The housing conundrum - what to do?
Page 1 of 2 5:00AM Tuesday May 29, 2007
By Brian Fallow
A housing boom that just won't quit has business leaders worried. By a ratio of two to one respondents to the Mood of the Boardroom survey say they are concerned about the affordability of housing.
Their concern is understandable. Five years of house-price rises have turbocharged consumer spending through the wealth effect, which has people borrowing and spending on the strength of their rising housing equity.
It is one of those good things you can have too much of. It has resulted in an economy seriously off balance, with spending growing faster than incomes and demand growing faster than the economy's ability to meet it.
The upshot is high interest rates and a sky-high dollar.
And with buying a first home out of reach for more people, they have one more reason to head for the airport departure lounge, compounding labour shortages.
Chief executives are split almost 50:50 on the merits of one measure mooted to cool the housing market - a capital gains tax on investment properties.
Gains people make by trading in investment properties are already taxable and, as a signal to the next commissioner of Inland Revenue and more active property investors, the Budget boosted funding for enforcing that provision.
Respondents were also split on the suggestion of getting rid of interest deductibility on investment properties. That would be a dramatic change to the tax laws.
But a milder option, dealing to negative gearing by ring-fencing operating losses from investment properties so that they cannot be offset against other income, is something officials have been looking at.
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