Are Govt controls the answer to the ‘broken’ housing market?

By Peter Lewis

In the time since the recent British elections the results have received little in-depth coverage and analysis in our local media. Apart from the shocked surprise at the outcome by many of those closet-socialists active in the media, most commentators have shrugged their shoulders and gone back to analyzing Trump.

Yet it is interesting to look not only at the overall result but the ebbs and flows of the various UK electorates and the population profiles within and consider how this may reflect potential changes in the New Zealand political arena.

Generally, in mature democratic democracies, politics becomes a competition between two major political parties. For most of recent history, these parties tend to comprise a Conservative party mainly supported by the farming and white-collar business and professional sectors who promote policies intended to create wealth, and a Socialist party supported by blue-collar voters and those who derive their income from the public purse who promote policies intended to distribute that wealth.

However, we now see that these distinctions are breaking down, not only in those who support such parties but also within the parties themselves. This has been coupled with the recent advent of a professional political class. In the past, an individual would move out into the working world, achieve some success and reputation within that sphere, and then be sufficiently motivated both by their own experiences and the experiences of those around them to progress into political action. These people, those who possess actual real-world experience, have now been replaced by theoreticians, those who have formulated their ideas and beliefs second hand by reading, listening and absorbing the pre-packaged opinions of others.

The quite rapid changes in the nature of employment have hastened these changes. Gone are the days when you joined a major employer on entering the workforce and stayed there, secure and well-fed, until you eventually achieved the gold watch and the retirement cheque. As well as now moving from company to company, perhaps from occupation to occupation, many people have also ended up in the gig economy. Self-employed contractors are not now just highly qualified professional experts and consultants, they can be Uber drivers, Airbnb operators and cleaners.  This is insecure employment, vulnerable to any sudden changes in the political or economic environment, and carrying few if any employment benefits.

We can now see that, in the UK elections, many traditionally blue-collar voters abandoned Corbyn’s socialist promises to nationalize this and tax that and opted for more certainty, less change, and (by leaving the EU) reducing the risk of Johnny Foreigner coming in and stealing their jobs. The number of voters choosing this option vastly outnumbered those holding secure office jobs in large prosperous cities who’d like to remain in the EU because it makes it just so much easier to pop over to Majorca for their summer holidays. Thus the working class are now tending to vote conservative while the educated and professional middle class veer towards socialism. Generally, it would seem that  more insecure you feel about your current status in society these days the more conservative you will become.

Our own two socialist parties now strongly exhibit this trend. Gone are the muscular horny-handed manual workers from both the political and electorate ranks of the Labour party, while the ranks of the Greens have, right from the start, been heavily populated by schoolteachers and academics. These days, to become a Labour party MP, forget the hammer and sickle, move from University into either an MPs support staff role or take a job in an NGO, cultivate contacts within your local part branch, and prepare to pounce when the time is right. For National, there is a similar route – possibly moving from University though a top law or accounting firm and on to the governing board of a multinational company before gracefully accepting the offer of a seat in the Beehive.

Thus we now get a Government almost entirely consisting of people who have grown up and matured in a social and economic hot-house, the path smoothed out in front of them and with minimal exposure to the vicissitudes and tribulations of the real world. Having always been able to view humanity from the top down with an air of supreme detachment, they are then able to formulate and enunciate grandiose plans that are quite detached from reality and practicality. The result? –  we end up with lofty promises to end homelessness, reduce child poverty and build 100,000 affordable homes within ten years. After hubris comes Kiwibuild.

Our housing market may well be ‘broken’, as Shamubeel Eaqub claims. However, is introducing a plethora of controls, regulations and taxes the answer? Real world experience indicates probably not. You and I fortunately live in a country where most of us have access to a vast array of clean and generally wholesome reasonably priced food available in almost unlimited quantities. Sure, there are rules around food storage, handling, and other health-related issues, but there is no overriding and controlling Ministry of Food arranging the supply and marketing, it comes to us by the magic of the free market. Yet in societies where rationing, government control, ten year plans and state food markets are imposed we invariably find food shortages, endemic corruption, high prices and poor customer service, sometimes even ending in famine.

