The New Zealand government has come down on real estate speculators with an array of new measures to slow skyrocketing house prices in hopes of preventing the development of a "dangerous" housing bubble.
The government will end multiple tax incentives at the hands of investors, with a goal of making speculation less profitable and free up more land to increase housing inventory, announced Prime Minster Jacinda Ardern. These sanctions are brought up as realities first-time buyers and lower income buyers face in getting priced out of the market.
“The last thing home owners need right now is a dangerous housing bubble, but a number of indicators point towards that risk,” Ardern told a news conference. “Property investors are now the biggest share of buyers, with the highest amount of purchases on record. Last year, 15,000 people bought homes who already owned five or more.”
New Zealand's solid handling of Covid-19 has lead to its economy recovering faster than most, while leading the pack of a global real estate craze. House prices have increased a whopping 21.5% this year through the end of February. Investors made up for more than 40% of the purchases last month, an all-time high since such data has been tracked.
These new measures are Ardern's latest strategy to impede the booming of the property market, which undoubtedly puts a spoke in her wheel of reducing societal inequality, one of her most notable principles. The national median has jumped to NZ$780,000 (686,000 CAD). Auckland has become the fourth least affordable city in the world, with a median price of NZ$ 1.1 million.
To deter property speculation, the government will disable investors' ability to claim mortgage interest as a tax-deductible. It will also extend the taxation period from five to ten years for profits of investment property sales.
Finance Minister Grant Robertson announced plans of changes last month - where the Reserve Bank will keep a much closer eye on the housing market when setting policy. He urged the Reserve Bank of New Zealand to evaluate restrictions on interest-only mortgage and an implementation of a debt-to-income ratio for investors. As Robertson announced yesterday New Zealand has become the least affordable city in the OECD - "it is essential the government takes steps to curb rampant speculation."