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How our Tax Reform will result in more houses being built

We’ve had a lot of people asking about how our tax policy will result in more houses being built. This blog will answer that in more detail.

While the Establishment Parties are falling over themselves to build more houses, their policies leave the real problems unsolved. These problems include land banking, and viewing housing as an investment rather than as a means for providing shelter. Our tax policy would address both of these, and see developers scrambling to build rather than bid up the value of existing stock. 

Establishment Party approach

The line the Establishment Parties are pushing is that we just need to build more houses to solve the problem. National is pointing the finger at Councils for providing paperwork bottlenecks, when even their own attempt to step in and create Special Housing Areas has achieved little. Meanwhile the HomeStart scheme simply fans the flames of an overheated housing market.

Meanwhile the Labour Party is promising to put on their collective carpenter belts and build houses. Their policy raises as many questions as it provides answers, but that hasn’t stopped National pinching the policy by ordering Housing NZ to get building themselves.

Both Establishment Parties are perennially in denial about the real problems here – land banking and demand for housing as an investment that outstrips the need for shelter. Our tax reform policy will deal with both of these issues.

Land Banking

One real problem is land banking; developers or land owners sitting on land rather than developing it. They do this because they think the land will be worth more tomorrow than it is today, so they can bank the capital gains (which in some cases are not even taxed). Of course if enough land owners adopt the same attitude, it becomes a self-fulfilling prophecy.

Our TOP Policy #1: Tax Reform would spin that situation on its head. Land owners would no longer face ongoing increases in land prices without actually adding value. The purpose of the policy is to ensure that land and house prices stay flat while incomes catch up, so the days of speculating in land would be over.

Secondly the land owners would be paying an annual tax on the equity they hold in the land. Of course if they have debt they are already paying the mortgage, but any equity will attract a tax as if the money was put into a bank deposit. This tax reform will rapidly become very expensive for any person or company that is sitting on unused land. This would provide a strong incentive to build, so that the land can provide a return.

For these two reasons we would expect to see our TOP Policy #1: Tax Reform to result in a burst of building activity on vacant land.

Housing as shelter, not investment

The other driver of our housing crisis is the view of housing as an investment rather than a means of providing shelter for all. We simply cannot keep getting richer buying houses off each other indefinitely and this has to stop. Our TOP Policy #1: Tax Reform will halt the rise of house prices, which will cut off the demand for buying housing as a speculative investment.

We need to stop putting all our investment into the existing housing stock, and instead put it into productive uses. That includes building successful businesses and building new houses. Halting our crazy obsession with bidding up the prices of existing houses and land will hasten the building of new houses.

Reform of the way we tax housing in New Zealand is long overdue. The current path is increasing inequality, starving our businesses of productive capital and choking off the supply of new housing. Housing should provide shelter for all, not a get rich scheme for a few.

 

