Cap gains would cut house prices, increase ownership - study
Gyles Beckford, Business Editor
House prices would fall, rents would rise but home ownership would improve if a capital gains or some other type of
property tax was brought in according to a new study.
Photo: RNZ / Claire Eastham-Farrelly
Westpac Bank has looked at six possible changes to the tax system, ranging from a capital gains, property or land taxes
through to a new way of taxing rental income.
A 10 percent capital gains tax, a 1 percent land tax or 0.5 percent property tax would result in house prices falling 10
or 11 percent.
A deemed rate of return, which would tax landlords on an assumed rate of return, say 5 percent on their properties,
could see prices fall by 20 percent.
In all cases, the tax changes would boost home ownership rates as investing became less attractive, but would also cause
rents to rise.
Westpac chief economist Dominick Stephens said the tax system was skewed to the advantage of property investors and
distorted the housing market.
"The tax advantages property investors have enjoyed over first home buyers have led to a reduction in the rate of home
ownership.
"If you levelled the playing field between first home buyers and property investors you would find first home buyers
were able to win at auction or tender more frequently and the home ownership rate would rise."
The study showed that rents would rise between 1.6 percent and 9.6 percent.
Mr Stephens said the analysis did not necessarily mean prices would drop straight away, and it was possible they would
stay flat over time rather than rise in the absence of the tax.
The government has set up a tax working group to look at wide ranging reform options for the taxation system. The government has said that any capital gains tax
would not apply to the family home.