From tax policy to coalition talks: the stories that matter this week

Unfortunately, Labour is stuck in the past. Interest denial (and Labour’s CGT) are remedies for an illness that’s no longer around. The housing bubble has been and gone. We’re now in an age of flat house prices and no windfall capital gains. Labour’s tax policies will do a lot of harm, with precious little benefit. 

Increasing legal complexity & compliance combined with lower returns make the sector less attractive to ‘casual’ property investors. Higher taxes, especially interest denial, will hit single-property leveraged rental owners harder, and will lock out new entrants. This is exactly what has happened in the UK where the proportion of single-property rental owners has been falling for years.

There are arguments on both sides as to whether this is a good thing, though it’s hard to imagine Labour/Greens want to create more ‘mega landlords’ as they like to call them! Another possibility is these policies create an opening for what’s happening in the US and UK, with major corporates, banks and asset managers buying up thousands of rentals. That link is to an Instagram clip from the “Diary of a CEO” podcast – worth a listen.

The point is this. Most policies have unintended consequences. You can’t avoid that, but you can limit them if you think your policies through carefully and act based on evidence rather than ideology. Enough said.

To reiterate, the discount that we get through our buying group with Bunnings far exceeds what’s on offer under the new rewards scheme, which is more aimed at retail customers who don’t have other options. What’s important though is to make the most of your NZPIF members discount, you need to sign up and use the PowerPass app.

Doing so will make shopping at Bunnings easier, and it’ll ensure you get the best discounts. Follow the instructions on the graphic below to sign up to the app.

What’s interesting is that over the last couple of years this view has become increasingly mainstream. What caught my eye in the last week was an excellent column by Joseph Darby for Interest.co.nz which outlines this change. For fifty years, he argues, getting ahead meant a single trade: maximum leverage against residential land. He thinks this has changed, and there’s a new investment paradigm. I thought some of his comments were useful for property investors to bear in mind.

The first one relates to the family home, and this is a key point politicians ignore when making their special property investor taxes: owner-occupiers drove the property bubble too. They are two thirds of the housing market and were happily enjoying windfall capital gains along with everyone else. That’s changed. The old rule, that the family home is a wealth plan should, Darby argues, be replaced with “buy a home for shelter, security, and discipline when you can comfortably afford it.”

The second comment which I thought was perceptive and relevant, is about how property investing has shifted away from being viewed as a guaranteed return. As he points out, “Leveraged investing only manufactures wealth when an asset’s total return, meaning capital growth plus the income (rent, in this case) it earns or saves you, exceeds the interest cost of the debt.“ That’s not working so well in the current downturn.

But, it’s not all bad news: “Geared property can still win where the entry price is sharp, rent covers most holding costs, leverage is survivable, or the owner can add value through renovation or development, but it has become a business to run rather than a setting to default into.“

I’ve underlined the key bits. It’s not ‘negotiate with both sides and take the best offer‘, it’s ‘negotiate with the largest party and only stop if you can’t reach a deal‘. Labour is the largest party; you can see where this is going. In my mind, that considerably increases the odds of a Labour-led coalition after this election.