You are using an older browser version. Please use a supported version for the best MSN experience.

Labour puts teeth into its housing policy

NZ NewswireNZ Newswire 4/08/2016 Peter Wilson, Political Writer

Labour's housing policy is starting to look like the real thing, says NZ Newswire political writer Peter Wilson.

The party has signalled it will remove the tax breaks that make property investment so attractive.

That's a big step, and when it's added to Labour's other measures to curb property investment the overall policy will have teeth.

Labour has already set out its intention to deal with foreign speculators by using the Australian model - they can buy land and build a house, but they can't buy existing properties.

Housing spokesman Phil Twyford has now added action against the tax breaks residents can claim.

The speculators, he said on Thursday, were laughing all the way to the bank.

"National's policies are a virtual signpost that says `invest your money in property speculation, there's a killing to be made'," said Twyford.

"This speculative mania is pushing house prices through the roof ... Labour has signalled it will move against negative gearing - the practice that allows investors to write off losses on rental properties against other taxable incomes."

Twyford says the policy will be designed over the next few months and he's indicating it will target the high rollers with multiple properties.

Negative gearing means acquiring a property, or any asset, which generates less income than it costs to buy or run.

That's where tax breaks come in.

Here's a neat explanation of how it works from the website of mortgage broker Sonya Reid:

"If you are borrowing a large amount to buy a rental property, chances are that in the early years the rental income will not totally cover the outgoings, such as your mortgage payment, house insurance, council rates and maintenance costs. Therefore you will need to fund the shortfall from your personal cashflow.

"However, the good news is that any losses plus the expenses incurred in managing the property may be able to be offset against your tax. So, in effect, you have the tenant and the tax department helping to pay off your capital-appreciating asset. And that, in a nutshell, is why property investment is so popular in New Zealand."

Inland Revenue, on its website, lists the expenses that can be deducted.

These include rates and insurance, interest on money borrowed to finance the property, agents fees and commission, repairs and maintenance, travel expenses, mortgage repayment insurance, accounting fees and depreciation.

Twyford has released market research data showing that since 2014 the number of investors with four or more properties has increased from 22 per cent to 29 per cent.

The number with five or more properties has increased from 15 per cent to 17 per cent, and those with eight or more is up from six per cent to nine per cent.

He also has Treasury figures showing investors last year pocketed $650 million in tax write-offs, which he describes as "a massive taxpayer subsidy to speculators".

Twyford appears to be serious about this, and his stated aim is to "squeeze the speculators out of the market".

He's picking a fight with the nation's landlords that's sure to turn nasty.

image beaconimage beaconimage beacon