Houses are now like Bitcoin with a street address, a speculative currency priced beyond the reach of ordinary humans. The public is not impressed. Don’t tell Judith Collins, but the polls indicate that more Kiwis would support a meaningful capital gains tax on housing than would oppose it. People want – and need – immediate action to bring house prices (and rents) back from the parallel universe in which they currently reside. Reportedly, the median house price surged by 22.8% in the year to February 2020. Nationwide, only 1, 399 (ie, 17.6) of the properties sold during that period went for less than $500,000.
In response, the government is treating the housing crisis like a giant ocean liner that can only be turned around very slowly and gradually lest the ship capsize and send house prices plunging to the bottom. Eventually, this gradual approach may have an impact. Eventually though, we’re all dead. There‘s a good reason why “eventually” isn’t a very common political adverb.
The housing measures announced this week have been a virtual riot of eventualism. The big news items were (a) the extension of the so-called “bright line” test of how long developers have to hold into houses before the profits from selling them get taxed and (b) the phasing out of the tax deductions for the interest payments on residential properties other than the family home. Also, extra billions are being made available for the building of houses and related infrastructure, for land purchases for social housing, and for apprenticeship schemes to help resolve the capacity constraints that sunk Kiwibuild. Amid the screams from the real estate industry though, it was very easy to miss just how gradual some of these changes will be .
For example: any new houses built after Match 27, 2021 will still only have to be held onto for five years to escape entirely from taxation on the capital gain. The doubled requirement (ten years!) that has caused such a fuss applies only to the sale of existing properties that are not the family home lived in all the time. Basically, it is an incentive for investors to build new homes, rather than just flicking on the current housing stock and pocketing all of the profit, tax free.
As indicated above, the exemption for the family home remains, but one of the anomalies has been removed. Beforehand, the house you were selling had to have been the main family residence for 50% of the time (or more) to entirely avoid the sale profits being subject to taxation, and -weirdly – it became fully taxable if it played that role for only 49% of the time, or less. From now on, this liability will be calculated on a sliding scale. As Terry Baucher explains at interest.co.nz
The proposal is to change that for property acquired on or after 27 March – you’ll be taxed on the period it was not occupied as your main residence. So, for example, if it was your main home for 80% of the time then only 20% of the gain will be taxed, whereas currently for properties acquired prior to 27 March the rule will be that in that case it will be fully exempt.
So on one hand it means that some gains which would have been exempt would now become taxable, [but] on the other hand some gains, say that 49% example, which were fully taxable, now become partly taxable. So, the Lord giveth and the Lord taketh on that one.
That aside, what is really ruffling the feathers of the property investor has been the proposal to phase out the ability of developers to deduct from the their tax bill all of the interest payments on their residential property income. Crocodile tears have been shed over how this will mean that landlords will“ have” to pass on the cost of this dent in their income stream to their tenants, by hiking up their rents. Are things really that bad in Landlord Manor?
It seems ‘tis so. Allegedly, some landlords could even be forced out of the business altogether by the heartless snuffing out of their tax deductability for the interest payments on their rental properties. (Will National MP Nicola Willis dare to go out at night, what with so many former landlords living nearby in MSD-supported flophouses?) Ordinary punters though, will be surprised at just how much time landlords are being given to adapt to the new situation, which will not begin to take full effect until oh, the financial year beginning April 2025. In effect, that’s a five year phase-in period. (So no rent hikes for five years, OK?) Here’s Baucher again:
Starting 1 October this year, only 75% of the interest will be deductible. For the full year ending 31 March 2023, 75 % will be deductible. For the year ended 31 March 2024 it will fall to 50%, and for the year ended 31 March 2025 it falls to 25%. And then from 1 April 2025 onwards no interest deduction will be allowed.
In other words, it will be three years before landlords will have lost even half of their current tax write-off entitlement. But somehow… Rents have been going through the roof of late, during the whole time that full interest deductibility has existed. Last year, legislative changes gave tenants some forms of protection but these advances have been nowhere near enough, given the scale of rental housing scarcity. Needless to say though, those recent changes to tenancy rights were opposed by the same politicians now feigning concern about how this week’s housing package might impact on renters.
Unpacking The Package
So… what does Labour’s package contain for (a) renters and (b) for people struggling to scrape together say, a $200,000 deposit…Not much, and not enough of it. For many New Zealanders, their only hope of getting a foot on the property ladder will be if the housing price bubble finally bursts. Hopefully, this will happen without leaving a lot of people with a mortgage that’s more valuable than their house. (When this happened in the US to the housing refugees depicted in the film Nomadland, they had no option but to shut the door and walk away from their homes.)
There are some good things in the government package. As mentioned, there’s more money for housing and infrastructure, more money to buy land for social housing, and more money for apprentices to help build the houses. To itemise that: firstly, there will be a $3.8 billion fund “to accelerate housing supply” in the short to medium term, even though it has been evident that our capacity to quickly build enough new houses has been significantly constrained for years. These capacity problems will indeed be alleviated somewhat by the new apprenticeship initiative to support trades and trades training. Thirdly, Kainga Ora will be supported to borrow $2.8 billion to speed up the rate of land acquisition for new housing. And that’s about it. Yesterday, the Closing the Gap lobby group published some interesting calculations about the adequacy of these initiatives:.
If you include all cost ie construction, land, infrastructure, council etc a modest figure would be in the region of $1.6 million per accommodation unit (infrastructure $!million, house and land $600,000.) Those figures [ie the $3.8 billion for the new builds, and the $2.8 billion for the extra land purchases]would provide approximately 4000 sections for general housing and 3000 for social housing. This is pathetically small in terms of an 80,000 general housing shortage and a 30,000 social housing shortage.
