In this Budget, the Government has signalled it is well aware of the need to act on both the supply and demand sides of the Auckland housing problem.
Today’s Budget marks a turning point for the Government regarding its approach to runaway house price inflation in Auckland. While the Government has long dismissed that a ‘crisis’ is developing, its actions over recent times and in this Budget has certainly signalled it is well aware of the need to act on both the supply and demand sides of the problem. Auckland’s residential property sector is simply too big to fail.
The Government has consistently held a line that growing supply in Auckland is the most important thing to be done. Leading up to and in today’s Budget, the Government has announced it will contribute to supply by redeveloping land now held by the Tamaki Redevelopment Company and will also look to open up Crown-owned land in Auckland for housing development. Implementation of the social housing reforms also features heavily in Budget papers.
These initiatives mark a much more ‘hands-on’ approach to growing supply than we have previously seen from the Government. Whereas earlier steps were regulatory in nature the Government is now intending to partner directly with developers to ensure the houses get built. In addition to previously announced measures such as Special Housing Areas, it will go some way to meeting the projected 10,000 a year new homes required to meet Auckland’s demand.
But at best, the Reserve Bank and others are only able to guess as to who is really driving the market. Is it owner-occupiers, new home owners, rental investors (domestic or foreign), or speculators? This makes it difficult to respond with good targeted policy (and that’s assuming such a policy is possible).
The two year rule is, at least, a bright line. There will be no more ambiguity around proving of intent within the two year period.
However, there is no revenue assumed to arise from this change in Budget 2015. Investors who do not acquire for sale will only sell within two years if they are forced to, so limited tax will be paid. Investors who do acquire for sale are more likely to defer sales beyond the two period, in the mistaken belief that this guarantees the sale will be non-taxable. (It doesn’t: a sale will be taxable whenever made if, for example, the property was bought for the purpose of sale).
In reality, the most important tax effect of the two-year rule is to provide Inland Revenue with more readily-usable information. By providing investors’ IRD numbers, this will allow the agency to match investor information with its own records. This will make its compliance activity more efficient. A mooted withholding tax will ensure foreign investors must front up and demonstrate the sale isn’t taxable to get their money back. On the downside, if IRD misinterprets that information, it may also make unnecessary disputes more prevalent. Investors will need to make sure that their documentation supports their position.
Sunday’s proposals will give Inland Revenue a de facto land register for investors. It will have information on the relative holdings of domestic and foreign investors. It will, however, have to be able to distinguish between foreign and domestic owned companies if it’s to produce a true picture.
© 2019 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.