Housing affordability

You’d be hard pressed to find someone who would deny there is an issue with housing affordability in New Zealand. The Tax Working Group (TWG) acknowledges this and it is reflected in its Terms of Reference, which specifically direct the Group to have regard to housing affordability.

While there is a consensus that there is an issue, submitters to the TWG were divided as to whether the tax system was part of the cause, and if it was, to what extent. The true cause will be a combination of a number of complex issues, which ultimately boil down to a difference between supply and demand (with tax probably more impacting the demand side of the equation).

The TWG has identified options which could lead to additional supply of housing:

• Depreciation on multi-unit residential dwellings
• Vacant land and empty home taxes
• Removal of the “ten year rule” (these are existing tax rules which can provide an incentive to land-bank until the expiry of ten years)

The Interim Report notes that “the extension of capital income taxation (for example, through the introduction of a tax on capital gains from residential property investments) could be expected to have a number of impacts on housing markets, including some upward pressure on the ratio of rents to prices.” The Interim Report also foreshadows that any increase in rents would give rise to higher accommodation supplements being paid by the government. The flow on consequences to the housing market will need to be carefully considered as part of the deliberations on the extension of taxation of capital income (EOTOCI).