NZ government takes bold action to curb soaring house prices

The New Zealand government has made a bold $3.8 billion move in swiftly closing tax loopholes in a bid to put a lid on rising house prices in the country and stop property speculators entering the market.

It hopes the raft of policy changes will shift the balance of the property market more in favour of first-home buyers and owner-occupiers, with tax incentives for investors reduced from this weekend, Stuff reported.

The measures include an extension of what is called the “bright-line test”, which means some investors will pay tax on their capital gains when they sell properties and the removal of interest deductibility.

What the NZ government has done is effectively reduce the Australian equivalent of capital gains tax exemptions and remove negative gearing almost overnight.

Investment properties bought from this weekend onwards will be subject to a tax rate of between 33 per cent to 39 per cent on the condition they held for at least 10 years – an increase from five years – to rein in flipping properties by investors.

NZ property prices have recorded such staggering price growth in their local property market it has left some Kiwis wanting to move to Australia for cheaper housing.

While Australian home values rose 4 per cent in the past year to February to a median of $598,884, according to CoreLogic figures, Kiwis saw price growth more than double that pace.

The median property value in New Zealand jumped 14.5 per cent to $827,426 in the past year to February, CoreLogic data shows.

In Auckland the median now sits at $1,198,564 (about $A1 million) after climbing 13.3 per cent over the year – well above the median values in Sydney and Melbourne at $895,933 and $717,767, respectively.

ANZ chief economist Sharon Zollner described the reform package as a “massive” change for the government because it risked upsetting a large voter base, but it would be worthwhile.

“We’re unlikely to see house price falls on the back of this, although the risk of that has increased,” she told Stuff.  “In my view it’s well worth sacrificing a bit of economic activity at this point to head off house prices that are doing so much damage to our society, and also our economy in so far as a boom and bust cycle is extremely unhelpful and that had been looking more likely by the day.

NZ Prime Minister Jacinda Ardern expects the changes will tilt the balance in favour of first-home buyers, but also warned it would take some time to rebalance the property market.

“The housing crisis is a problem decades in the making that will take time to turn around, but these measures will make a difference,” she said, Radio New Zealand reported.

“There is no silver bullet, but combined all of these measures will start to make a difference.”

Housing minister Megan Woods said activity and jobs in the construction sector would also be boosted.

“As we’ve investigated where the greatest housing needs are and what has been done to meet those needs, we’ve found out just how broken the system is.”

Economists are divided about the effect on the market but warn against expecting a house price crash. Kiwibank chief economist Jarrod Kerr said: “It will definitely cool the market from an investor point of view. Will it cause house prices falls? I don’t think so with the housing shortage we still have in place.”

Property investors, meanwhile, are fuming.

“The bright-line test increase will do nothing to stop property speculation, but removing interest deductibility is huge and will increase the cost of providing rental properties drastically,” New Zealand Property Investors Federation president Cullwick said.