Having met the man briefly once during his stop in Hong Kong, I'm thoroughly enjoying reading about
Fairfacts Media's first foray into housing. His first ever open home. I say good luck to him and all, but I loathe being taken through the endless mindless process of buying a house.
Because I actually do not like property. At all. No attachment to it. Can't see the point. Because I view house hunting the same way as I view the search for the perfect husband.
Perhaps it is that despite having enough cash to buy a very decent and liveable home, I find the prospect of the open home, the negotiation, the worry about the quality of what you have bought, the resale value, whether the price will increase...etc... just mindnumbingly dull.
Like with men, it's always been easier (and most times less expensive and all times safer) just to borrow someone else's and give it back when I am well sick of it.
When I am finally forced into purchasing by some possible blow to the head or moral duty of becoming "old" and completely fucking boring I shall be calling up friends I know who are excellent at it and they shall be doing that all for me. In the same way I've been giving them free legal advice for years the pricks can finally help me out.
Everyone has heard about some parasite who without any knowledge of property or much in life at all, has bought a house and sold it a month later for 50% gain. It's always the same parasitic prick who doesn't pay his round for drinks mind you. And then after drink 12 you realise he's possibly full of it anyway. Now he's the same sort that wants banks to waive contractual break fees for re-financing his new super mortgage, bailing out for his leaky home or tax credits for his rental property loss.
New Zealanders love property for a few reasons;1. We are a nation of DIY experts. New Zealanders love wasting their weekends putting on overalls, donning the paint brush and supposedly increasing their home's worth by a "do up". And lets face it, New Zealand is a pretty boring place at the weekends and there's possibly nothing much else to do for couples to keep marriages together than a bit of bonding over a paintbrush. New Zealanders are actually pretty good at doing up their homes on a worldwide standard, especially women who are mightily handy. Me? I couldn't find my way around visualising the plans of a house let alone the measuring tape. I am real property dyslexic. Heavy form. Surely capable of a disability grant such is the dyslexia for it.
2. New Zealanders do not get great bonuses and when they do they have to pay tax on them. Now overseas in first world paying countries, people can collect a handy sum every year if the business is doing well, equivalent probably to what the chumps back home make on the best sale price of a house. New Zealanders view the tax free buying and selling of a home as their "bonus". Why? Try saving substantial amounts of cash even on 100k when you are taxed on well over a third of it with a first world cost of living. My sympathies go out.
3. Productivity. Most New Zealanders will argue that housing actually is a productive asset. Ask their bank manager if it is productive when they are scamming $40-50k or even $80-100k in tax free capital gain every year or two when moving house. That to a New Zealander is productivity. They could not give a stuff about the nation's productivity. Tell the interior decorating industry, the builders, the plumbers, the gas men, the pool shops, the BBQ factories that housing is not a productive asset.
4. What else to do with the money? You have to live somewhere. You don't have to buy shares in the NZSX. You can't live on shares. You get taxed at your marginal rate on money in the bank. So the prospect of house prices increasing 25% in 5 years - or less than 5% per year, is still attractive when your real rate of return on interest is 2%. You are old enough to remember what happened in the 87 crash, you are young enough to read of reports of finance companies cleaning out savings. The house looks and still is a good investment.
5. The government will always prop it up. Laughing? Try the $12 billion bailout of
leaky homes. Where is the furore over this? It is an Obama sized bailout. Why are Councils (ie ratepayers) and the general taxpayer paying for the mistakes of those who bought homes from people who didn't do the job of developing or building properly? Shouldn't the civil courts take care of that and insurance companies? No, it is the likes of people who are purposefully not into property or deliberately paid more for good quality property that will be burdened with bailing out people who took a risk and lost. May seem unfair but if a person purchased $500,000 of shares and lost the lot, the taxpayer would never bail him out of that loss. Why is property any different?
6. Collectively we can hold the banks to ransom. Break fees? Nah. Consumer lobby group will deal with that as it's unfair. Never mind had it gone the other way the banks can't break your contract and charge more interest.
