Landlords crying victim make case for CGT
Residential landlords who grizzle loudly about both the impact of a capital gains tax and the new minimum warmth and health standards for rental properties should be very careful what they wish for.
Both, some of their lobbyists unwisely argue, will increase rents. To the public, this sounds like a threat.
And in the case of the warmth standards, it’s not only a greedy, heartless and socially irresponsible threat, but it doesn’t stand up to analysis.
If a capital gains tax is imposed on the sale of rental properties, expenses such as insulation will remain tax deductible against other income, while depreciation will continue to apply to all fixtures and fittings irrespective of the income tax regime.
As to whether there will be a capital gains tax on residential investment properties: Put money on it. It’s already as plain as the nose on your face that the Government must do something significant, albeit perhaps symbolic, to tax capital income.
However, the only area where everyone seems to agree it should apply is to residential property that isn’t the family home.
Taxing capital gains from productive investment from farms, businesses or shares seems a perverse thing to do if the intention is to encourage money out of bricks and mortar and into investments that create jobs and wealth.
All the more so if it encourages investment in assets in other countries rather than New Zealand, as would be both rational and likely.
Accordingly, your columnist will eat one of the many hats in his personal collection if the Government goes any further than taxing gains on residential property investments.
My certainty is heightened by the sterling jobs that landlords or their lobbyists are doing of making sure that happens by painting themselves as victims in a housing market where rents are out of control and house price inflation has made paper millionaires of many investors.
After all, what are these new costs that landlords say will drive them to push up rents?
First: insulation in the roof and under the floor. Frankly, a house without that in 2019 is a scandal already. Cost – maybe $4000 on a bad day.
Second: fixed heating capable of warming the main living area to 18 degrees Celsius – the level the World Health Organisation says helps to keep homes dry and warm enough to prevent much of the asthma and other illness that rob low-income Kiwis of so much school and work time.
In other words: one heat pump, a maybe $1500 to $2000 asset depreciable over 10 years. Note: no mandatory warmth for bedrooms – yet.
In places where there’s no access for under-floor insulation, ground cover is required to prevent moisture from the earth rising into the house. In other words, polythene. Not exactly a high-cost item.
Extractor fans in bathrooms and kitchens become mandatory. You can get two from Harvey Norman for under $1000 and depreciate them over 10 years.
None of this seems onerous or expensive enough to justify a rent increase when a landlord can reasonably expect to make a solid capital gain on a rental property if they time the market right.
It’s tempting to think the Government is cunning enough to have deliberately coincided the announcements on capital gains tax and new rental warmth standards to produce precisely the self-serving outbursts that are making landlords so unloveable.
Given the current slightly shambolic Beehive spin machine, that may be a stretch, but whether cunning plan or lucky break, the effect is the same.
Landlords are helping make the case that greater fairness is required in the tax system.
After all, politicians of all stripes will campaign for hardpressed renters and the rights of small-time ‘‘mum and dad’’ investors to get a fair go.
None – bar, apparently, a strangely tin-eared National Party housing and urban development spokeswoman, Judith Collins, on this issue – are willing to go in to bat for greedy speculators, which is how landlords look right now, however unfair that may be to good landlords.
Given some quaint claims that the Government’s tax and housing problems are a form of communism, landlords should consider the risk of being branded as modern-day kulaks – the petit bourgeois landowners purged from Soviet society. –BusinessDesk
Landlords should consider the risk of being branded as modern-day kulaks – the petit bourgeois landowners purged from Soviet society.