a dividend policy, page-19

m6tc

I do not agree with you, although your view is quite commonly put forward.

There is still a profit in building the house, regardless of who the end buyer is. If houses overall are more affordable, the end buyer may be the person who lives there. The builder will build the house at the cost required to make his margin to meet the market. If houses are unaffordable due to a skewed tax system, then the end buyer may well be an investor. The builder may indeed build a better quality of house and try and make more money, but the fact that negative gearing is available will not stop the builder building houses.

I do not accept that a lack of negative gearing will stop houses being built per se. I don't think that is rational. I do accept that negative gearing can create a more favourable housing environment, but what it does is it pushes up the prices of ALL properties, not just the ones being built. And therein lies the problem - the whole market overshoots completely due to false demand caused by tax breaks. NZ will cop it worse that Aust as we do not have a CGT and therefore our house market went up even more than Aust, so our punishment will be worse on the way. Either we get a CGT or we take the tax breaks away.

Whatever, but it is good to discuss it back and forth.

Also, joel baby, it is a very common misconception that politicians will not change the rules because they have a lot of rental properties. I hear this ad nauseum and find it laughable. The poiticians won't change the rules because ............wait for it .............. they are afraid of losing votes if the house market falls in election year. People will blame the govt. Labour in NZ probably squeezed in an extra term in govt they should not have had, but now they are going to spend 2-3 terms in opposition because they let it go on too far without doing anything about it.

NZ'ers will recall that the last politician who got in and then said "hey we need to rejig the whole financial system because it is flawed and it is for everyone's good and it is going to hurt but we need to do it" was Roger Douglas in 1984. And at the next election in 1987, they got in with a way bigger majority because of it and only crapped out when they lost their bottle at the end of 1988.

This is going to happen again now with John Key. And if he is giving big tax cuts, you can bet your bottom dollar that to offset the loss in revenue the residential property tax breaks will need to go. You can't have lower tax rates and continued tax breaks. They do not go hand in hand.