7. It's easy. Stuff working for a living, punt on a house instead. If you save $10,000 a year from working and earning a salary, a small $30,000 gain is three years of hard work. Easy. And it is easy...apparently. Just takes a bit of DIY and some basic manly New Zealand skills to buy a house and on-sell it.
EVERY New Zealander buys a house with the intention of profiting on resale. Whether that resale be next week or next decade. Who on earth buys a property expecting to make a loss? And who buys with the intent of renting for ever? You rent until a buyer comes along and offers you the most money, that's what. This is why I am firmly against a Capital Gains tax with an exemption for the home you live in - why? You are expecting to profit on the resale of that aren't you? Especially at the moment where rental yields are negligible it is hard to argue against the idea that all rental property is indeed for the sole purpose of one day realising a capital gain, the sooner the better.
Yes, housing is a privileged investment but a dedicated capital gains tax? Nah, won't do a thing to dampen property prices and make the pampered first-home buyer wooses spend any less of their cash on a house, ie. housing affordability. Australia, the neighbour is a great example of why dedicated CGT is just another revenue generating mechanism and does nothing with respect to demand and supply. Heard how hard it is to buy in Sydney? Or rent in Brisbane? Yeah CGT did a lot to quell the demand and increase the supply of housing in Australia didn't it?
The issues that will are what has been raised on Not PC. Things like freeing up more land to build more houses,
easing silly building regulations and bringing supply up to meet the demand. Not distorting the market further with taxes that do not make sense.
Which brings me to my salient point.
Bill English cannot afford a housing slump. Why? Because New Zealand as an economy and an electorate is now tied to it. Think of a 20% dump in house prices. All that debt that is leveraged currently to unrealised home equity. He can say he doesn't want a 25% increase in house prices, but a 20% dump in prices would be for him far worse. Not to mention hollow out the mood of the nation as everyone will suddenly realise they are individually poorer than they were under Michael Cullen.
There are a few things that can be done in my view, but they have to be done together. Whatever approach is decided on cannot be the normal half-hearted piecemeal approach of the past:
1. Remove all NRWT and RWT from savings, and dividends. Rather than punish the housing investor inefficiently and ineffectively with a dedicated capital gains tax that will not work to its targeted aims, this would encourage savings and investment. NRWT and RWT are the distortion of investing presently, not the absence of a dedicated CGT. This will also throw the stockmarket a much needed bone, ditto our funds managers who sit on the Key Tax committee.
2. Require a 30% deposit to be paid for all first time mortgages and limit finance to "investors" by way of stricter debt/equity ratios. This will cut out the "dreamers" from home ownership ie. those who cannot afford the market to go considerably pear-shaped. This deposit would have to be raised by the purchasers and the source of funds proven ie. not a loan from parents or other sources. Comparably low interest rates simply fuel housing demand, but in New Zealand it doesn't seem to have a desired effect of lowering prices by much. Lay on the hurt in other ways lessening access to mortgages to begin with to prevent the current subprime lending conditions of borrowers. This approach is a "cruel to be kind" one. If you haven't got a 30% deposit then I am sorry you cannot afford to play this game, keep renting or go live with mummy and daddy a wee bit longer.
3. Removing the ability to offset losses on a rental property with your individual tax return. This is relief that I will admit it is stupid and unfair. Relevant yes if there was a dedicated CGT, to provide relief as the asset is bleeding money towards the Capital Gain, but there is no dedicated CGT at present so the loss offsetting against tax payable of a salaried income is nonsensical. If the losses are to be used they should be through a company or trust structure and the offsets ring-fenced.
4. Create a real market for inner city apartments. Move the people in and build the apartment buildings up. If they owned their own apartment rather than rented it, the cities would soon be full of responsible occupiers of these apartments rather than "P" dealing scum and hookers as at present. Would also ease transport issues in main centres. And living in the inner city is awesome. When I return to Auckland I park myself now in serviced apartments by the water. All good fun and there is no reason for the bleaters why children cannot be housed in apartments. It does not kill them. Most of the Hong Kong population have lived in shoe-boxes their entire lives. The current apartment market is distorted and held back as in most cases you need a 30% deposit for a bank to even interview you. If other home owners needed the same condition then this distortion would evaporate and prices would start rising (as well as falling).
