Probe into tax's role in housing leap urged

Landlords' ability to load up with debt and claim tax deductions should be investigated, says a researcher.

Suzanne Snively, a PricewaterhouseCoopers partner, has written a paper for the Centre for Housing Research on the subject.

She has examined the after-effects of the housing boom, in which an extra 125,000 houses and units were built and prices doubled between the 2001 and 2006 censuses.

She asked what role housing played in the economy, and called for more information about the tax system's part in fuelling New Zealanders' love affair with property.

Last week, BNZ managing director Andrew Thorburn warned of the country's $130 billion borrowings, saying we needed to become a country of savers instead of spenders.

Snively said the effects of mortgage deductibility and capital gains taxes should be examined and she wants questions asked about the role of negative gearing and depreciation in driving the housing boom.

"An area for systematic analysis in New Zealand is whether the tax system treatment of home ownership may have led households to acquire housing assets - properties to rent, second homes - in preference to other asset classes," she wrote.

Overseas trends suggested the tax system encouraged housing investment and this had led to higher loan-to-value ratios and added to house price pressures during the boom.

She called for a historical analysis and forecasts of mortgage loan-to-value ratios, saying these were needed because this was a "key knowledge gap" in our financial information.

She noted that mortgages loaned on housing assets were the biggest single liability of New Zealand's financial system.

On the plus side, the Government's 65,000 state houses were its third largest asset after electricity and road transport infrastructure, she said.

Prime Minister John Key has rejected the prospect of a capital gains tax on property investment, saying it would take "meteoric evidence" to persuade him it would work.

But the tax is seen as one way to reduce the tax advantages of rental housing, curb house-price inflation and send investment into productive sectors of the economy.

The review group is to report back this year.

Key said he would be open to other proposals to "beef up" methods of taxing property investment.

The Property Investors' Federation has denied that rental property has a tax advantage over other investments or businesses. The federation says this was confirmed in 2007 by Deputy Commissioner of Inland Revenue Robin Oliver, when he was asked by a Government select committee if there was some tax advantage for investments in rental housing.

"The claim that rental property owners are somehow ripping off other taxpayers and that a capital gains tax would level the playing field is false," said federation president Martin Evans of Christchurch.

HOW WE LIVE

New Zealand housing:

* A third of us are mortgage-free.
* A third have a mortgage.
* A third rent their places.