Is the New Zealand Reserve Bank’s action to late to cool Auckland’s housing market, today Graeme Wheeler has announced new restrictions on Auckland’s booming housing market, these restrictions are targeted at investors meaning from October 1 the new loan-to-value ratio (LVR) will take effect meaning all residential property investors in Auckland Council area using banks loans will need at least 30 percent deposit.
Other policies taking effect on 1 October:
- The Reserve Bank will Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent, to reflect the more subdued housing market conditions outside of Auckland.
- The Reserve Bank will Retain the existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 percent.
So what does this mean and can the Reserve Bank’s cool Auckland Housing market, well simply put no, normally it’s the role of Central Government that deals with housing policy and the Reserve Banks simply does not have the tools to cool the housing market, and these restrictions can be easily bypassed by investors. on The same day Graeme Wheeler announced these restrictions he agreed with MPs on Parliament’s Finance and Expenditure Committee that these new restrictions on property investors could make it easier for foreigners to buy in Auckland.
These restrictions would not affect cash buyers and most current and future investors will simply pass the cost on the already expensive Auckland rental market, driving up the cost of rents on good hard working kiwis family. So in my opinion these restrictions will end up doing more harm then good for first home buyers and renters this is why.
First of all most investors are not bad infarct right now they are on of the few groups building houses right now in Auckland, it’s the property speculation that needs to be targeted maybe a Property Speculation Tax looking at capital gains. but this needs to be enforced by Central Government not the Reserve Bank.
Most investors and Speculators will simply pass the extra cost of these restrictions on to renters or their asking price hurting kiwi family trying to save for their first home and driving up prices these restrictions have the real impact of increasing your rent and driving up house prices,
Secondly today announcements does not take into count Auckland housing supply and until Central Government not the Reserve Bank takes this into account there will be no chance of cooling the housing market. We need real action from Central Government the facts are that Auckland needs 30,000 new homes built yesterday and every year the number of homes that need to be built increases by over 10,000 homes just to keep up. Now I know the Central Government will say they are doing this right with their new housing accords and it’s Auckland Council’s fault for putting a halt to this plan over transport funding issues, and anyone living in Auckland will tell you that transport needs funding and this cannot be done by rates increases alone explicitly when you take into account how much Auckland is spreading out.
But you only have to look at the fact that the average house in Auckland increased in price by $47,000 from January 2015 That’s nearly $900 per Day and house prices are up 60% from 2008 to know it’s their actions are not working, and right now Central Government and Auckland Council are not effectually dealing with the housing market just playing politics.
So what can be done in the area of housing supply first of all Central Government need to set up a commission looking in to the cost of building supplies this makes up around 50 percent of a build if we could bring down the cost of building supplies this will make a real impact of bring down the cost of buying and increase the effeteness of our building industry, meaning kiwi companies can take on bigger projects.
Secondly the Central Government needs to look at a mass building projects like what was done in the 50’s yes I know it is a massive investment on the Government’s part and will mean overseas borrowing but this needs to be done, and Central Government will be able to reclaim some of the cost by selling of some of these houses rent income, and capital gained. I am not saying that Central Government should give these houses away or even do these housing projects by them self. Central Government could even look at Private Public Partnerships (PPP) to help with the cost of building.
Other steps that need to be taken are around the loosening of red tape around RAM and the cutting of the Council Development tax this combined with Speculation Tax looking at capital gained is the only way we can hope to cool Auckland’s housing market and make it more affordable for kiwi families.
But until Central Government starts taking this issue seriously not only will this many kiwi families won’t be able to afford to buy their first home, they will continue to put New Zealand’s economic future at risk we just need to look back as recently as 2008 to see all the hallmarks of our so rock star economy turn from boom to the biggest bust we have ever seen. “12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster” – Forbes -.
