will be no drop -New Zealand as a safe stable country to live in was at some stage going to come in line with international house prices.

BTW, It costs $4000 Р$9000  USD a month to rent a San Francisco property that some New Zealanders would say are uninsulated and overpriced.
House prices in new Zealand would have to double, again, before rent increased to the bottom rung of that range.

¬†Political Background to the NZ “housing bubble”:
Core Labour policy from 1999 onwards by Clark, Cullen, King and the latest crop of virions is to tax the “rich pricks”.
This means you, if you were aged from the age of 25 through to 60 in 1999. As a “rich prick”, you will have either been on a reasonable wage for the first time in your life or on a good wage after working for your entire life, with the prospect of still having to save for your retirement.
Either way, at some stage, you would have looked at the prospect of investment property or upgrading your home.
By 2000 the conditions were ripe to do so:

The 1999 Labour led minority government hiked the tax rates. If you were on or over $60,000 a year you were paying OVER 55% tax. You were paying $39% personal tax, then¬† sales tax (GST), petrol tax and all the other bullshit taxes to pay for¬† NZ”s largesse on interest free student loans, WFF etc etc etc. There was a lot of incentive to minimise your tax affairs.
If you tax the “rich pricks”, your tax base shrinks exponentially.
No amount of moralising can change this. Everybody was minimising their tax if they were in a position to do so.
If you had a choice to pay either almost 60% tax or 35% tax, you would. You would, in order to keep your business afloat and to buy the costly weekly groceries. To save for your retirement.

In 1999 a measily $60,000 was enough to attract the top rate of tax. Those savvy and nearer-retirement than younger wannabe-investors put property into trusts to evade the punitive top tax rate. Over 8 years the income put through trusts grew by 70 billion, that’s 70 BILLION of potentially taxable income:

If the tax structure is flat, people are less likely to bugger around and form tax avoiding vehicles that consume time and money. . The govt might have been able to access the untouchable component of the 70 billion in trusts had the incentive for Joe Public to minimise his tax not been so high.

Also in 1999, easy money flooded into the country when the major banks were able to settle with the Reserve Bank of New Zealand overnight.
Suddenly,¬† you could borrow easily. However, your money didn’t really cover all your expenses- the cost of living was accelerating. In two years a basket of goods to feed your family went from $130 to $220.
With the combination of easy money; the strict district plan rules for new development and the competition of two boomer generations for nice affordable housing, house prices shot through the roof.

The Y2K investors that Labour wants to punish by introducing a comprehensive CGT:
Joe Public #1.) If you were starting a family from the last decade onwards, you looked at ways to get ahead. To have investments so you might at some stage be able to leave the rat race.
¬†You couldn’t afford to put any away in the stock market so you scrambled and bought a house.¬†
You became aware of certain tax breaks that might allow your wage to go further and between the two of you, were able to buy another house.
You might still have been renting yourself. But a generation of kiwi do-it your-selfers was quite attracted to the premise that you could manage your own investment and reap the benefits of receiving rent in your old age, or capital gains if all else failed.You could write off some of your income tax against your investment whether you put it in a Trust or LAQC.

Joe Public #2.) If you were nearing retirement you bought a second or third investment property. No property mogul, you, you just didn’t want to become a burden on your children in your old age.

From 2004 onwards your property value soared due to the demand and the ability to borrow on favourable terms.
But not enough for developers to make a profit on new housing at an affordable price and the overall prices to stabilise.  There was a window of opportunity but Bush bailed out the US banks and this dropped house prices through the floor internationally.
 This affected inflation in New Zealand. The reserve bank hoisted the interest rates to coll the market. At one stage some were paying near 12%. .
More money flooded on shore because of the carry-trade and the reserve bank had to hoist the interest rates again.
Investors went bankrupt all over the country. Money was not so available for lending on property.
All these factors have caused the current scarcity of new residences and a resilience in house prices.

Any further moves to¬† “cool”, the investment property market like introducing a more punitive capital gains tax than already exists will cause more scarcity and higher house prices.

After all: Why should investors going into the market, exit the market if they are going to be taxed on the way out? 

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