I noted in the lead-up to the New Zealand General Election, held on 23 September 2017, that Labour had an excellent housing platform that addresses both supply and demand distortions via negative gearing reform, banning foreign buyers of existing homes, tighter capital gains taxes, removal of urban growth boundaries, plus bond financing for infrastructure. Its plan to reduce immigration by around a third is also sound, and would help to relieve chronic housing and infrastructure pressures, especially around Auckland.
Back in November, New Prime Minister Jacinda Ardern gave her ‘speech from the throne’, which confirmed that the Government would pursue its housing reforms in-full. And in December, new housing minister, Phil Twyford confirmed the timeline for these reforms in a speech to the Salvation Army.
Included in Twyford’s speech was the promise that Labour would push “the bright line test out to five years so if a speculator sells a rental property within five years they will pay income tax on the capital gain”, thus effectively imposing a capital gains tax to most housing investors.
Yesterday, Revenue Minister within the Labour Government, Stuart Nash, confirmed the ‘bright-line’ test on residential property sales will be extended from two years to five years in legislation currently making its way through Parliament, and should be in force by March. From Interest.co.nz:
“The extension of the previous government’s bright-line test will help dampen property speculation and make homes more affordable,” Nash says.
“The previous government required income tax to be paid on any gains from residential property sold within two years of acquisition, with some exceptions.
“The extension means that profits from residential investment properties which are bought and sold within five years will generally be taxable.
Nash says the changes will ensure that residential property speculators pay income tax on their gains “and makes property speculation less attractive”.
“We need investment which grows the economy and creates jobs, not the sort of investment which distorts the residential housing market. This measure will bring fairness back into the tax system.
“Reducing speculative demand will also help improve housing affordability for owner-occupiers.”
Nash says current exemptions from the bright line test will remain. This includes the exemption for the main home of owner-occupiers of residential property.
The extension to the bright-line test will apply to residential investment properties purchased from the date on which the bill receives the Royal Assent, which is expected in March.
While the proof of the pudding will be in the eating, Labour is at least attempting housing reform, which is a huge improvement on the former National Government’s do-nothing approach.