Andrew Little tackles housing monster, pledges to close tax loophole
Labour is lining up property speculators by clamping down on tax loopholes to even the playing field in favour of first home buyers.
In a hard hitting speech to Labour's election year congress, leader Andrew Little said the loophole that let property speculators offset losses from their rentals against other income for tax purposes would be closed.
"Labour will close the tax loophole that allows speculators to claim taxpayer subsidies for their property portfolio," Little said.
"Right now, speculators can take losses from their rentals and offset that against their personal income. It allows them to avoid paying tax. This loophole is effectively a hand-out from taxpayers to speculators. It gives them an unfair advantage over Kiwi families."
Under the proposed change so-called "mum and dad" investors who bought rentals as a long term investment would not be affected as most of them did not use the loophole, Little said.
Those that did would have time to adjust.
"This policy is about the big speculators who purchase property after property. It's about those big time speculators who are taking tens of thousands of dollars a year in taxpayer subsidies as they hoover up house after house."
New Zealand could not defend handing out subsidies to property speculators when most young couples could not afford to buy their first home, Little said.
The change would save about $150m a year once fully implemented, with the money being diverted to Labour's healthy homes policy.
Homeowners and landlords would be able to get up to $2,000 towards the cost of upgrading insulation to modern standards or installing heating. Over a decade, that would add up to 600,000 homes, costing $1.2 billion.
Finance spokesman Steven Joyce said the announcement was a rehash of Labour's 2014 housing policy and would have the opposite effect on first home buyers.
" It will simply put up rents and probably reduce the amount of construction in the housing sector."
What Labour was proposing was effectively a new tax and 'any time you put a new tax on any sort of sector that sector reacts by slowing down."
Property Institute of New Zealand Chief Executive Ashley Church labelled the tax crackdown a cynical electoral ploy that risked slowing housing supply.
"Your typical Property Investors are average Mums and Dads – not wealthy cigar smoking fat cats – and their ability to purchase an investment property is usually leveraged against the equity in their home and their ability to claim losses in the early years, like any other business does. This move would certainly stop them investing – but in the process it would quickly lead to a shortage in rental housing which would fall back on the Government – so it would end up costing the taxpayer a lot more in the long run".
Meanwhile, negative gearing was only a factor in the early years of a property investment, Church said
"Over time, rents rise and properties become 'positively geared' – at which point the additional income becomes taxable. Is Labour suggesting that they will forgo this tax income – or that they'll make property investors pay tax on profits while removing the ability to claim losses"
Instead of punitive action, politicians should be looking at incentives to increase private investment in the construction of new dwellings as quickly as possible.
"The shortage of houses in Auckland is at crisis point and there's a need for smart and innovative solutions that harness the power of Mum and Dad investment to get those houses built quickly. That might include giving preferential tax treatment to Investors who build, or buy, new homes – not punishing them for doing so".
Mr Church also strongly rejected Mr Littles claim that Labours policy would "create a level playing field for home buyers and help families get a fair shot at buying a place of their own."
Little was introduced by wife Leigh Fitzgerald, who has largely stayed out of the public eye since Little won the Labour leadership.
Fitzgerald said they met when she asked for advice on her employment contract.
And she revealed her husband called home twice a day, ironed his own shirts but often showed characteristics of his star sign the Bull.
In his speech, Little referred to Fitzgerald as his soulmate, and said they had lived the "typical Kiwi story", buying their first home in 2000.
"That first house we bought in 2000 cost us $315,000. That wasn't a small amount of money for us, but it was manageable. "
The same house was now worth $830,000.
"Its value has nearly tripled. But here's the thing: Families' incomes haven't tripled since 2000. Nowhere near. That's why housing is getting further and further out of reach."
Little also reiterated Labour's other pledge to build tens of thousands of affordable homes in the biggest house building programme in decades.
And he said Labour would introduce a ban on overseas property speculators within its first 100 days in office.