Select to expand quoteFormulaNova said..
You can say you think its illogical because of... Otherwise we can just trade insults for all that it matters.
I guess we are arguing and its a moot point. NZ has made the rule changes and we will see the effects.
My position is that I think its unfair that first home buyers are being overrun by investors/speculators and being priced out of the market. Not because the investors are adding value, just because people can socialise the losses and get the windfall at the end, so they are happy to pay more each time.
It's illogical because it doesn't make logical sense for the reason I explained right before I said it was illogical 
It'll need to be shown that the law change is what's having the effect.
They're not being forced out though.
> The media is focusing on the ridiculous houses selling for ridiculous prices in ridiculous places, throwing around ridiculous statistics. Ignore the media, they're being intentionally dishonest.
> I can't find the page now (of course) but the actual cost of buying a house relative to income hasn't actually changed a lot over the years. IIRC it was less than 10% greater now that it was in the early 90s. Of course, there is more pressure on income now but:
> Getting on the housing ladder means getting on at a low rung, and perhaps might not be up to the standards of the palace that Mummy and Daddy or the state supplied for you. Refusal to lower expectations is driving the outrage IMO. And:
> You're not going to get a million-dollar loan for your first house so those aren't the properties first-home buyers are looking at -- although they are the ones being talked about in the media.
> Furthermore, the government has enacted laws that have scared the banks out of lending to lots of people... essentially freezing out first-home buyers.
Law of Unintended Consequences is ruling the market, so far as I can tell. CGT, Healthy Homes standards, banking "reforms"... those are the leading suspects.
Select to expand quoteFormulaNova said..
So, its a capital gains tax that only applies if you sell within ten years? Yes?
Can you deduct the cost of a loan to buy or create a business against your income from other sources in NZ?
The point of introducing the question about taxes on profit was in response to you saying that it should be treated the same 'as a business'. If you want interest to be deductible, then you would also expect to be taxed on the profit wouldn't you? Before these rules, it wasn't taxed at all, yet you could still claim the interest costs.
That old comment springs to mind of 'socialising the losses and privatising the profit'.
What is the tax taxing? 
And it was up to five years a couple of years back... I wonder how many years it'll be in a few years time.
Don't know.
What I do know is that you work out the deductibles on your rental income THEN combine that with other income to determine your total taxable income. Pretty hard to avoid paying the highest tax rate...
With a business loan, where you have higher deductibles, I'm guessing you'll have less to add to other income when it comes time to work out your tax. Does that answer the question?
As far as deductibles ON LOANS, it should be treated the same -- it IS income from a business after all.
You are taxed on "profit", why wouldn't you be? Rental income is income.
Huh? How?
Select to expand quoteFormulaNova said..
Let's agree. Investing and Speculation are essentially the same in this context. I will accept that investing does not need to be productive and its just about trying for a profit.
Are people really going to be punished? If they are long term investors, then after ten years they have provided a service and have gotten their profit tax free. Sounds good to me.
Does this bright-line test mean that people trying to produce new housing stock are able to write off their interest costs against their income tax?
No they're not, so I won't agree.
(Ok we're talking about two tax things here, I just realized I might not have made it clear: Bright Line test aka the capital gains tax, is when you sell the rental property. The deductibles/offset is -- or was -- yearly on the rental income.)
You're not getting profit tax free
You are (or were) deducting some % of interest from the income tax on your rental.
Don't forget the rental owner still has to make mortgage payments AND pay for upkeep and other costs. For the mom-and-pop investors who control the majority of the rental properties, the rental income goes almost entirely into the running of the property and the mortgage (according to surveys). That's why INVESTORS are in it for the long haul -- you get the capital gains at the end when you sell, in the far future.
This deductible reform is a also barrier to entry for working class investors: not only will it most likely push your income tax rate up into the highest bracket, but you'll most likely have the additional tax bill from the rental. Banking "reforms" make that first step even tougher.
So here's the key point about "punishment": by changing the deductible allowance, it means that now investors may have a total tax bill over and above the income returned from the rental. This doesn't apply to the business loan.
The idea of the new-build exception for deductibles was to encourage people to build new... but with material shortages, a lack of land released for new builds, long waits for consents and approvals, etc it's not working as expected. Weirdly enough.
We're already seeing stories of people beginning a new build then missing the deadline for the rental to be considered a new build, and then of course missing out on the deductibles. Or people having to sell for non-speculation reasons and getting stuck with the capital gains tax...
Select to expand quoteKamikuza said..FormulaNova said..
Let's agree. Investing and Speculation are essentially the same in this context.
?
No they're not, so I won't agree.
..
Okay, so what is the difference between speculation and investing in the property market? The NZ or Aus ones or any other ones, take your pick.
