Last week I mentioned 7 ways I thought could be implemented to help solve the housing crisis. This week I want to turn to the idea of foreign and local investments.
Let me state at the outset that I am not against foreign investments. As we are part of the global economy they play an important role in the New Zealand economy. However, unlike some of the rhetoric that has come from the right about investments and the housing crisis, I do not believe that foreigners buying up our housing stock can be called foreign investment. The problem is that buying up land and houses directly contributes to our housing crisis and adds little or no value to the economy. The house is purchased, and the investor sits on it until they are ready to move their money on. Under our current tax regime, that is an easy thing to do with no consequences. Any profit can be taken out of the country without any tax being paid. How does that help New Zealand? Not only does it push up house prices and reduce the housing stock available, it also denies money flowing into our small and medium sized businesses which are an important and significant part of our economy.
What would be better is to discourage foreigners who want to invest in New Zealand from purchasing our housing stock. One way this could be achieved is by some form of capital gains tax and a tax on money leaving the country. Not only would this be fair, it would also bring us in line with other countries around the world. In addition, it is important to incentivize investing in New Zealand businesses, thus encouraging money out of our housing stock and into the business sector, thus growing businesses and growing our economy. Whilst I am not sure how this could be achieved, some ideas could be a rebate on money invested in small and medium business, or a reduced tax rate. The point though is that with proper investment, our small and medium sized businesses, which are significant contributors to our economy, could grow resulting in more people employed, exports increasing and more money brought into our economy. We would all benefit. With the current situation, the only ones who benefit are the speculators buying up the housing stock.
In the same way, we can also incentivize Kiwis to put their money into small and medium sized businesses. We as a nation seem to be allergic to investments outside of property but we need to turn this around so our economy can grow and strengthen. It would also help make our economy more resilient as money flows into more diverse sectors. Like with foreign investments we could incentivize by offering rebates or reduced tax on investments in our small and medium business sector.
The one thing we can’t do is nothing. We can no longer keep putting our collective heads in the sand, denying the existence of a problem. That will only result in the housing balloon expanding until it pops.
Let me state at the outset that I am not against foreign investments. As we are part of the global economy they play an important role in the New Zealand economy. However, unlike some of the rhetoric that has come from the right about investments and the housing crisis, I do not believe that foreigners buying up our housing stock can be called foreign investment. The problem is that buying up land and houses directly contributes to our housing crisis and adds little or no value to the economy. The house is purchased, and the investor sits on it until they are ready to move their money on. Under our current tax regime, that is an easy thing to do with no consequences. Any profit can be taken out of the country without any tax being paid. How does that help New Zealand? Not only does it push up house prices and reduce the housing stock available, it also denies money flowing into our small and medium sized businesses which are an important and significant part of our economy.
What would be better is to discourage foreigners who want to invest in New Zealand from purchasing our housing stock. One way this could be achieved is by some form of capital gains tax and a tax on money leaving the country. Not only would this be fair, it would also bring us in line with other countries around the world. In addition, it is important to incentivize investing in New Zealand businesses, thus encouraging money out of our housing stock and into the business sector, thus growing businesses and growing our economy. Whilst I am not sure how this could be achieved, some ideas could be a rebate on money invested in small and medium business, or a reduced tax rate. The point though is that with proper investment, our small and medium sized businesses, which are significant contributors to our economy, could grow resulting in more people employed, exports increasing and more money brought into our economy. We would all benefit. With the current situation, the only ones who benefit are the speculators buying up the housing stock.
In the same way, we can also incentivize Kiwis to put their money into small and medium sized businesses. We as a nation seem to be allergic to investments outside of property but we need to turn this around so our economy can grow and strengthen. It would also help make our economy more resilient as money flows into more diverse sectors. Like with foreign investments we could incentivize by offering rebates or reduced tax on investments in our small and medium business sector.
The one thing we can’t do is nothing. We can no longer keep putting our collective heads in the sand, denying the existence of a problem. That will only result in the housing balloon expanding until it pops.
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This is part 2 of a 4-6 part series. See Are We Really Serious About the Housing Crisis for the summary. Next week, Capital Gains
Tax - Not the Silver Bullet but a start. In later blogs I'll look at Financial Education, increasing the current housing stock and
finally why I believe we should be focusing more on going up rather than
out, particularly in Auckland.
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