19 Jun 2018

Cap gains would cut house prices, increase ownership - study

10:23 am on 19 June 2018

House prices would fall, rents would rise but home ownership would improve if a capital gains or some other type of property tax was brought in according to a new study.

Sold sign outside a house in East Auckland

Photo: RNZ / Claire Eastham-Farrelly

Westpac Bank has looked at six possible changes to the tax system, ranging from a capital gains, property or land taxes through to a new way of taxing rental income.

A 10 percent capital gains tax, a 1 percent land tax or 0.5 percent property tax would result in house prices falling 10 or 11 percent.

A deemed rate of return, which would tax landlords on an assumed rate of return, say 5 percent on their properties, could see prices fall by 20 percent.

In all cases, the tax changes would boost home ownership rates as investing became less attractive, but would also cause rents to rise.

Westpac chief economist Dominick Stephens said the tax system was skewed to the advantage of property investors and distorted the housing market.

"The tax advantages property investors have enjoyed over first home buyers have led to a reduction in the rate of home ownership.

"If you levelled the playing field between first home buyers and property investors you would find first home buyers were able to win at auction or tender more frequently and the home ownership rate would rise."

The study showed that rents would rise between 1.6 percent and 9.6 percent.

Mr Stephens said the analysis did not necessarily mean prices would drop straight away, and it was possible they would stay flat over time rather than rise in the absence of the tax.

The government has set up a tax working group to look at wide ranging reform options for the taxation system. The government has said that any capital gains tax would not apply to the family home.

Get the RNZ app

for ad-free news and current affairs