Ring Fencing Matters

[Davo36]

^^^^
tl;dr...

[Don't believe the Hype]

The question was asked "why should landlords not be able to offset losses against other current income, when all other businesses can". I set out to answer that question, by showing that landlords are not productive businesses in the way that other businesses are, so it is not unreasonable to have laws that a slightly different for landlords, compared to other businesses.

Whether you agree with my answer isn't really relevant - that's my answer to the question. So far no-one has convinced me that a landlord buying a property that would otherwise have gone to an owner-occupier means that landlord is running a productive business.

You're suggesting that that I'm "sticking to my guns no matter what", as if I an incapable of changing my opinion or mind on anything, when actually I am fully capable of changing my mind, when a sufficiently persuasive argument is presented. Nothing presented in this thread has been persuasive.

Note that I have already stated that landlords can offer a service in the case where they are renting properties to people unable or unwilling to buy houses and they are offering a service when they construct a house that otherwise would not have existed. I think Labour's policy should have a carve out period of 2-5 years for newly constructed dwellings to be used as rentals, and such carve-out would seem to be fairly easy to implement and fairly difficult to abuse. It is possible to support a political party's policy, even if you don't agree with all of the details or think it could be tweaked, you know.

So really all that remains to be argued against my position, is that a landlord is somehow doing someone a favour when they buy a house and rent it out to that same person who wanted to buy it, but couldn't quite afford the mortgage payments / deposit compared to what the landlord was willing to offer the previous owner that they were able to get finance with a bank for. If the rental is cashflow positive from day 1, then the landlord is definitely not providing any service to the otherwise owner-occupier. If the rental is making a loss from day 1, then the fact that they're effectively subsidised by the government for their losses at 30-33% rate puts them at an unfair advantage compared to the owner occupier.

i think you should take it one step further, renting properties out should be outlawed and all andlords thrown in Jail

the irony in that being we'd then be tenants of the crown.

[Lanthanide]

So much for trying to have an intelligent debate about actual proposed policies by a major political party.

[Keys]

OK. You two have had enough on this thread for a while. I suggest you take a break. Please.

[sidinz]

So far no-one has convinced me that a landlord buying a property that would otherwise have gone to an owner-occupier means that landlord is running a productive business.

......
Note that I have already stated that landlords can offer a service in the case where they are renting properties to people unable or unwilling to buy houses

Here is a major flaw in your argument and the irony is that you know it, as can be seen by the second quotation. Most properties that landlords buy would not have otherwise been bought by an owner-occupier. It would not make good business sense to do so as A) they tend to be in higher capital gains areas, and thus cashflow negative and B) being desirable by owner-occupiers makes the price too high for investors. Investors need to get their properties at a good price to make money and competing against starry-eyed home buyers doesn't allow that. I also don't see too many OOs buying blocks of flats, which several on here own.

[Lanthanide]

Here is a major flaw in your argument and the irony is that you know it, as can be seen by the second quotation. Most properties that landlords buy would not have otherwise been bought by an owner-occupier. It would not make good business sense to do so as A) they tend to be in higher capital gains areas, and thus cashflow negative and B) being desirable by owner-occupiers makes the price too high for investors. Investors need to get their properties at a good price to make money and competing against starry-eyed home buyers doesn't allow that. I also don't see too many OOs buying blocks of flats, which several on here own.

Hard to agree with that. The properties that landlords want are often the same ones that owner-occupiers would buy for their first home, so they can get a foot on the property ladder etc.

Yes, owner-occupiers are unlikely to want to buy units in a block of flats, but as I mentioned already, those are the landlords who are providing actual services - to people who can't or don't want to buy.

A) they tend to be in higher capital gains areas, and thus cashflow negative

Are you suggesting that there haven't been investors buying houses in Auckland, holding them for 2-3 years and re-selling for big profits? Some houses are bought and re-sold within days or months; a few houses have been bought and sold 4+ times in 12 months, by investors getting the capital gains.

If you're taking the angle that 'true' landlords don't buy cashflow negative properties, then Labour's policy won't have any impact on these true landlords whatsoever, so then there's nothing to worry about.

[eri]

if the little kill-joys

want to shut down unproductive speculators

they should start with casinos and race betting

not long-sighted investors

providing essential services

...

cue tortured rhetoric

on why blowing your salary at the pokies

serves the public better than

buying a rental for your retirement

[Lanthanide]

if the little kill-joys

want to shut down unproductive speculators

they should start with casinos and race betting

Casinos and race betting are forms of entertainment. They are productive. If people didn't want to be entertained in those ways, they wouldn't spend their money on them.

Saying a business is productive or unproductive is NOT a value judgement, despite you and others trying to view it through that lens.

not long-sighted investors

providing essential services

Buying houses that owner-occupiers would have bought is not providing an essential service.

[Don't believe the Hype]

Are you suggesting that there haven't been investors buying houses in Auckland, holding them for 2-3 years and re-selling for big profits? Some houses are bought and re-sold within days or months; a few houses have been bought and sold 4+ times in 12 months, by investors getting the capital gains.

of the roughly 400,000 houses in Auckland, how many cases of speculators flipping property in short periods of time ... 1% would mean 4000 such flips... or about 11 per day...

so developing a policy to impact 396,000 house owners because of 4,000 opportunistic sales seems like the tail wagging the dog

[Lanthanide]

of the roughly 400,000 houses in Auckland, how many cases of speculators flipping property in short periods of time ... 1% would mean 4000 such flips... or about 11 per day...

so developing a policy to impact 396,000 house owners because of 4,000 opportunistic sales seems like the tail wagging the dog

The policy is not developed because of speculators flipping property in short periods of time. Preventing these people from claiming losses is hardly going to stop their behaviour, when the rewards on offer are in the 5-6 figure range for little risk, when they'll have to be paying tax on those sales anyway.