Right. The responsibility for that huge shortfall is not something that can fairly be sheeted home to this government alone. All very well for Judith Collins to be trumpeting that Labour has had four years to get it right. The shortfalls in affordable housing stock are the product of 50 years of neglect by successive governments, including the one in which Collins held ministerial rank for nine years. But Labour can be fairly criticised for the scale of its response. Once again, we are being expected to pin a lot of our hopes on sending the army of real estate speculators some carefully calibrated market signals that may, if we’re lucky, deliver a bit of relief downstream. Eventually, gradually.
Footnote: Maybe we shouldn’t be surprised at the lack of parliamentary action on the housing price bubble. As was made clear in an excellent piece on Newshub last year, there are a lot of politicians who own multiple properties..As indicated above, one such MP – National’s Nicola Willis – recently complained about those scary homeless folk out there making the streets feel unsafe for decent folk…Yet a glance at the property interests listed by her on the MPs annual register suggests that at least she personally, will probably be OK. Besides the family home in Karori that she jointly owns, Willis also has:
• A house in Kelburn, Wellington (owned by Appledore Trust of which Willis is a discretionary beneficiary)
• A house in Riversdale, Wairarapa (owned by Appledore Trust of which Willis is a discretionary beneficiary)
• A house in Wānaka (owned by Appledore Trust of which Willis is a discretionary beneficiary)
Impressive. Yet that list put Willis only in the middle of the parliamentary pack when it comes to multiple property interests. It is hard to look at the Newshub list and still regard this bunch of property magnates as being exemplars of representative democracy.
Crazy, Like Fox
Former Trump lawyer Sidney Powell and her sidekick Rudy Guiliani are currently facing a billion-dollar law suit for defaming Dominion, a voting machine company. The pair alleged Dominion had committed voter fraud in favour of the Biden campaign, by the same means the late Hugo Chavez used to cling to power in Venezuela. Incredibly, Powell’s lawyers have tried to argue that no sane, reasonable person would have taken what she and Guiliani said as being a statement of fact. That’s a weird defence, right? The defence is saying – only a crazy person would treat their client as a reliable source, and isn’t that obvious to everyone? But wait, there’s more.
In order to escape the related charge that she was being motivated by malice – a key ingredient of the intention to defame, and in assessing damages – Powell’s lawyers have also simultaneously had to argue that Powell still sincerely holds those beliefs to be true. Wow. Only a crazy, unreasonable person would believe what I just said, but I still sincerely believe that I was speaking the truth.
Amazingly, this defence has been run before in a US courtroom, and it succeeded. Last year. Fox News successfully used the same argument to get its high-profile presenter Tucker Carlson off the hook for slandering a woman (Karen McDougal) who claimed to have had an affair with Donald Trump. On air, Carlson had linked McDougal to the former adult movie star Stormy Daniels, who was paid $130,000 (by Trump’s fixer Roger Stone) to keep their affair under wraps during the run-up to the 2016 election. Carlson said that both women “approach Donald Trump and threaten to ruin his career and humiliate his family if he doesn’t give them money. Now that sounds like a classic case of extortion.”
Yet if you read the court judgement here, you’ll find that the judge (a Trump appointee) bought Fox’s argument that no-one would take anything Tucker Carlson says as being a true statement of fact. In dismissing McDougal’s slander suit, the judge wrote: “Fox persuasively argues, that given Mr. Carlson’s reputation, any reasonable viewer ‘arrive[s] with an appropriate amount of skepticism’ about the statement he makes.” For good measure, the judge added that “whether the Court frames Mr. Carlson’s statements as ‘exaggeration,’ ‘non-literal commentary,’ or simply bloviating for his audience, the conclusion remains the same — the statements are not actionable.” Carlson now has a court-mandated licence to slander and libel, because the courts have decreed that no one takes his “ non-literal commentary” seriously. Fox supports that view.
McDougal of course, felt the exact opposite, as the US National Public Radio network noted in its fascinating commentary on the case. In McDougal’s view, “a reasonable viewer of ordinary intelligence listening or watching the show … would conclude that [she] is a criminal who extorted Trump for money” and that “the statements about [her] were fact.” Right. But not in Fox World. Supposedly, Fox viewers are so sophisticated they can tell when they’re being told something that isn’t really true. Funny that the people who stormed the Capitol seemed to take Fox’s “ Stop The Steal” messaging so seriously.
Soul meets pop, soul loses
Talking of stopping the steal…. Have a listen to this early 1966 soul release by Homer Banks and think about what (slightly later in 1966) pop smash it sounds incredibly like.
Right, it sounds very similar to this mega-hit by the Spencer Davis Group.
In 2017, the estate of Homer Banks sued for copyright infringement, but lost. If you reads the judgement, the court seemed to tie itself in knots trying to find a way to exonerate Davis and the Winwoods. This included writing off as “hearsay” the four interviews in which members of the group had confessed to knicking stuff ( e.g the bass line) off the Banks record. The court also refused to allow expert testimony to be heard on the similarities because – 51 years after the fact – the Winwoods and David allegedly hadn’t had enough time to rebut the accusation. Pretty hard to reconcile this judgement with Pharrell and Robin Thicke being successfully sued by the Marvin Gaye estate over the far less striking similarities that their “Blurred Lines” track has to Gaye’s “ Got To Give It Up.”