Showing 18 reactions

  • Deirdre Kent
    followed this page 2016-12-29 21:55:09 +1300
  • John Robson
    commented 2016-12-22 00:25:40 +1300
    Ant – think of the phrase “the wisdom of crowds”. Re Gareth and Policy #1 – if what Gareth/TOP says is not ‘bought’ by sufficient voters, TOP is out of the game. Currently I don’t buy it – and I should be a easy sell given my politics. Re tax, my considered view is that there needs to be a suite of tax reforms to deliver a fairer NZ, and I feel Policy #1 is both too ambitious and too narrow.
  • Geoff Stokes
    commented 2016-12-21 20:25:42 +1300
    That’s exactly the view that I have been expressing to people regarding viewing property as an investment. I like the fact that you have found a solution to this.
  • Alistair Newbould
    commented 2016-12-21 20:16:12 +1300
  • Ant Brown
    commented 2016-12-21 17:19:12 +1300
    John. Good points. Although the “wise crowd” that you speak of, what exactly is that?
    One problem I see with democracy & the electoral system is that it is really a media hyped personality contest. Personality, beliefs, emotions. Aided by media bias. This is the main drive for people to vote politicians into power. Thinking about the benefit of the future generation & the planet via policy – that’s secondary. Gareth is an economist & doing his best. Future improvement will require philosophical, sociological, environmental input as well. Don’t expect a tax policy or politics to lead the way alone. Gareth doesn’t want all that responsibility! More People like Jane with her big views on the planet, environment & future projections are needed. Jane is a minority – at this stage.
    It may be that humanity will eventually need to look beyond the economies as we know them.
  • John Robson
    commented 2016-12-21 16:51:57 +1300
    I have some sympathy with Jane Shearer. There is a risk of falling into the trap of thinking: 1. Something must be done, 2. This is something, 3. We must do this. It is important that whatever is done, analyses of evidence suggest that it will deliver a better tomorrow. Analyses (IMHO always more than one) must also be broad – to avoid unintended consequence. So while I share almost all of Gareth’s concerns (to the point that I regard ‘investing’ in residential property as immoral), I am not yet convinced that Policy #1 will deliver all that is claimed for it. Hence my request for Gareth to make TOP’s tax model public – so that the ‘wise crowd’ can test it.
  • Oliver Krollmann
    followed this page 2016-12-21 16:35:58 +1300
  • Ant Brown
    commented 2016-12-21 10:12:01 +1300
    Thanks Jane. You paint a picture of finality. I like your wording “end point at every trajectory”. You do see that the current system will need changed. You raise more questions & provide less answers. That’s a good thing. That’s the way to move forward.
  • Jane Shearer
    commented 2016-12-21 09:41:13 +1300
    Classic supply/demand curves demonstrate that constrained supply increases price. In a world where trade is ever more global, we are dealing in a global market for many goods. Therefore we have a constrained total supply e.g. of materials and an increasing population i.e. continually increasing demand. Therefore prices will raise (and eventually we will run out). There are plenty of examples of items becoming ever more expensive based on the supply/demand curve and land is a really obvious example. Gareth’s contention is that stopping developers holding onto land means that prices will drop. However land is not an infinite commodity. Not to mention that the social impacts of developing ever more land are increasing. How much land do we want habited? How much land do we want densely habited?

    The social cost of growth economics is that everyone believes that they can all become better off forever. Anybody really believe that is true at a country or a world scale? There are end points every way you look on that trajectory: the end point of ever increasing population is land so densely habited that you can’t grow food to eat. The end point of everyone having more possessions is a lack of the non-renewable materials out of which those possessions are made (some of the materials will always be unrecyclable). We have to figure out how to live within our limits, not continually demand more.

