REINZ Urges Government To Cut Taxes
17 May 2007
Real Estate Institute Urges Government To Cut Taxes To Address Housing Affordability
The Real Estate Institute (REINZ) is disappointed that today’s Budget did not give first home ownership a higher priority. Allocating $1.4 million to investigate a pilot scheme for a shared equity scheme is 'a dollar short and a day late' given that rising property prices are widening the gap for first home owners.
While the Institute welcomed the initiatives to incentivise savings through Kiwisaver, to increase New Zealanders savings, it noted that this will reduce the pool of money available for rental property investment. The measures to increase IRD surveillance of residential property investors will also hinder the objective of ensuring a good quality stock of affordable rental property.
REINZ National President Mr Murray Cleland said, “With home ownership becoming an increasingly remote prospect for many 'middle New Zealanders' the need for investors to invest in rental properties has never been greater.”
REINZ warned that rising house prices were outpacing people’s ability to save for a first home, saying that the Government should have gone further and cut tax rates thereby removing the incentive to investors to invest in real estate for taxation reasons.
“Housing affordability is a growing problem for the Government and aspiring home owners. While we believe some form of shared equity scheme is commendable and that the Welcome Home loan scheme is also a good idea; clearly these initiatives are not sufficient in themselves.
“Further measures are clearly required, given that home ownership is consistent with social cohesion and participation. The Welcome Home scheme is limited to 2,000 first home buyers, which looks to us to be paltry given that over the last decade 10,000 migrants have arrived in New Zealand every year.”
The Institute argues that by raising the top marginal rate on personal income from 33 cents to 39 cents in 2000 the Government created an incentive for those on the top rate to invest in rental property, not because they necessarily want to become property investors but by negatively gearing such an investment they can pay less tax overall.
“While we believe property is a good investment, we are concerned that a situation that encourages investors to own property for tax purposes is not in the best interests of the country or the property market. Cutting tax rates would have removed the incentive to those currently acting ‘irrationally’ and removed an artificial driver of house prices.
“An alternative would be to make a set amount of mortgage payments tax deductible as is done in other countries.”
Mr Cleland says the property market is sufficiently attractive not to have to rely upon those seeking to reduce their taxation burden. “Were the Government to take away the incentive to invest in property by cutting the top tax rate, one of the drivers of increasing house prices would be removed. The resulting fall in interest rates and inflationary pressure would be beneficial and a more stable housing market would result.
“Currently we have a market where too many people are chasing too few houses and as a result home ownership is being pushed out of reach of many people. The government should act quickly to cut taxes and remove a perverse incentive that is driving up prices,” Mr Cleland said.