Reserve Bank Speaks Out On Capital Gains

20/04/2015

"The Reserve Bank would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially housing investment ... Investors are often setting the marginal market prices that are then applied to the full housing stock within a regional market ... Indicators point to an increasing presence of investors in the Auckland market and this trend is no doubt being reinforced by the expectation of high rates of return based on untaxed capital gains."

Annual house price inflation in Auckland reached almost 17 percent last month, with average property prices now more expensive than in Sydney. According to Barfoot & Thompson, the median price for property in Auckland is $711,000 (AU$698,000), up 9 percent from March 2014. By comparison, the median price in Sydney is $8000 less at AU$690,000. According to separate figures from the Real Estate Institute, the median house price in Auckland rose 13 percent in the past year to $720,000, much more than the 8 percent national rise over the same period.

Spencer also addressed the housing shortage in Auckland, saying there was "considerable scope" to streamline approval processes for residential developments. Auckland is currently experiencing a shortfall of between 15,000 and 20,000 properties, with demand still high despite record prices and population growth set to keep rising due to record migration. According to Spencer, the government need to develop a more integrated approach to the planning and funding of new infrastructure projects.

The central bank imposed lending restrictions in October 2013, with high loan-to-value home loans reduced in an effort to moderate housing pressures. While this measure was initially successful, market pressures in Auckland began to re-emerge in the fourth quarter last year. Along with changes to capital gains and supply, the bank are also looking at developing a new asset class for high-risk residential investment mortgages, with Spencer saying possible changes were "consistent with the international evidence showing larger loan losses for investor loans than for loans to owner occupiers during periods of housing market stress."

According to Labour leader Andrew Little, comments by the RBNZ point toward a housing crisis, something Prime Minister John Key refuses to accept. The Green Party has also come out in support of changes to capital gains, with housing spokesman Kevin Hague calling directly for a capital gains tax to stem demand. "It's time for the Government to do what's right and stop putting the interests of landlords and property speculators over the young people who have been priced out of the housing market." said Hague.