Just as food for thought, this as from the ATO website, on negative gearing:
In 2012-13:
Over 1.9 million people earned rental income
Around 1.3 million of these reported a net rental loss
Nearly 70 per cent of people with negatively geared property had a taxable income of less than $80,000 per year
Are these people investing or speculating? My guess is that they are buying these properties knowing that they get a loss, and use it to reduce their taxable income. The reason to do that is the expectation of a decent capital gain at the end of it. Or are they just bad at investing and not realising that they are buying poor assets that provide negative returns?
Select to expand quoteFormulaNova said..
Okay, so what is the difference between speculation and investing in the property market? The NZ or Aus ones or any other ones, take your pick.
Just as food for thought, this as from the ATO website, on negative gearing:
In 2012-13:
Over 1.9 million people earned rental income
Around 1.3 million of these reported a net rental loss
Nearly 70 per cent of people with negatively geared property had a taxable income of less than $80,000 per year
Are these people investing or speculating? My guess is that they are buying these properties knowing that they get a loss, and use it to reduce their taxable income. The reason to do that is the expectation of a decent capital gain at the end of it. Or are they just bad at investing and not realising that they are buying poor assets that provide negative returns?
Lordy, why do I have to explain things you can google? Or that I've explained before at least twice?
Speculating is about trying to make a quick buck ie. flippers.
Investment is about moderate growth over the long term, using the long time base to maximize profits and minimize risk.
Clearly that's a strategy for a longer term than buying and flipping a house, or hoping for an uptick in the price and selling quickly. You wouldn't do all that if you're planning on using the tax code to your advantage over the long term... so which do you think it is?
Select to expand quoteKamikuza said..FormulaNova said..
Okay, so what is the difference between speculation and investing in the property market? The NZ or Aus ones or any other ones, take your pick.
Just as food for thought, this as from the ATO website, on negative gearing:
In 2012-13:
Over 1.9 million people earned rental income
Around 1.3 million of these reported a net rental loss
Nearly 70 per cent of people with negatively geared property had a taxable income of less than $80,000 per year
Are these people investing or speculating? My guess is that they are buying these properties knowing that they get a loss, and use it to reduce their taxable income. The reason to do that is the expectation of a decent capital gain at the end of it. Or are they just bad at investing and not realising that they are buying poor assets that provide negative returns?
Lordy, why do I have to explain things you can google? Or that I've explained before at least twice?
Speculating is about trying to make a quick buck ie. flippers.
Investment is about moderate growth over the long term, using the long time base to maximize profits and minimize risk.
Clearly that's a strategy for a longer term than buying and flipping a house, or hoping for an uptick in the price and selling quickly. You wouldn't do all that if you're planning on using the tax code to your advantage over the long term... so which do you think it is?
Why did I ask for you to define speculation versus investment? Because I couldn't see the difference and when I did look up the definitions before asking the question, they were essentially the same. Hence why I asked you for your understanding of the difference.
From your response, it seems time is the difference. It seems the NZ government agrees and have created that ten year timeframe so that investors can get their capital gain tax free after that period and the speculators are going to have to pay tax.
As an example of the property investors I have worked with over the years, there was one who stood out. He has twelve investment properties around the early 2000s. He explained to me that he had an agreement (I forget the term they use) with the ATO where he would pay a reduced rate of tax each pay period because of the expected tax losses at the end of the year. I don't know whether you would define him as a speculator or an investor but he clearly used the tax benefits to get the cash flow to finance so many properties, leveraging each one from an increase in value of the ones before it.
Speculating on such a short time frame doesn't seem to happen too much in Aus from what I can see. I don't know about NZ. Here the costs with stamp duty and other costs mean that it would have to be a huge gain. Plus you will pay tax on the 100% of the gain if you sell within the year. 50% after that. To me, that period is too short, and I think it is one of the things that made property investment take off here.
When people see such gains in property from renovation shows, and stories from people about the windfall gains, everyone gets in on the action, except those that are starting out and have to compete with cashed up investors. It's doable to an extent but not easy for everyone.
I would welcome it if the government here changed deductions and capital gains tax to favor new-builds, but the 1.3million investors would hunt me down.
Select to expand quoteFormulaNova said..
Why did I ask for you to define speculation versus investment? Because I couldn't see the difference and when I did look up the definitions before asking the question, they were essentially the same. Hence why I asked you for your understanding of the difference.
From your response, it seems time is the difference. It seems the NZ government agrees and have created that ten year timeframe so that investors can get their capital gain tax free after that period and the speculators are going to have to pay tax.
As an example of the property investors I have worked with over the years, there was one who stood out. He has twelve investment properties around the early 2000s. He explained to me that he had an agreement (I forget the term they use) with the ATO where he would pay a reduced rate of tax each pay period because of the expected tax losses at the end of the year. I don't know whether you would define him as a speculator or an investor but he clearly used the tax benefits to get the cash flow to finance so many properties, leveraging each one from an increase in value of the ones before it.