5. Get rid of ALL government namby pamby distortion schemes subsidising people into homes, including state housing. It is picking "winners" from losers and not doing anyone any good. If people are to be assisted into housing then they should be moved into apartments as at #4, not general housing stock.
6. Move the burden of "leaky building syndrome" back on to the people who took the risk in the first place - the home owner. It is nonsensical that taxpayers who cannot afford a home are now subsidising those who can, took the risk and failed. What does that say to future homeowners? Yes, it encourages them to take
more risk. The homeowners should take legal action against Councils issuing the Code Compliance Certificates which should be backed by professional indemnity insurances and builders/developers with likewise. While it may seem unfair to burden the homeowner with this load, how fair is it that other taxpayers and ratepayers now have to stump up for something that they had no business with? The taxpayer has no share of the homeowners upside risk (of the home gaining value) so why should they take the burden of the downside risk?
7. Hold every bank and borrower accountable to the contract they sign. That is, stop meddling in private contracts. If people signed up to a condition with a bank then make them pay for that condition. Again, tinkering in the consumers' favour with private contracts only encourages more risk taking behaviour.
8. Let people fail. Take for example
this couple earning $180,000 where both were recently made redundant. They shouldn't be given a food parcel, but a sale and purchase agreement. They cannot afford their house. They
should have to sell it. This ladies and gentlemen is the market working. Someone will buy their house who can afford it. They have taken a risk and overextended. Why does welfare cover these sorts? Yes, they were earning $180,000 and now nothing but shouldn't a couple on $180,000 covered themselves for a "rainy day" and not overextended on their borrowing? Look outside, it's raining now.
9. Land tax. Silly idea for New Zealand, works in Hong Kong only because of significantly higher rental incomes and much lower business and personal taxes. The burden goes on to true homeowners (the ones who are not the issue of the current whinging in New Zealand as to house prices) and in the case of the "investor" or as they are now termed in NZ, because of low rental yield's "speculator" with a rental property - he just puts the rent up for the poor tenant to compensate which explains why rents are so high in Hong Kong. Therefore if you wish to stop speculators, land tax doesn't work as the burden falls on those you are not wishing to target, the tenants. It is merely a revenue collection mechanism for a government where a third of the workers pay no tax at all and the maximum rate is 16%, most people don't pay anywhere near that. I can't quite see John Key getting that radical and progressive.
Hong Kong is probably the greatest example of land speculation in the world and I live in it. A rise in the stock market merely sees a shortly after blip in the property market as gamblers top their gains from the stock market into property. And a swing the other way as well.
The Government has realised it cannot and does not wish to control the property market. So it doesn't. It clips the ticket through
land tax (that accounts for around 40% of total government revenue) and
stamp duty (on every sale of shares and property) and lets it go hell for leather. People who lose money in housing simply jump off buildings. And no one here seems to care much as it is part of the game. The taxi driver, the cleaner and the street vendor all scrimp and save to buy shares to accumulate capital to go on and buy a shoe-box apartment. This is Hong Kong's National Sport. No DIY here (and some of the apartments show it!), it's complete and utter speculation and gambling.
And they all love it.
Fortunes in Hong Kong are almost never made through working, they are made through a property market that is a constant land of opportunity, and no one can accuse Hong Kong of lacking productive assets. Indexed to 1997 (100) here are the trends.
Plenty of movement up and down there to make profits and losses but still prices have a bit to go to 1997 rocket fuel levels. And that's how any market should be - ups and downs. New Zealand's housing market needs this level of instability as it would temper risk and return.
In fact this is the only way that the market will stabilise for people to get burned and to see what a true "market" looks like.
So to all the meddling politicians when faced with a house price graph such as this, with very few years below the 0% annual increase line what does a "rational" investor in New Zealand currently do? This is not the graph of a true "market" there must be corrections at some point and you must let the market correct.
You can't blame them for choosing the house.
So design your taxation system around it, regulate to a cap that people can borrow from banks to prevent subprime, remove all other distortions to it and do not intervene.
