Reserve Bank's Spencer calls on govt to rethink housing tax 15 Apr 2015
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Reserve Bank's Spencer calls on government to rethink tax status of housing investment
By Jonathan Underhill
April 15 (BusinessDesk) - The Reserve Bank
has urged the government to take another look at a capital
gains tax on investment in housing, allow increased
high-density development and cut red tape for planning
consents to address an over-heated Auckland property
market.
Deputy governor Grant Spencer said in a speech
to the Rotorua Chamber of Commerce that housing market
imbalances "are presenting an increasing risk to financial
and economic stability" in New Zealand, one of the few
advanced economies that hasn't had a major house price
correction in the past 45 years.
He said there was
"considerable scope" to streamline approval processes for
residential developments and a need for a more integrated
approach to planning and funding of new infrastructure, some
of which may be delivered via amendments to the Resource
Management Act.
“The proposed RMA reforms have the
potential to significantly improve the planning and resource
consenting processes," he said.
The government and Auckland Council could also focus on increasing designated areas for high-density housing, because building more apartments was "the best prospect for substantially increasing the supply of dwellings over the next one or two years," Spencer said.
Annual house price inflation in
Auckland reached almost 17 percent last month and the
central bank has estimated the city faces a shortfall of
between 15,000 and 20,000 properties to meet population
growth as the country experiences record migration. Spencer
said today there were "practical difficulties" in attempting
to use migration policy to mitigate Auckland's overheated
housing market and with inflation so tame, there was little
scope for monetary policy to provide assistance. However,
there were measures that could counter the growth in
investor and credit based demand for housing, he
said.
"The Reserve Bank would like to see fresh
consideration of possible policy measures to address the
tax-preferred status of housing, especially housing
investment," he said. "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 un-taxed
capital gains.”
The central bank imposed
restrictions on high loan-to-value home loans in October
2013, which had helped to moderate housing pressures and
they had improved the resilience of lenders' balance sheets.
Still, market pressures began to re-emerge in the fourth
quarter last year. With the current overheated housing
market in Auckland, it would not make sense to remove these
restrictions in the near term. To do so would invite a
further surge in credit-based demand for housing. The LVR
policy would be "removed or modified as market conditions
allow," he said, without giving details.
The bank is
also consulting on a new asset class for residential
investment mortgages that will attract a higher risk
weighting than owner-occupier mortgages, which Spencer said
was "consistent with the international evidence showing
larger loan losses for investor loans than for loans to
owner occupiers during periods of housing market
stress."
"A new asset class will see a greater
consistency of treatment for investor mortgages across the
banks and ensure that investor loans have capital backing
consistent with their higher risk," he said. "A well-defined
asset class would also facilitate the introduction of
macro-prudential policy and the bank is currently reviewing
some options."
Spencer said macro-prudential tools
alone wouldn't be enough to alleviate Auckland's housing
market constraints.
"Such tools are not a panacea –
their impact is inevitably smaller than the main drivers of
the current housing market imbalance,” he
said.
(BusinessDesk)
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