This article was written as an editorial for Stuff newspapers.
OPINION: Those lucky enough to have bought a house in New Zealand during the past couple of years should be thankful for the wealth they have gained, rather than focus on the loss of potential future profits.
The overheated property market has led to unbridled gains during the past couple of years. In 2021 alone, the national average house price rose almost 30 per cent.
While some people have undertaken work to improve the liveability of their homes – a new bathroom here, a deck there – these DIY jobs aren’t what has been driving up property prices. They come from a mix of local government and central government decisions, along with global and macroeconomic factors that sit well outside property owners’ control.
So when Kiwi property owners complain about having to pay tax on a portion of their potential profits, it speaks to the same sense of entitlement that fast did away with Labour’s plans to introduce a more specific capital gains tax.
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On Thursday, one couple was described as “falling victim” to the bright-line test.
The family bought a piece of land for $320,000 early last year, with the intention of building a family home. But after their personal circumstances changed, they needed to sell. They were recently offered $557,000.
This tax was always intended to focus on speculators, those looking to quickly flip properties for easy profits – and data from 2021 shows it has likely succeeded as a deterrent.
But it also means this family – and others captured by the test – will miss out on a portion of profit when selling their property. That is, if they chose to sell it within five years, and it isn’t their “main home”.
This is not a failure of the law; this is the law working in the absence of a more specific capital gains regime.
Let’s not forget, this family will still gain. They stand to make hundreds of thousands of dollars in profit, because they owned an empty piece of land for a year.
Of course, it seems unfair that a family would be caught by a tax that savvy investors and mega-landlords have managed to evade for years. We should also have sympathy for this family’s unfortunate change of circumstances, and note that this is the only property they own – it was never intended as an investment property.
But as a country, New Zealand needs to shift away from the mindset that mechanisms like the bright-line test or capital gains taxes mean property owners lose something. That profit was never theirs in the first place.
This attitude towards the easy wealth accumulated through owning property in New Zealand has been a key driver in what is universally accepted as a housing crisis. It’s contributed to the lowest rate of home ownership in almost 70 years; and it’s seen wealth inequality grow.
Of course, it is up to the Government to pull levers that will reduce the pressure on the housing market. But recent efforts show it will take a range of mechanisms to do that in a balanced and effective way.
New Zealanders need to start discussing the best solutions to take the heat out of the property market, rather than refusing to engage with anything that could mean they end up a little less well off.
Along the way, it might help to redefine why home ownership matters. Surely the value lies in having a warm, dry, healthy dwelling to call a home, as opposed to an asset that can be sold for a profit.
Editorials are unbylined opinion articles, written for our newspapers by a roster of senior journalists, in consultation with editors.