Oh, election years. Filled with big promises and energetic debate, the housing market is always a hot topic when our country's big parties make their bids for the common vote.
This year, negative gearing is emerging as a hot-button issue on all sides of politics. But for many people, it's still a difficult concept. Let's look at how it works, and what the debate is – then you might have a clearer idea of how it can work for your North Shore investment property.
When the costs outweigh the income, you're making a loss – this is negative gearing.
When you own a rental property on the North Shore, you generate rental income. When this is more than your home loan payments and costs of managing the property, you make a profit – you have positive cashflow. When the costs outweigh the income, you're making a loss – this is negative gearing.
While it sounds bad at the outset, it actually introduces a lot of benefits for property investors. Namely, the losses can be taken off your tax bill. It's a sure way to minimise short-term losses while your capital gains build, and has allowed a lot of people to invest in property around Takapuna.
However, it's also a point of contention.
This week saw negative gearing rush headfirst into the headlines, as the Labour Party made its first big announcement: removing the tax benefits of negatively geared properties.
"Losses on rental properties will be ring-fenced, meaning they will no longer be able to be used to reduce the tax that speculators owe on other income. This will create a level playing field for home buyers and help families get a fair shot at buying a place of their own," reads the media release from Andrew Little. He claims that investors skipped $150million in taxes through negative gearing last year.
Little believes this change would reduce price increases, and give first home buyers a fairer go in the housing market.
On the other hand, proponents of negative gearing say it is essential to keeping property markets, especially in Auckland, stable. Ashley Church, CEO of the Property Council of New Zealand told Radio New Zealand that it would "have a negative impact on the market", and that taxpayers would be picking up the tab.
Likewise, both National's Stephen Joyce and The Opportunities Party's Gareth Morgan believe the policy would diminish rental stock, further hurting people that can't afford to buy property.
The answer to that question is going to depend on where you stand on the housing ladder. Existing property owners can benefit greatly from the tax breaks that negative gearing offers – in combination with leveraging equity in their North Shore property, it can allow people to invest without being a millionaire (or breaking the bank).
Those yet to buy property may feel aggrieved that investors can benefit in the same way as businesses, which is said to be driving up prices.
Despite all of this, Auckland's price growth is slowing down, as we saw in our recent market report. Measures to restrict investment lending have taken hold and had the intended impact on the housing market, which could lead to a more balanced landscape over time.
But that's about all we can say for now, really – we're in the real estate business, we're not high-level economic policy analysts! If you want to talk about the benefits and drawbacks of making a property investment on the North Shore, or are even thinking of buying a new family home, give one of our agents a call.