The blowback of Central Government not tackling this issue, is putting us all at risk because when the housing market bust and it will in the next three years. The first thing we will see is house prices collapse the building industry taking a big hit with unemployment in the sector and skilled labour heading overseas, Banks will increase their interest rates and some Banks may need to be bailed out if they are over invested in risk mortgagees at a great cost to the taxpayer. Affecting many in industry’s outside the building and Banking sectors and increasing public debt, which may result in Central Government cutbacks, unemployment, greater cost of living and long term recession.
As you can see the cost of doing nothing is almost unthinkable, the Government needs to take ownership of this issue simply put the Reserve Bank is not designed and does not have the tools write and enforce our housing policy. this is the role or Central Government.
First of all the Progressives Business Tax (PBT) is not a new tax and I am not looking at the subject of GST. PBT would only replace the current business flat tax of 28%. I ask you does it seem fair that your local coffee shop has the same tax rate as Starbucks. If you add up all of the small coffee shops in New Zealand and then look again at Starbucks who employs more people in New Zealand. The facts are that small to medium business employ around 70% of New Zealanders but have to pay the same flat tax as large companies. This system is not only unfair to some business but it could be counterproductive to our local economic growth.First the top business tax under PBT should not be higher than the current tax rate of 28%. So what does the PBT model looks like? Small businesses (SB) would pay 24% medium businesses (MB) would pay 26% and large companies (LC) would pay a unchanged tax rate of 28%. Most of the people I have talked to about the PBT model. Say how you define a small business and medium business form big business and is PBT and the government picking winners and losers in the free-market.First of all let’s work out what’s the difference between SB, MB and LC and how do we make sure all businesses are paying their tax obligations in full.Small Business (SB)
The tax rate is 24% but what is a an SB under PBT. SB is classified as a business that makes less than five million in profit in a financial year and have less than twenty counted full time or part time employees once an SB exceeds the profit or counted employees. The SB will have one financial year to prepare for the new tax rate and their new business classification.Medium Business (MB)
The tax rate is 26% but what is a MB under PBT. MB is classified as a business that make less then fifteen million in profit in a financial year and a business that has more than twenty counted employees but no more the one-hounded full time or part time counted employees. Once a MB make more than fifteen million in a financial year or exceeds one-hundred counted employees. The MB will have one financial year to prepare the new for the new tax rate and their new business classification.Large Companies (LC)
The tax rate is 28% but what is a LC under PBT. An LCD is a business that makes more than fifteen million in profit in a financial year or has more than one-hounded counted employees. Also all overseas companies operation in New Zealand will be classified as LC no matter how much they make in profits or the amount of counted employees they in employment. LC’s will have no limits on counted employees or how much profit can make LC’s will pay no more business tax under PBT.Another question is what happens if a LC or MB makes less than the minimum stated profit in its classification what happens? If a LC or MB makes less than the minimum profit stated in its classification for more than two financial years in a role. The business will be moved to meet its new classification also if a business loses more than 15% of their market share.What is a counted employee? A counted employee is a person that works for a business or company for more than six months will be counted by PBT. Employees that are not counted by PBT are independent contractor, temp casual staff, and internships/apprenticeships, work training work experience, business owners, and board of directors or people that work for free or work less the ten hours in a week.Now for the big question is PBT picking winners and loser in the free-market, do we have the right to change the rules of the free-market. Do we have the right to give SB’s and MB’s an effective tax cut and help them grow their market shear That could be at the experience of LC’s. I think the question needs to be asked How do we want our economy look how do we want to do business with each other. Is giving up a flat tax that treats all business the same not matter how their profit look or how many employees they have. Is our current economy even broken or are the jobs cuts, government cut backs on our social services and budget blow outs a warning of much worse days to come. Do we need a economy that is based around helping small to medium businesses employee more people. Will PBT even help small to medium businesses or is it just more red tape stopping business for doing what does best delivery economic growth and employment to millions of New Zealanders.The truth is I don’t know. But it is a conversation we should be having. We should all be think outside of the box.Thanks for reading.