Documents reveal recommended 'Auckland Investor Levy' in bid to lower house prices

Documents showed officials recommended an "Auckland Investor Levy" of 1 per cent to be charged on the capital value of all rental properties in the city. Photo / Doug Sherring

Treasury has told Government to consider a tax on Auckland rental properties in a bid to dampen property speculation and lower house prices, according to Budget documents released today.

The documents showed that officials recommended an "Auckland Investor Levy" of 1 per cent to be charged on the capital value of all rental properties in the city.

The temporary tax would apply to all rentals regardless of whether they were investor properties or owner-occupied, and revenue would go to Auckland Council.

Finance Minister Bill English's office said Government was not considering the levy, and had not discussed it with the Auckland Council.

The recommendation was part of a briefing paper prepared for Mr English, who had asked officials to "quickly report back on three tax options" which could be introduced on Auckland property "in the very near future".

Some of the tax proposals in the briefing paper were announced in May's Budget - a "bright line test" requiring tax to be paid on any property re-sold within two years, greater funding for enforcement, and a requirement for an IRD number when purchasing a property.

Treasury also said the minister should "consider progressing" an Auckland investment levy alongside these measures, after discussing its feasibility with the Auckland Council.

"Such a levy would reduce the overall return to residential rental property investment in Auckland and should therefore reduce demand for dwellings from investors," officials said.

"We would expect this to lead to lower house prices ... and a higher home ownership rate as owner-occupiers replace investors as the original buyer."

Discussing the likely impacts of the proposed levy, officials said the rental market would shrink both in terms of supply and demand. Some renters would become homeowners but because the supply of rental properties would fall, rents were likely to rise.

Treasury said an Auckland-specific levy could be justified because of the "very high" house price growth in Auckland.

It could also be justified "on the basis of a large proportion of Auckland rental property gains being untaxed because those returns come through capital appreciation rather than rent".

Any revenue could be made available to Auckland Council for spending on growth infrastructure on housing. Funding for roading and transport around new housing developments is currently a major sticking point between Government and Auckland Council.

Labour's housing spokesman Phil Twyford said the levy was "probably worth considering".

"It shows that at least the officials seem to have grasped how serious the housing crisis is in Auckland and they are examining all the options," he said.