Tax report looks at housing effects

01 October 2018

An interim report released on September 20 by the Tax Working Group says some features of the tax system – such as the inconsistent treatment of capital income – have probably exacerbated the house price cycle even if the tax system is not the primary cause of unaffordable housing.

The group, headed by Sir Michael Cullen, had considered the 6,700 submissions lodged between 1 March – April 30 before preparing the interim report. The Labour Party has promised several more rounds of reports and public consultation before any final decisions on changes to the tax system are made by Cabinet.

The mandate for any proposed changes would be tested at the 2020 election and the implementation of any changes associated with the Working Group would be made at the start of  the 2021 tax year.

The Group’s report says its work on housing affordability is closely linked to its work on the taxation of capital income and there was an open question as to whether an extension of capital income taxation would have a material effect on the housing market.

However, it was  difficult to quantify the impact of the New Zealand tax system on house prices and rents because the housing market was subject to many different influences.

“Disentangling these influences is no easy task, so there is little definitive empirical evidence regarding the tax impact on house prices and rents in New Zealand."

The Group says that the extension of capital income taxation, such as through the introduction of a tax on capital gains from residential property investments, could be expected impact on housing markets, including some upward pressure on the ratio of rents to prices. 

It was considering 'vacant land' and 'empty house' taxes as one way of improving housing supply and affordability. It noted that the introduction of a tax on vacant residential land, or on empty homes in residential areas, would intensify the use of existing urban areas. The interim report lists examples from Australia could inform the development of similar taxes in New Zealand.

Links to the Tax Working Group Interim Report, in both PDF and HTML formats, can be accessed here along with relevant charts and data.   

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