The year that may be

It’s been a good year for property investors in the provinces and Wellington, but less so for Aucklanders.  Speculators are no longer dominant and the Auckland property market is settling into a sideways pattern as often happens after years of double digit rises. If the typical pattern eventuates then they can expect a flat market for about five years or so.

Not surprisingly, the September ASB Investor Confidence Report showed that investor confidence in the future of residential rental investments was at its lowest level in more than four years, although it was still positive. Not surprisingly, owning your own home was seen as the most positive area for investment.

Although the building sector is still thriving, it will be interesting to see how long it will be before it slows down. One only has to sit in traffic and see the number of tradie vehicles on the road to realise how significant the construction industry is to the economy. The flip side is it also shows how vulnerable the economy is to a downturn in the building industry. Unfortunately the transition to a diversified export-led economy has not happened fast enough to reduce that risk.

The major challenge for property investors in the year ahead will be the continued onslaught of regulation.

Landlords have already been hit with insulation costs and further requirements are in the pipeline that will require every rental to have a heat source (heat pump typically) and ventilation. The regulations will not apply to owner occupied dwellings.

Then there’s the prospect of higher management costs as property managers recovery their lost income from the abolition of letting fees, and from 1 April ring-fencing will affect the four out of every 10 landlords that are making a loss from their rentals – they will not be able to offset that against their other taxable income.

In February the Tax Working Group will release its first final report on reform of the tax system. It is likely that report will extend the definition of taxable income to include gains on the sale of residential property investments. The recommendations of the Group will be considered by the government and any changes would not come into effect until after the 2020 election.

It is now very clear that landlords are responding to these regulatory hurdles by increasing rents, which is exactly what any business would be expected to do when confronted with rising costs.

On the local front, a number of councils have introduced or are considering the introduction of new taxes on short-term rental providers, like those who list their property on AirBNB.

Last year the Auckland Council introduced what it calls an Accommodation Provider Targeted Rate for web-based holiday accommodation providers. It applies business rates to those who book more than 135 nights a year, and 75% of the commercial rate for those with between 29 and 135 booking nights. It does not apply to those with fewer nights booked. Queenstown and Rotorua have a similar scheme while Tauranga, Christchurch and Westland are reported to be looking at similar systems.

One can only hope other councils don’t follow a similar path, but given their insatiable need for more money, I suspect they will. That would be a shame because tourism is so important to the local economies. AirBNB-type accommodation that meets a market need should be encouraged rather than being seen as another cash cow to milk. Moteliers are of course saying they want a level paying field, when they really prefer to keep the playing field to themselves, as it has always been. And councils are saying they have to be fair, when they really mean they want to tap into a new income stream.

It’s an important issue for  places like Northland, since there is little argument that tourism provides us with a tremendous opportunity. The greatest thing going for Northland is its coastline and lifestyle. The coastline is also the thing that council planners want to protect, which is their minds typically involves removing evidence of human activity from the landscape. It’s short-sighted thinking.

Land management is really about the best (most economic) use of land. That best use will be site specific depending on its characteristics. It will also be influenced by the “environment”, which can be broadly defined as the real world we live in.

How refreshing it would be if instead of finding new ways to restrict and tax us, our elected representatives were to say, “We encourage our overburdened rate payers to help make ends meet with a little bit of entrepreneurial activity that undoubtedly assists our reputation as a great place to visit.”

Looking ahead internationally, interest will be on the UK and how Brexit evolves, and on the US to see whether President Trump can survive the concerted effort coming from many fronts to have him removed from office.

Comments are closed.