So if freeing up the market so that it expedites efficiency and supply works for the food industry, why would it not also work for housing? Do we really expect that the current plethora of limitations, consents, restrictions, imposed costs, red tape, tax penalties, and over-the-top requirements will provide a responsive and freely functioning lowest possible cost housing and residential rental market? And if it does not, will imposing even more of such demands as prescribed by those MBAs and Ph.Ds now holding the reins of power prove to be the solution?

Back out in the heat and dust of the real world, well away from the air-conditioned four-windowed lofty high-rise corner offices of downtown Wellington or Auckland, I suspect not.

Peter Lewis is the vice president of both the Auckland Property Investors’ Association and the New Zealand Property Investors’ Federation. 

Loss ring-fencing ups war on renters and owners

The largely unreported end of the ability of rental property owners to claim losses against other income shows that the Government is unaware of the scale of the problem it is creating with accommodation, Tenancies War spokesman Mike Butler said today

The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill quietly became law while we were distracted with a Cabinet reshuffle that demoted Housing Minister Phil Twyford.

Under the vague sub heading “Allocation of deductions for excess residential land expenditure”, the omnibus tax Act:

(a) limits a person’s deductions for expenditure incurred in relation to residential land to income derived from the land;

(b) suspends deductions for the excess expenditure for the income year in which the expenditure is incurred;

(c) provides that the excess amounts are carried forward to later income years in which the person derives residential income; and

(d) releases the excess amounts on fully-taxed disposals of land.

Inland Revenue said in various statements that 116,000 owners declared an average loss of $7138 ($137 a week) on earnings in the 2016/17 tax year, bringing an average tax benefit of $2000 a year to each, creating a total cost of $232-million to them.

“The Minister responsible for this, Revenue Minister Stuart Nash, is probably unaware that losses accrue at the first stages of a property investing career, and that as debt is reduced and income increases, investors become taxpayers, with some paying tens of thousands of dollars in tax each year,” Mr Butler said.

“Rental property owners who are losing money now face a choice — raise the rent to cover the loss, absorb the loss to apply it in the future to any profit, or sell,” he said.

“With rents at historic highs it is unlikely owners could add an average extra $137 every week to rents,” Mr Butler said.

“This means owners must choose between hanging on or selling,” he said. “The short answer is to sell, with stand-alone dwellings going to first home buyers.”

“With loss-making owners selling and the prospect of an extended and more fraught period of trading at a loss creating a barrier to new investors, the Minister has just sped up the reduction of the supply of rental property,” Mr Butler said.

“As a result, rents will continue to rise and homelessness will increase,” he said.

The problem for everyone is that the Government is in denial that the policies it is enacting to solve a housing crisis are making the crisis exponentially worse, Mr Butler said.

Labour, New Zealand First, and the Green Party voted in favour on the third reading of the bill on June 20, while National and Jamie Lee Ross voted against it. Hansard has no record of a vote by the ACT Party.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

Retirement project turns into compliance nightmare

About 18 years ago my wife and I started worrying that we weren’t saving enough for our retirement. After reading some books about investment properties, we decided to take a gamble and take on some rental properties in locations close to our home.

Over 18 years, we purchased 9 properties in Manurewa and Takanini, renting these out to families and couples. We manage the properties. We get to know our tenants very well and have been pleased to see several of them move on to buy their own homes. Five of our properties have had the same tenants for more than five years with one couple having been with us for more than 15 years. Through the years we have spent many weekends cleaning, painting, landscaping and doing general maintenance while tenants are in place or between tenancies.

Our properties are two and three bedroom “Universal” type homes, Hardiplank or brick with Decramastic roofs, about 30 years old. Our current rents are $360 to $450 per week, our total income in rents is just enough to cover mortgage repayments, rates, insurance and some minor maintenance.

