Labour are of the view that property “speculators” are driving house prices out of reach of first home buyers and have proposed new measures to resolve the issue. There is currently a lack of detail around how exactly the new measures will apply, but based on the details available, they could have an impact should Labour be successful in next year’s election.
Extending the bright line test
Currently, gains from residential property sold within two years of purchase are subject to income tax, unless the property is the seller’s main home, inherited, or transferred in a relationship property settlement. Labour plans to extend the period of the bright line test from two years to five years. This policy has come under fire, with some critics arguing that it will place a burden on landlords selling for legitimate reasons.
Banning foreign buyers
Labour proposes to ban non-residents from buying existing New Zealand homes. Who will be classed as a non-resident for this purpose has not been defined; which is a crucial detail that could have a profound effect on the ambit of the policy.
In proposing this policy, Labour have referenced disproportionate house sales to overseas buyers and the relative success of a similar policy in Australia. While non-residents would be banned from purchasing existing homes, they would not be prevented from building new houses in New Zealand. The basis for this presumably being that building a new house adds to the supply.
Altering rules around negative gearing
Labour have pledged to consult on ways to limit the ability for negative gearing to apply to rental properties, which has been described by Andrew Little as a “subsidy for speculation”. Negative gearing allows landlords to return a taxable loss on their rental properties that can be offset against their other income to reduce their overall tax liability.
In the lead up to next year’s election, the National Government is likely to come under increased pressure because of its perceived lack of action on the housing market. Labour looks to be seizing the initiative by releasing its plan to combat rising house prices.
It remains to be seen whether National will bring a similar policy to the table, or whether they are happy to rely on other measures, such as the Reserve Bank’s recent increase in the loan to value ratio for investment properties to 40%.