HOUSING MEASURES ”NOT TERRIBLY EFFECTIVE” – PM

( Comment: Any bright line test will not only not work but will make matters worse. So long as capital gains can be made people will continue to buy whatever the consequences. A bright line test extended out will only ensure that people will hang longer on and thereby make the shortage of houses worse still.
You would have thought the powers that be would have learned from the disastrous 1970’s experiment when the Labour party tried to stamp out “speculators ” by introducing a property speculation tax confiscating 90% of profits from any sales done within two years of purchase.
This resulted in a mass withdrawal of property from the market and drove prices up through the roof. In any event if anyone sells and makes a profit inside any bright line barrier, ordinary tax would be around 25% after deductions, so keeping 75% is not a bad deal at all. In any event how anyone can work out what constitutes a “profit” must be an accountants headache. Not only are there acquisition and disposition expenses but all those in between.
Increasing LVR limits will drive investors into creating syndicates or partnerships which would be highly dangerous. Getting into a deal is easy. Getting out is the hard part and that’s when huge fights will break out. Greedy people tend to suspend logic about the risks around personal guarantees, management, when to sell. and who does what and when. The bureaucrats, and economists seem to get all their ideas out of text books and not from those with a life time of hands-on experience. Remember: When election time comes, be sure to vote for the party that will do the least harm).
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“Prime Minister John Key addresses the media over the Auckland housing issues after a function in West Auckland today. Photo / Dean Purcell
Prime Minister John Key says his Government has not changed its mind about controlling the demand for housing in New Zealand, despite telling the Reserve Bank to target investors in the housing market.

Key reiterated today that he wanted the central bank to crack down on property investors immediately, saying that stricter loan-to-value ratios (LVRs) could have been introduced “overnight” to stem the level of investor activity.

However, that did not mean that the Government had softened its stance on demand-side measures for housing.

Policies which curbed demand were “not terribly effective” at slowing up house prices, Key told reporters in Auckland this afternoon.

“I remember when everyone said to [introduce] the equivalent of a bright line test, it will solve the issues. Well, it really didn’t.”

The bright line test, introduced in October, required people who bought and sold a property within two years to pay tax on the capital gain.

It was credited with helping to slow house price inflation in late 2015 and early 2016, though prices have since taken off again, driven by high levels of investor activity.

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