I'm not surprised by the left's enthusiasm for new property taxes. "Soak the rich" is enough policy analysis for them – whether or not it hurts the poor more than the rich.
Catherine Harris in the DomPost last weekend put some of the landlord's case. But it would not persuade anyone driven by righteous joy in punishing the moneyed classes, and it did not explore the possible effect on tenants.
With my self taught economics I've been puzzling the apparent lack of public concern about what will happen to rents if and when the alleged taxpreference or subsidy for ownership of rental housing is removed.
As I understand things when we subsidise suppliers we usually get more of their product than market demand alone would produce. Supply is artificially high and prices to consumers are artificially low.
So why would rental housing be any different?
Yet I've seen plenty of confident assertion that assumes the property market is different – somehow prices are driven to unsustainable levels by the artificial demand created by tax preference. I could perhaps buy that in relation to property for which there is finite supply, say for the best locations. But why should it apply to property generally, when there are hundreds of developers, and thousands of builders just waiting for the signals to produce more housing, and more rental housing in particular if there are landlords to buy them for more than they cost to build?
Business journalists have uncritically reproduced the theory that changing the tax treatment of property investment will steer New Zealanders toward more "productive" investment. Not so many have added the second leg – that as a consequence property prices will fall to become more affordable, but that seems to underlie much of the political enthusiam for the Tax Working Group's focus on property.
But will prices fall, at least in the rental market, if rent already provide a return that is better than bank interest rates? If more people need to rent, and the supply falls over time, as it might if it is correct that landlording has had a subsidy which will go, will rents not rise?
I think our 'unaffordability' of housing (it now takes over 6 times the average wage vs the 3 times that was the previous long run average) has nothing to do with tax preference. Indeed it may have been masked by it. Instead the problem is strictly the result of the mad RMA and the panicky regulatory reaction to leaky homes, which together have doubled the cost of new building.
Why is the left not panicking over the coming housing shortage?
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I have also pondered this in a vague sort of way. A great deal of rent is currently paid for with the accommodation supplement (a $billion annually ). If rents rise as a result of a property tax, under this government's approach of compensating the 'poor' for any rise in their living costs, the accommodation supplement will also have to go up. How much of the extra revenue raised will be offset by the extra expenditure?
The Left puts up two irreconcilable demands. As you put it "soak the rich" and subsidise the poor. But while the landlord has freedom of pricing nothing has been achieved except more cash transfer. The same happens with employment. While on one hand the Left wants workers topped up be the state, they also rail against subsidising the employer. Hence a minimum wage is legislated.
So don't be surprised if the Left start talking about a maximum rent. If National go down this road they will have to contend with this demand, and as Mr Key has already fiercely asserted that the 'poor' will be compensated for any rise in GST, he will be in a very weak defensive position.