Housing rent rise likely with capital gains tax

Media Release
 
October 2, 2009
 
Housing rent rise likely with capital gains tax

 
Not only are rents likely to increase, but there could be wide reaching ramifications for the entire housing market should a capital gains tax be introduced on rental investments, according to Drew Herriott, of accounting firm Grant Thornton.
 
With much debate already in Parliament about a capital gains tax, Herriott thinks it’s only a matter of time before some form of tax on property is introduced.
 
“I think we can take it as given that the privately-owned family home will not be included in such a move, but rental properties will be in the Government’s sights for two reasons.
 
“Firstly, they will be looking for ways to take steam out of the property market as New Zealand and the housing sector recovers from the recession, and they will also be looking at other ways to fill up their depleted tax coffers,” he said.
 
New Zealand already has a robust tax on a number of property transactions involving speculation and this was given further teeth in the 2007 budget, which increased investigation enforcement in this area.
 
“However, the Government has some pressing income needs.
 
“In the year to June 2009 the Crown had to make $2 billion worth of tax refunds to companies, approximately twice that of 2008, while personal tax refunds were also up 15 per cent.
 
“This is a pretty big deficit, and when you look at the expected tax take for the June 2010 year, which will be a strong reflection of the recessionary period we have just travelled through, then the Government coffers could deteriorate even further over the next three quarters.
 
“Hence the necessity to find other forms of income and the focus on capital gains.
 
“One of the major concerns should such a tax be introduced is the likely effect it will have on actual rents. The pure return on a rental property is not great. Generally, a rental property investor will factor both timing tax advantages (depreciation) and capital gains into their investment decisions.
 
“If an investor buys a flat for $300,000 and rents it for $300 a week, they are looking for that property to appreciate to say $400,000 over the next five years. If a tax is now introduced on that capital gain, then the $300 rental will not stack up,  it will have to increase.
 
“And the further north you go up the country the more acute that increase in rent is likely to be because of the relatively higher housing costs.
 
“If rents do rise and people cannot afford the increase, what sort of pressure is this going to put on Housing New Zealand to supply affordable housing. There already appears to be a shortage of affordable housing in the Auckland area, this will only make it worse,’ he said.
 
ends

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