a green piggy bank with a house being deposited in it on a floor of money notes
Image: Archi Banal

PoliticsSeptember 5, 2023

Why investors should be taxed for keeping homes empty

a green piggy bank with a house being deposited in it on a floor of money notes
Image: Archi Banal

Not only could it help ease New Zealand’s long-running housing crisis, but taxing investors for leaving houses vacant could be a substantial source of revenue for the government, argues taxation lecturer Ranjana Gupta.

The property market is New Zealand’s largest industry, adding $41.2 billion a year to gross domestic product. But there is a debate over how we tax houses – particularly those sitting empty despite the ongoing housing crisis.

Housing affordability is a concern for both renters and home owners. Last year, one in four rental households spent more than 40% of their disposable income on housing costs, compared with one in five households that was paying a mortgage.

A comprehensive capital gains tax has been ruled out by both major political parties.

While the bright-line rule means home owners have to pay income tax on profits from properties sold less than 10 years after purchase, this still only applies to house sales. What about those investment properties sitting empty for investment reasons?

My forthcoming research looks at the feasibility of taxing empty homes and what I found was a potential source of substantial revenue for the government.

(Image: Archi Banal)

Empty homes during a housing shortage

Around 5% of New Zealand’s housing stock – 95,000 dwellings – were considered empty during the 2018 census.

According to the Empty Homes report, roughly 10% of the empty homes surveyed were intentionally being kept empty, while 35% were empty because they were holiday homes. A further 8% were kept empty for personal use (often as a second home), 23% were empty for renovations and repairs and about 17% were vacant rentals, sometimes due to non-compliance with Healthy Homes Standards. The remaining 6% were empty for “other reasons”, which often meant they were awaiting sale.

It was not clear how much of New Zealand’s housing stock remains in the hands of overseas-based investors after rules changed in 2018 to restrict foreign ownership.

But the National Party has promised to allow foreign buyers back into the property market. Under National’s plan, foreign buyers will be limited to properties over $2 million and will need to pay a 15% tax on the sale price.

Introducing an empty homes tax

My research examines the under-utilisation of property taxes by the New Zealand government.

In the financial year 2021-22, the central government earned 4.7% of its total tax revenue from property taxes, below the OECD average of 5.7%.

But New Zealand is fertile ground for an empty house tax, which would directly impact property investors and those who have the means to own multiple properties.

An empty house tax targets home owners who let a property sit empty for a certain length of time.

New Zealand would not be breaking new ground with an empty house tax. This type of tax already exists in a number of countries.

What’s more, New Zealand has the infrastructural prerequisites needed to implement an empty house tax.

New Zealand has an existing land registry which records essential information regarding all parcels of land, bypassing the need to establish this data or to rely on self-reporting form home owners.

three houses with sky behind them. they are pretty victorian terraces but looking at them you feel almost certain that they are cold, expensive, and damp. it's just a vibe
Photo: Getty Images

A potential boon for government

Some sort of empty house tax could be a source of revenue for the government, as illustrated by cities and countries overseas.

Empty properties in Paris, France, incur an annual surcharge of 160% of the standard property rates. In Vancouver, Canada, vacant homes are taxed at 3% of the property’s taxable value and failure to pay can result in fines.

In Ireland, the empty house tax is three times the property’s existing base local property tax. And in Melbourne and Sydney, house buyers who leave a property unused for six months face an annual charge of at least A$5,500 (NZ$5,978).

These countries’ responses to vacant properties suggest that high rates and tax penalties steer investors toward more productive areas of the economy – a reason cited by policy makers in Vancouver and elsewhere for introducing the tax.

Following the Vancouver model, an empty homes tax on property in Queenstown could generate $255 million a year.

Time for serious consideration

New Zealand could take one of two paths when introducing an empty home tax.

The first option is to charge a tax of between 200% and 300% of rates, similar to Ireland. Alternatively, we could introduce a tax of 3-5% of land value, like Vancouver.

This tax could be tailored to cities and regions, with empty homes in cities like Queenstown and Auckland incurring higher charges than other areas.

The rules could exempt residential and rental properties, with an exception for holiday homes unless they are normally used for Airbnb. People forced to relocate from their residential homes for extended periods due to work requirements could also be exempted from paying the empty home tax.

To ensure the success of the empty house tax, we need to include credible measures to monitor compliance.

The revenue from an empty house tax could then be funnelled into building new homes.