Speculating on such a short time frame doesn't seem to happen too much in Aus from what I can see. I don't know about NZ. Here the costs with stamp duty and other costs mean that it would have to be a huge gain. Plus you will pay tax on the 100% of the gain if you sell within the year. 50% after that. To me, that period is too short, and I think it is one of the things that made property investment take off here.
When people see such gains in property from renovation shows, and stories from people about the windfall gains, everyone gets in on the action, except those that are starting out and have to compete with cashed up investors. It's doable to an extent but not easy for everyone.
I would welcome it if the government here changed deductions and capital gains tax to favor new-builds, but the 1.3million investors would hunt me down.
Pretty sure I mentioned that several times 
Yes. Think flipper vs. retirement plan.
We've got a couple of friends who've done that; 12 is rookie numbers... but you're very beholden to the whims of the bank. Three years back one of them wanted to sell a property to get some cash, and the bank wouldn't let them. That's the way I heard it, I don't know what the facts are; grain of salt etc. Most people aren't that comfy with the level of risk either.
It makes headlines in NZ when it happens. Within the last two months there was a house in Dorkland that was sold within a day and they made a modest profit on it. I doubt it happens much at all too. Much like foreign investors, it's been a false flag op for the government to avoid responsibility for all their sh!t policies making things worse.
There's plenty of property out there; people need to be realistic about what they're going to get as a first home... "OMG I couldn't afford the house I wanted cos it sold for $1million the property market is all messed up the government must fix it". Ugh.
The whole point of those shows is that they're showing best case scenario and NOT showing the amount of work involved doing it yourself -- the two shows I'm thinking off (one a flipper, one a do-it-up) they have massive teams behind the camera doing all the hard work. Usually Mexicans and you wouldn't believe how cheap materials are in the US.
No they wouldn't. They'd invest in the new builds 
Select to expand quoteKamikuza said..
There's plenty of property out there; people need to be realistic about what they're going to get as a first home... "OMG I couldn't afford the house I wanted cos it sold for $1million the property market is all messed up the government must fix it". Ugh.
The whole point of those shows is that they're showing best case scenario and NOT showing the amount of work involved doing it yourself -- the two shows I'm thinking off (one a flipper, one a do-it-up) they have massive teams behind the camera doing all the hard work. Usually Mexicans and you wouldn't believe how cheap materials are in the US.
No they wouldn't. They'd invest in the new builds
Maybe things are very different in NZ compared to Aus with the availability of 'realistic' homes. I bought in 2001 and found an endless list of houses to look at, all within my modest price range. That was just within the areas that I decided I wanted to live in, not just the rest of Sydney.
Now, if you can find them, 'starter houses' are three times the cost. Probably in worse condition and not as good locations. 20 years is a long time, but I feel sorry for people starting out that have to stump up $1.2M to get just an average house.
I can understand people wanting a finished house if they are already going to be paying a huge amount, so I am a bit in both camps. Some people want everything, so let them pay for it. Others will work to a budget and get a modest house.
But its a moot point in NZ. These rules are in, and we will see the effect. It could be an interesting case study to compare against Aus in the same timeframe.
Select to expand quoteFormulaNova said..
Maybe things are very different in NZ compared to Aus with the availability of 'realistic' homes. I bought in 2001 and found an endless list of houses to look at, all within my modest price range. That was just within the areas that I decided I wanted to live in, not just the rest of Sydney.
Now, if you can find them, 'starter houses' are three times the cost. Probably in worse condition and not as good locations. 20 years is a long time, but I feel sorry for people starting out that have to stump up $1.2M to get just an average house.
I can understand people wanting a finished house if they are already going to be paying a huge amount, so I am a bit in both camps. Some people want everything, so let them pay for it. Others will work to a budget and get a modest house.
But its a moot point in NZ. These rules are in, and we will see the effect. It could be an interesting case study to compare against Aus in the same timeframe.
Well of course. Over two decades of inflation, minimum wage rises, what do you expect?
$1.2M in Oz or NZ? That's not an average house in an average city in NZ. That's an average-sized house in the middle of Auckland.
Depends, I don't know what Australia is doing. If the idea is to halt the housing "crisis" and make it more affordable for "first home buyers" in NZ then you'll want to compare it internally, against previous conditions.
... we had a builder at the house for three weeks, just over 30 years old would be my guess. In the time he was there, he bought a new truck, a new phone, a new laptop for his girlfriend and had two enormous dogs to feed. He lamented the fact that he couldn't afford to buy a house, but couldn't see how he should sacrifice things like spending huge amounts on dogs to do so.
