A political U-turn, a capital conundrum and a tale of two cities

This time last week I was in Tauranga to moderate the TPIA’s pre-election housing panel. Representatives from National, Labour, ACT, NZ First and Opportunity were all there to put their party’s approach to housing before local members and those watching online. Apart from ACT’s promise to remove ring-fencing, two things stood out, both from Labour. One good, one not so good. 

The good one was that when asked what one single housing policy they would support that would make the most difference to landlords and tenants, Labour’s revenue spokesperson Deborah Russell said more funding for the Tenancy Tribunal. That was her view and I don’t know if that will translate into official party policy, but if it does, that would be a good thing, and we’d welcome it. Especially if it reduced wait times. 

The not so good one is Labour’s CGT. When asked about inflation indexing it, Deborah explained that Labour’s rationale for not doing that is because they’re proposing a ‘concessionary’ tax rate for their CGT. What Labour means is that because the top personal tax rate (and the rate for Trusts) is 39%, making the rate for their CGT 28% is a concession, or a discount, if you like. And that makes up for not inflation indexing. 

Of course, this logic doesn’t hold up. If inflation is 3% and your $500,000 property increases by 3% in value in a year, you have gained nothing, but you will be taxed on the $15,000 gain when you sell. At 28%, that’s $4,200. After inflation you’ve made zero capital gain – and 28% of zero is zero. There is a material – and costly – difference in the two approaches. 

A final thought: this CGT is a potential future tax cost to factor into returns. Take the case above, how do you treat that potential $4,200 tax liability? You could ignore it and worry about it when you sell or try get it back through rent. To do so, you’d need roughly an $81pw rent increase (before income tax) – could you get that? 

If Labour wins and their CGT becomes policy, working out how to handle it will be an important priority. 

We asked all political parties for a small change to remove loss ring-fencing from new builds, and ACT came out with a surprise policy last week to remove it entirely. This is what we wanted long term, and we’re delighted that ACT has gone for it. It makes sense. 

Leader David Seymour said, “ACT is campaigning to reverse another of Labour’s renters’ taxes by abolishing loss ring-fencing for rental properties.” He went on to say that “Removing ring-fencing will improve the viability of rental investment, including investment in new homes. Alongside ACT’s resource management reforms and opening up access to new building materials, it will encourage supply and give renters more choice.” 

This is a significant change, not just in policy but in the environment in which housing policy is made. Those who were at our 2024 conference in Christchurch will recall that David Seymour was asked if he would push for removal of ring-fencing. He said no, it wasn’t politically achievable. 

That’s a big change in a bit over two years. Why has it happened? Because the housing market has changed. House supply is matching demand in many areas. Median rents have been flat for nearly three years. House prices are stable across most of the country. First home buyers are dominating house purchases. 

Now that the housing market has normalised, if I can use that term, it’s time to normalise tax treatment of people who invest in providing rental homes. It’s particularly important to do that because as rents have stayed flat, costs have increased. The return on rentals has dropped making it harder to provide homes for rent. This change will ease cashflow, particularly in the early years, for new landlords. 

It’s also not an expensive policy. Ring-fenced rental losses are offset against profits eventually. All this policy change does is bring that offset forward, there’s not much net loss to government, but it will mean better cashflow for rental businesses at a time they really need it, when costs are high. It’s a win-win. 

Will other parties adopt it? Well, that will depend on the election result, and the state of the nation’s finances. NZ First haven’t said anything publicly, nor has Labour – though Deborah Russell did say at the Tauranga debate that she’d be open to persuasion of the merits of the policy. 

National’s Chris Bishop said publicly it was worth having a look at, but Finance Minister Nicola Willis later said no, saying “We need to get the books back in surplus. This is not the time to be adding further tax relief.” 

This shows the importance of ongoing lobbying and advocacy. Arguments aren’t won in the short term. They require research work to build up the case, and positive, persuasive engagement with politicians to win them around. 

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It’s looking a bit grim for Wellington right now. We’ve talked about their water woes here before, but last week Wellington’s Deputy Mayor Ben McNulty highlighted that it would cost over $80,000 per ratepayer over the next 25 years to fix the pipes in Wellington City alone. Sheesh! That’s $3,200 per year, per ratepayer!

If the coalition wins the election, that ratepayer pool may shrink: ACT has promised to cut nearly $10 billion in government spending and abolish several ministries. MCERT, the new mega ministry, is already proposing 400 job cuts in a restructure. 

There are going to be some tough decisions ahead for anyone with a rental property in the capital. Your water costs are going to go up, while rents are still flat or going down. You can’t charge your tenant for water usage, because there aren’t any meters. 

I love Wellington. It’s where my parents and grandparents are from and where I lived for a few years in the 1990’s & 2000’s. But I wonder about its future, especially as a place to own a rental property. Sorry to be so gloomy – if you’ve got more optimism about Wellington’s future, let me know. Perhaps the private sector will come to the rescue. 

An interesting snippet from the TPIA debate last week. One audience member raised the issue of the growth in Zespri Gold kiwifruit plantings, and the rapid rise in the need for people to work on those orchards. Which leads to a need to house all those people. He asked if politicians were aware of the issue and if so what were they doing about it? 

That’s just an anecdote, and I haven’t dug into the issue at all, but if that comment is accurate, that sounds to me like demand just waiting there for the private sector to meet. It ties in nicely with what we’ve seen in other areas around the country where the economy is booming: jobs are being created and there’s strong demand for housing. 

Keep an eye on that and look out for other parts of the country that are seeing or are likely to see good economic growth. Could be good areas for investment. 

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