    China experimented with the 1 child policy which stopped growth in population. It worked reasonably well in some economic regards but socially was a failure so has been rolled back. There are theorists around how to implement no-growth economics; it hasn’t been tried at a country level so whether it is humanly possible remains a question mark. Personally, I would rather try no growth economics as a really big shift in paradigm than changing the tax system in a way that has been tried but has not apparently succeeded anywhere (as far as I have so far gleaned from the literature – not helped by the TOPS party who have not yet provided any responses to my repeated requests for evidence). Too bad I don’t have that choice, and no I am not planning on setting up a political party (I am not that rich! :)
  • Ant Brown
    commented 2016-12-21 08:50:03 +1300
    Thanks Jane. You are attempting to be constructive. It’s good to hear an alternative view.
    Re your belief that growth economics is the root problem, how would you suggest going about halting that growth?
    Do you have evidence that it is a problem & do you have any evidence that stopping growth will make things better?
  • Jane Shearer
    commented 2016-12-21 08:42:53 +1300
    My main contention is that this party is supposedly about. EVIDENCE BASED policy. I though that meant evidence regarding solutions, not just evidence of problems. Because there is a problem does not mean that any proposed solution is better than the status quo. However, people have voted Brexit and Trump on the basis of no evidence and It appears NZ will be little different from these sorts of comments. People want change so they will not necessarily be judicious regarding the change for which they vote. As to what I would advocate for? Nmy choice would be no growth economic policies because I believe that growth economics is the root problem – you can’t have continual growth in a supply-constrained system (the planet). Unfortunately no political party dares to get anywhere close to that sort of policy.
  • Ant Brown
    commented 2016-12-21 08:39:54 +1300
    Catherine Howell. You raise an excellent point. I was in the process of a similar question for Gareth.
    A basic income earning mechanic, a classic car enthusiast, after 18 years has collected & restored 5 cars. With the CCIT tax, it’s difficult to keep his cars. He sells to a wealthy collector who puts them in his motor museum. The assets remain idle / unproductive. Only the ownership has been transferred from the basic income earner to the wealthy.
    Your tax policy would seem to discourage asset improvement & would force transfer of ownership of assets to those that can afford more. This seems contrary to the purpose…
  • Ant Brown
    commented 2016-12-21 08:27:19 +1300
    Jane. Your statements are quite global. Yes human civilisation from its origins has probably experienced problem issues. Gareth isn’t trying to pretend he can fix all the issues.
    But he’s making an attempt to improve equality in NZ (right or wrong). Can you comprehend that?
    Where do you see the future for NZ in the current trend? Do you think some changes are required?
    Its easy to criticise. Could you perhaps at least try to be a bit more constructive?
    Perhaps you have alternative ideas?
  • Catherine Howell
    commented 2016-12-21 08:22:55 +1300
    We own a vineyard in Hawke’s Bay. It is a land based business asset so we would incur the property tax on our business. It would reduce our moderate return on assets and depending on the net tax effect encourage us to sell the vineyard (potentially for a lesser amount than previously because of its reduced return). A capital intensive business would presumably incur a larger land tax than the reduction in income tax – leaving rural communities worse off. Your 20% ? Horticulture is a capital hungry, risky business. Income is up and down depending on the season. How would your land based tax take into account fluctuating cash flows? In poor seasons the imposition of a land tax would a constant drain – whereas income tax at least rises and falls with income. Have you considered the effect on land based business, particularly farming and horticulture, in this policy?
  • Jane Shearer
    commented 2016-12-21 08:14:23 +1300
    There is no doubt that there are issues with the current system (and the same issues exist in much of the entire world and has been a problem through much of human civilisation). But that doesn’t mean Gareth’s proposed solution will fix the issues. I am disturbed that people confuse evidence for things being wrong with evidence for a solution.
  • Ant Brown
    commented 2016-12-20 22:40:59 +1300
    Well said Gareth. Jane Shearer, you raise important questions. There is evidence in front of us that the current system isn’t working. NZ is in the biggest building boom in history yet house prices aren’t reducing. Housing is less affordable for NZ first home buyers. This trend has a poor prognosis. I would advocate something a bit different from Gareth. This would include leaving out the family home, but coming down hard on investment in housing including foreign purchase of NZ property. But Gareth’s policies are the best of the many political choices. If you want fairness.
  • Jane Shearer
    commented 2016-12-20 18:13:12 +1300
    You have plenty of claims your policy will work but little to no evidence of where such policy HAS worked. For an ‘evidence-based’ organisation, you are not giving us much of what you claim. Please provide some evidence of where asset taxes have had the effects you claim that they will have.

    When one looks at articles regarding asset taxes, there are as many out there saying asset taxes don’t work as there are saying they do. Piketty’s book certainly has sparked huge international interest and useful debate in asset taxes (funny that you don’t mention him much), but you act as if they are a far surer thing than they actually are. A number of countries have implemented asset taxes and then got rid of them again. The Netherlands has had an asset tax for 15 years and has high levels of inequality, one of the supposed goals of asset taxes being to reduce inequality.
  • Maldwyn Jones
    commented 2016-12-20 16:35:05 +1300
    This kind of talking is long overdue , thank you Gareth for your enlightened way of thinking ,-) this is not the U.S.A. and the logic of those in power up till now has been to mimic the U.S and their Greedy way of life ,-( As George W Bush once said it’s about the ones that HAVE MORE ,not the ones that " NEED " more of a helping hand ,-) I FIRMLY believe WE as a little Nation can Teach them , the Super Power how a country that cares for it’s People can both prosper and shine on a Global stage ,-) My VOTE is already decided , roll on Election time ,-) yeehah . lol