It’s land not owners who are the problem

Stuff reports:

Labour is lining up property speculators by clamping down on tax loopholes to even the playing field in favour of first home buyers.

In a hard hitting speech to Labour’s election year congress, leader Andrew Little said the loophole that let property speculators offset losses from their rentals against other income for tax purposes would be closed.

“Labour will close the tax loophole that allows speculators to claim taxpayer subsidies for their property portfolio,” Little said.

This is not a loophole or a subsidy. It is standard taxation policy that a loss in one area can be offset against a profit in another area. What Little is proposing is that losses on property investment be treated differently to all other losses.

It will make little difference to house prices and will in fact increase rental prices. The profit from property investment comes from the increase in capital value.  Until land supply is increased dramatically, this will continue to fuel house prices.

If property owners faced effectively increased costs on a property, then rents are likely to increase. So Labour’s policy will increase rents and have almost no impact on house prices.

Under the proposed change so-called “mum and dad” investors who bought rentals as a long term investment would not be affected as most of them did not use the loophole, Little said.

To the contrary they are the ones who will be most affected. The professional investors will have companies that will offset profitable and unprofitable houses. The mum and dad investors will not.

And who are the most common owners. Jim Rose has an OIA on this:

So only around 3,500 landlords have more than five properties while 23,000 have two to five properties and a massive 105,000 have just one. They are the ones who will be most affected. If the interest on their mortgage is more than their rental income (always the case at first) then they are deducting the loss off their other income.

Those with six or more will run it all through companies and be unaffected.