Landlords and tenants set to lose with capital gains

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Labour proposals for a capital gains tax on investment property have been criticised as unfair on both investors and tenants, "who are going to end up paying for this."

Wednesday, July 6th 2011, 12:00AM 2 Comments

by The Landlord

The Labour party is expected to announce as part of its tax policy that if it wins the next election it will introduce a capital gains tax with varying thresholds, dependent on the property's value.

Auckland Property Investors Association president David Whitburn said any increases in costs for investors would inevitably be passed on to tenants.

"I'm worried that the rents will go up and they [tenants] won't be able to afford it," he said.

He also feared the additional tax would prompt investors to quit the market, exacerbating supply issues and pushing rents further upwards to the detriment of tenants.

"I know some Auckland tenants are paying upwards of 40% of their income on rent per week, so if we have less investors, less landlords out there, it's just supply and demand, there's only one way the rents are going to go and that's up, and I am worried that will actually hit Labour voters."

Andrew King, the Property Investors Federation president, is also opposed to the mooted tax.

"It's definitely an unfair tax, it's ridiculous. It's not just unfair on us it's unfair to the tenants because it will add to the cost of providing rental property so rents will go up. At the end of the day it's going to be tenants that are going to end up paying for this."

Unlike Whitburn however,  King does not believe the tax would force investors out of the market, though he does think it would restrict supply in other ways.

"I don't think it'll force people out, it'll keep them in if anything because they'll probably be less likely to want to sell. What it will do is stop any of them from buying any more rental property and stop new investors from coming to the market," he said.

"Eventually it'll lead to a shortage of supply."

One thing both men agree on is that any property price threshold on the tax would unfairly penalise investors in Auckland and Wellington, where historically house prices have been higher than the rest of the country.

For King however, there is one group of people that will welcome the introduction of a capital gains tax.

"The financial services industry will be probably quite happy with the idea."

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