Property investors benefit from New Zealand’s lack of an empty house tax. An empty house is still an asset accruing value, even without rent.

On the flip side, introducing an empty house tax will penalise land holdings for speculation, encourage property owners to enter the rental market – which could in turn increase rental affordability.The Conversation

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

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— Editor
Keep going!
Madeleine and the candidates, clockwise from top left: Tamatha Paul, Natalia Albert, Scott Sheeran, Michael Appleby, Bryan Crump, Meg Lim, Ibrahim Omer, James Shaw. Image: Tina Tiller; Pics: Toby Manhire
Madeleine and the candidates, clockwise from top left: Tamatha Paul, Natalia Albert, Scott Sheeran, Michael Appleby, Bryan Crump, Meg Lim, Ibrahim Omer, James Shaw. Image: Tina Tiller; Pics: Toby Manhire

PoliticsSeptember 5, 2023

Free waters: Political bedlam returns to Aro Valley

Madeleine and the candidates, clockwise from top left: Tamatha Paul, Natalia Albert, Scott Sheeran, Michael Appleby, Bryan Crump, Meg Lim, Ibrahim Omer, James Shaw. Image: Tina Tiller; Pics: Toby Manhire
Madeleine and the candidates, clockwise from top left: Tamatha Paul, Natalia Albert, Scott Sheeran, Michael Appleby, Bryan Crump, Meg Lim, Ibrahim Omer, James Shaw. Image: Tina Tiller; Pics: Toby Manhire

A different cast of candidates at the Wellington Central debate, but at least one tradition remains, writes Toby Manhire.

It was raining on Friday night in Wellington, but only inside, and only on those who exceeded their 45-second response times. Madeleine of the Aro Valley Community Centre fired willingly, sometimes delightedly from a pump action water pistol at offenders. Spirits were high. There was much friendly fire.

In the minutes before the Aro Valley meeting of Wellington Central candidates began, there was talk of suspending the tradition of dousing candidates who overtalk. After outcry from the audience, and somebody finding a plastic toy in the back of a “laundry cupboard”, there was a reprieve. It would not be a free-for-all from the front row of the crowd, but Madeleine would wield the watery barrel of democracy for us all. A bell was deployed for a 10-second warning. “I was going to use the piano,” said the ringmaster of this bedlam staple of the political calendar, RNZ talisman Bryan Crump. “But people are sitting on it.”

This was the first debate back in the Aro Street hall after a refurbishment that meant last year’s local body event was instead held, naturally, in a funeral home. With half an hour to go to start time the hall was already rammed. People squeezed into the corners, crouched on the floor, contorted into the kitchen. “I thought the valley had gentrified,” said Crump, staring out at the rabble. “But this is chaos.” Like everyone else, he couldn’t have been more delighted.

Outside, several dozen crowded around the opened windows; a speaker was cabled onto the tarmac, and later a microphone, so the al fresco set could ask questions. 

“Can everybody still hear out there?” asked Crump as the event ticked towards the two-hour mark. 

“Yes,” came the reply.

“Not too cold?”

“A little bit.”

Wellington Central has been won by the Labour candidate in every MMP election since the first in 1996, when Richard Prebble took the seat for Act after Jim Bolger gave National the nod – the foundational MMP drama documented so memorably in Campaign.

In 2020, Grant Robertson won the seat for a fifth time, collecting more of the vote than everyone else combined, in a field that included three high-profile contenders: James Shaw of the Greens, Nicola Willis of National and Act’s Brooke Van Velden. 

This time, all four of the above are standing again for parliament. But none in Wellington. Robertson and Shaw have both gone list-only, meaning that, should National prevail, the way is smoothed for a byelection-free exit. Willis is running over the hill in Ōhāriu. Van Velden is mounting a wedge battle on the right in Tāmaki. 

A person in a yellow hat asks a question through the window (Photo: Toby Manhire)

In their place, three candidates can claim a chance at the prize. Ibrahim Omer, an Eritrean refugee and one-term Labour list MP, has an inspirational story to tell. Scott Sheeran, a diplomat and lawyer who recently worked as an advisor for the UAE government, is carrying the National flag. For the Greens, Tamatha Paul wants to swap a seat on the council for one in parliament. 

What about Act? Who is the Prebble of 2023? There is no listed candidate for the electorate, and when the chair of the event, RNZ legend Bryan Crump, looked unsuccessfully around the room for someone from the party, Michael Appleby of the Aotearoa Legalise Cannabis Party piped up. “They asked me to speak on their behalf,” he lied. “The Association of Cannabis and Toking.”