Also, once again, relative cost of housing versus income hasn't increased as radically as people are making out. The data is in.
The acquaintance I mentioned who was unable to buy the sort of house they wanted, he had a sulk about it then went out and bought himself a new BMW. Then continued complaining about banks not being willing to loan them all the money they wanted for the quality of houses they wanted.
I suspect the lack of realistic expectations and sense of entitlement is more widely spread than the media or government would care to admit...
Select to expand quoteFormulaNova said..515 said..
Yes I'm in Auckland.
Now landlords can't offset interest costs ( there are some exceptions) against rental income. Our tax year ends 31 March and we file returns by 7th July.
House prices are dropping but still unaffordable for first home buyers.
We have too many people on benefits not contributing and there will be a drain to Oz as better pay and slightly lower cost of living.
Cool. Thanks.
I was watching some program and they mentioned this so I wanted to see how it was working in practice. If it was working at all I guess, but it sounds like it is.
I can imagine that it will dramatically reduce the number of people that can afford to buy a house and speculate on it, when its costing you a lot more to hold it. I know for me when I held an investment property here in Aus that the first 10 years or so were losing money, so without being able to claim the interest as a deduction, its challenging, and all new investors are in the same boat.
Does this stop interest being claimed against the costs of the property itself, or against the person's personal income? Your comment suggests not even against the rent? That's significant.
I wonder if anyone here would have the balls to try the same policy? I doubt it. They seem to pay lip-service to housing affordability and happily own multiple investment properties themselves.
I can't imagine that prices there can do anything other than going down. It may take a while for things to shift, but with interest rates increasing and the interest not being a deduction, who could afford it? It also puts owner occupiers on a level playing field with investors which is good to see.
the Political opposition pledges to undo all the latest changes which have reined in house prices , he also happens to own many rental properties as do polies here in Aust .
Good take on it from a US perspective. Lots of similaraties, but the root of the problem is simply over regulation leading to undersupply and higher costs. To drop prices you simply need to work out what you don't want.
fee.org/articles/heres-the-real-reason-young-people-can-t-afford-a-home/?utm_source=facebook&utm_medium=social&utm_campaign=facebook_zapier
Select to expand quoteParadox said..
over regulation
Impossible the politicians are far superior human beings to you in every possible way and know better how to live your life and spend your money than you do shut up toe the line and pay all the tax you bigot
Sarcasm aside (only a small amount though) you can easily lay the majority of the blame at the foot of over-regulation.
I found that page that presents the data from NZ historical median house prices and inflation...
www.interest.co.nz/property/87961/adjusting-inflation-gains-house-prices-past-four-years-are-actually-nothing-special
Further reading can be found in a 2020 paper from Stats NZ called "Housing in Aoteroa: 2020"...
Select to expand quoteKamikuza said..
I found that page that presents the data from NZ historical median house prices and inflation...
www.interest.co.nz/property/87961/adjusting-inflation-gains-house-prices-past-four-years-are-actually-nothing-special
...
This link is for prices up until 2016. Have things changed since then significantly? I am guessing that they have increased but have no way of telling.
Even if you forget about the last 6 years, this data is for the entirety of NZ, not just Auckland.
It also removes inflation and still has a more than 8% increase in 2016 AFTER inflation. Is that a good thing for the community? For homeowners its either neutral or positive.
Select to expand quoteFormulaNova said..Kamikuza said..
I found that page that presents the data from NZ historical median house prices and inflation...
www.interest.co.nz/property/87961/adjusting-inflation-gains-house-prices-past-four-years-are-actually-nothing-special
...
This link is for prices up until 2016. Have things changed since then significantly? I am guessing that they have increased but have no way of telling.
Even if you forget about the last 6 years, this data is for the entirety of NZ, not just Auckland.
It also removes inflation and still has a more than 8% increase in 2016 AFTER inflation. Is that a good thing for the community? For homeowners its either neutral or positive.
What makes you think the trends have changed so markedly since?
The 2020 paper has more recent data, but there has been whinging about this for at least ten years -- if not since the invention of class Marxism. If Stats NZ is releasing data, you'll probably find newer studies if you search for it.
Yes. Auckland is worse cos it's full of dickheads, snobs, and immigrants who won't go any further south and somehow think it's a great place to live. Who cares about Auckland? You're not obliged to live there.
There's also regional data around too, and weirdly they're not as expensive as Auckland -- where there is maximum pressure from supply and demand
Does it matter? All this noise in the press, government regulation to "fix" the market, and the prol's wailing and gnashing is about "first-home buyers" being forced out by "evil landlord investing speculators". That's clearly not the case, and if you want to get onto the housing ladder, lower your expectations to something you can actually afford -- like everyone else who succeeds in buying their first house Maybe a median-priced house just isn't in your budget, in the real world...