When it comes to paying for big ticket items, like new stoves, carpets, fencing and kitchen rebuilds, we pay for these out of our own savings from our day jobs. We have had security window catches fitted on all of our properties, so that they can be safely ventilated. Our tenants seem very happy living in our affordable, warm dry homes in South Auckland.

Our homes were all insulated when constructed with 75mm to 100mm blown cellulose fibre (recycled paper). This is globally recognised as an eco-option that is highly effective, with R value of 2.6 per 100 mm thickness, just fractionally under the new level required which is R2.9 for ceiling insulation in Auckland.

They all also had foil underfloor insulation where possible, which provides suitable R value insulation but is no longer in favour due to potential electrical short issues. The new government “healthy homes” legislation requires that ceiling insulation is at least 120mm thick, meaning that all of our previously compliant homes needed reinsulating. We had to sell one of our homes so that we could remedy the rest, which cost between $2400 and $3700 per house.

To add insult, we are told that we are not allowed to claim the cost of this work as an expense against our income. This beggars belief! Clearly the additional expense is only incurred because we are in the business of renting homes. This government mandated expenditure for a small change in insulation value is an unavoidable cost of being in the business of renting, so must surely be deductible? The additional work only provides minimal extra insulation and doesn’t increase the value or resale ability of the properties; to my way of thinking achieves very little for the $24k that we have spent.

Recently we were contacted by MBIE demanding that we send a copy of our Tenancy Agreement and of our Insulation Statement for a recently tenanted property. We were threatened with significant fines if we couldn’t comply, we sent through our documentation and received terse critique of the same with further threats of fines.

We are now facing more costs with the need to install kitchen and bathroom ventilation in addition to significant capacity fixed heating into our already warm, dry safe houses. The cost of this is estimated at $6k to $8k per house, we’ll need to sell another house to fund these upgrades. We have less than two years to get this work done for what will be our seven remaining homes with their 20 – 25 Year mortgages.

If 60 percent of Aucklanders are living in rental accommodation, then it follows that they all have to rent from someone. While undoubtedly there are some landlords who break the rules and take advantage of vulnerable people, we suggest that the vast majority of landlords are simply hard-working members of the community trying to save for their retirements and for their families.

The almost daily landlord-bashing stories in the news media leaves us feeling like the scourge of society, the ongoing interference in our relationships with our tenants is pushing us to sell all of our properties and get out of the business. Our existing tenants can’t afford to buy their own homes, where will they live once we exit the market?

Dale Young,

AUCKLAND

The crisis the Housing Minister created

A report yesterday of a woman, 86, moving because of a 73 percent rent hike illustrates the crisis created by Housing Minister Phil Twyford, Tenancies War spokesman Mike Butler said today.

This story of a property being sold with the new owner hiking rent from $150 a week to $260 provides evidence of the consequences of Mr Twyford’s agenda that he refused to accept – that owners would sell and rents would rise.

The new owner said that the property needed work to be brought into line with the “healthy homes” standards, which was something he “supported”.

The new owner phrased his comment as if he had a choice, Mr Butler said.

In fact, rental property owners have no choice. They either comply with the standards that were imposed by regulation and include penalties of up to $200,000 for non-compliance, or sell, he said.

The out-going tenant did not say whether or not her flat was cold and damp, as the Minister alleged all rental properties were. Her only objection was the rent hike, Mr Butler said.

The property looks like a 1970s construction which may already comply with the 1978 insulation standard which achieves the greatest heat-loss prevention, he said.

The main justification for Mr Twyford’s standards was to prevent the hospitalisation each year of 6000 children for housing-sensitive illnesses.

As a one-bedroom flat, the flat under discussion would be unsuitable for children; this illustrates the short-sightedness of setting requirements for 588,700 properties for the supposed benefit of 6000, Mr Butler said.

Mr Twyford has created a new housing crisis and now both owners and tenants are paying the price, Mr Butler said.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

See CHB 86-year-old moves out https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12238724

1 2 3 5