Appleby, a human rights lawyer and Wellington institution who is now in 70s, has been campaigning for the legalisation of cannabis since the ALCP was founded in 1996, and he shows no sign of fading. He was there bright and early on Friday night, seizing an opportunity even before the event proper had started to grab the mic and deliver lengthy doggerel lamenting the result of the 2020 referendum. “For e’en though the yes vote failed / a conversation was unveiled.”

Top’s deputy leader, Natalia Albert, was first at the mic. She wasn’t after the electorate vote – she was there for the party vote, and spent much of her speaking time on the merits of “cross-party solidarity” and ”cross-party consolidarity”. The challenges of the years ahead “will not be solved by one party, and they will not be solved by one term”.

Scott Sheeran was next. “As the National Party candidate, he expected to get absolutely soaking wet,” said Crump. Dressed in a kererū T-shirt, Sheeran made a joke about Ed Sheeran, bemoaned the lack of Taylor Swift concerts under Labour and urged everyone to vote for the kererū in bird of the year. 

Sheeran grinned his way through most of what was left of the night, seeking to stay out of the firing line of both rivals and the water pistol. He closed his speech in the customary style, “Up the Wahs and Up the Nats!” “I’m really not such a bad guy,” he said at one point.

Don Franks is back on the ballot for the first time since 2008, when he won 171 votes, standing for Workers Now. His message: “The only thing we give a stuff about is low-paid workers and beneficiaries.”

It was very much a home crowd for Tamatha Paul of the Greens, and not just because she lives up the road in the valley. “I will be a hearty, strong voice for you no matter what government we have,” she said. “We need to take climate action now. We do not have time. Look at the penguins in Antarctica.”

Representing Vision NZ was Meg Lim. “Uh-oh,” groaned parts of the crowd as she was introduced. “Let her speak,” retorted others. Lim was allowed to speak through the evening, but didn’t say very much at all. Genial and bewildered, she looked a lot of the time as if she’d walked into the wrong meeting but didn’t want to cause a fuss. “A housing crisis is never good,” she said. 

Representing NZ First was Taylor Arneil. He knew what kind of crowd he was working with. He was standing because “the government has utterly failed. NCEA results are up, truancy is down,” he said, before correcting himself to roars of laughter. “Now,” he intoned, “I know you don’t like Winston.” But “at the end of the day”, he continued, prompting murmurs of contemplation, “it’s much better to have a National-New-Zealand-First government than a National-Act government.”

For most of the rest of the evening, Arneil answered questions with a sardonic: “New Zealand First hasn’t announced its policy on that yet.”

“I do not come from this land,” said Omer. “But this is my home. This is the place I belong.” Wellingtonians had “opened their arms to me”, and he wanted to return that sentiment. He accepted the Labour government could have done more, before declaring that “something needs to be done about National and Act” as a stream of water arced towards him.

Appleby managed to navigate every subject, from housing to foreign policy, back to cannabis or hemp. At the last election he amassed 401 votes – 19 short, no doubt, of his target. 

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Toby Manhire
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If it felt at times like a Green Party jamboree – one group of attendees was sharing a fruit loaf – that mood was boosted by the presence of the party’s former chief of staff and now Wellington mayor, Tory Whanau, as well as co-leader James Shaw, whose spring-loaded arm shot into the air over and over again. He ended up putting at least three questions to the candidates. He was very obviously missing the taste of rambunctious electorate debate. Disappointingly, there is no water fighting in parliament.

Speaking of which, the very day after arguing in the house that “patsy questions are a waste of time”, Shaw on Friday night asked Paul whether she agreed that voters should be aware that she was not on the list and therefore her only route to parliament was victory in Wellington Central. She did. “You’re a very naughty boy, James,” said Crump. Neither Sheeran nor Omer has a list ranking likely to return them to parliament, so it’s all riding on the electorate for them, too.

Energies had faded by about the 90-minute mark. One couple in the audience were dozing off. “I didn’t understand the question,” said Appleby, in response to what must have been the 25th audience inquiry of the night. “And I reckon it’s time we all went outside and had a nice smoke.”

Gone By Lunchtime

Live from Word Christchurch with special guest Lianne Dalziel

The trio are joined by former Christchurch mayor Lianne Dalziel to discuss the campaign so far, and what to expect from the upcoming election.

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