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Keith Rankin: Rent AND Buy

Thought for the Day: Rent and Buy

Keith Rankin
30 January 2015

The Auckland housing debate debacle is important because it reveals some key aspects of the workings of global financial capitalism. Of course, because of the diverse interests at stake – including the fact that more New Zealanders than we might think are global 'investors' – that's a reason why the debate is subject to so much distraction; the latest being Nick Smith's allusions to the influence of the Resource Management Act (RMA) on house prices.

Houses (and the associated land) should be places to dwell in (and on), not means for rich people ('investors'??) to park and enlarge their unspent incomes.

Ensuring that a population has access to healthy and affordable housing is not beyond the realms of our collective intelligence. But it is an issue that divides us according to our divergent financial interests; eg we tend to take different views whether or not we are on the 'property ladder'. Our intellects are compromised by our interests.

There is however something we can do, which does not reduce the property values of the propertied. Ordinary young middle-class New Zealand families can choose to own one house and live in another house.

You first decide where you want to live, and rent there if you cannot afford to buy there. Then you buy a small house either in a town that you have a connection with, or in another part of your city which you can afford. Thus you can live close to your work and children's schools etc. And you are on the vaunted property ladder. And you are raising the market demand for the building of small affordable houses.

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To facilitate this rent and buy option, it needs to become a full part of the discussion on housing affordability and policy. This option should be taxed as if the people concerned are owner-occupiers. At present, if person A rents from person B and B rents from A, Inland Revenue expects to gain income tax ongross rents received. For tax purposes, the rent A pays should be deducted from the rent A receives; only the net balance should be classed as taxable income.

Changing these rules around the taxation of rental income received by people who own one property and pay rent on another could be easily done in the 2015 Budget. There is no ideological reason for not doing this; it's just basic economics. Further, by encouraging people to live nearer to where they work, together those who respond to this initiative could save millions on commuting costs while still being property owners.


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Keith Rankin teaches economics at Unitec's Department of Accounting and Finance. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand’s GNP going back to the 1850s.

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