That was simply a reply to sidinz, who suggested that landlords never buy properties for capital gains. Laughable.

cue tortured rhetoric

on why blowing your salary at the pokies

serves the public better than

buying a rental for your retirement

Last edited by eri; Today at 07:44 PM.

Nah, you're conflating entirely different things. Pokies and horse racing are entertainment. You should compare them to other forms of entertainment that people get judgemental about, such as buying fast cars, boats to go fishing or going out clubbing every weekend.

Buying a rental property is an investment. We should compare that investment to other types of investment, such as starting your own productive business, or investing in the share market into other productive businesses, or just keeping your money in the bank to earn interest.

[eri]

buying a rough old house and doing it up

is far more productive than putting the same sum on the trifecta at trentham

how do you define which property an owner-occupier would buy?

certainly no owner-occupiers seemed to want the small apartments i bought in 2008

perhaps some do now?

but then again, maybe not at current value

when you've missed the bus

can complaining

force the world into reverse

so you get a second chance?

[Lanthanide]

buying a rough old house and doing it up

is far more productive than putting the same sum on the trifecta at trentham

They're also completely different, since one is a form of entertainment.

Buying a house and doing it up is a service on par with building a new house, which I've previously identified as being productive. Renovation is a slightly greyer area though, since in decades gone past, a good way to get on the property ladder was to buy a cheap house, do it up and sell it. There's certainly been lots of out-of-touch advice from oldies to youngsters telling them not to expect to own their parents houses, and how they had to buy up crappy houses and spend all their time doing them up etc.

how do you define which property an owner-occupier would buy?

certainly no owner-occupiers seemed to want the small apartments i bought in 2008

maybe some do now

but probably not at current market value

And that's why landlords buying houses are not productive businesses in the way that businesses that actually provide NEW goods and service that people want, are productive.

All you've done is used access to capital that you had in the past, to buy an asset, and sit on it, earning rent from it. Assuming your properties are cashflow positive right now, it means the mortgage payments would be less than the rent a tenant pays. I'm sure your tenants would love the chance to buy the property today and pay the same weekly mortgage payment that you are.

In other words, the capital gains you've achieved since 2008 weren't through any effort on your own part -> you didn't create any value, you're simply taking rents off people by virtue that you had access to capital in the past, and chose to invest it into rental properties, and you got lucky that prices have gone up so much since then. No one in 2008 could predict the GFC and it's impacts, the low mortgage rates that resulted, the massive migration we've had and capital flooding out of China driving prices up. The capital gains, particularly the extent of them, are to a very large degree, simply dumb luck.

when you've missed the bus

can the world be forced into reverse

to help you try and catch it this time?

And yet no one is proposing any policy to reset house properties to how they were a decade ago.

Labour has proposed a policy that will target landlords who run cashflow negative properties, who as I have established, are not productive businesses.

TOP party has produced a policy that assumes all assets should be generating 5% return per year, and will tax them on that basis. TOP's policy would not only target those with cashflow negative properties, but also those who are only marginally profitable. TOP's policy is on the basis that all investments should be productive, so that big tax cuts can be given to salary and wage earners.

[Don't believe the Hype]

The policy is not developed because of speculators flipping property in short periods of time. Preventing these people from claiming losses is hardly going to stop their behaviour, when the rewards on offer are in the 5-6 figure range for little risk, when they'll have to be paying tax on those sales anyway.

That was simply a reply to sidinz, who suggested that landlords never buy properties for capital gains. Laughable.


Nah, you're conflating entirely different things. Pokies and horse racing are entertainment. You should compare them to other forms of entertainment that people get judgemental about, such as buying fast cars, boats to go fishing or going out clubbing every weekend.

Buying a rental property is an investment. We should compare that investment to other types of investment, such as starting your own productive business, or investing in the share market into other productive businesses, or just keeping your money in the bank to earn interest.

i find this reference to non productive business an interesting idea... i the past 12 months I've paid 10% of my rent in property management, 7% on maintenance ranging from plumbers to electricians to gardeners and handymen/women. Not the mention the interest payments that end up in the pockets of bank depositors after the banks have clipped the ticket. All (except the bank depositors) have employment because I am spending money to pay them for the services they provide... at last count I have a team of 30 contractors who to some extent rely on the work I give them and the payments I make to some extent cover the costs of running their families... based on roughly 2.3 people per family this is around 70 people who have food on the table and clothes to wear and finds to cover their mortgage or rent because of the productive work I offer them as the owner of many properties.

As a landlord I can't do much of this work myself, however if these houses were owner occupied there is every chance than most of the work would be completed by the good old DIY Kiwi Man of the house except for any work that must be completed by a professional ( I.e hot water cylinder repairs)

Can you explain to me again how this business of mine is unproductive?

[Lanthanide]

i the past 12 months I've paid 10% of my rent in property management, 7% on maintenance ranging from plumbers to electricians to gardeners and handymen/women.

An owner-occupier of the same property could have spent all of that money too. That is another element of why landlords are not doing anything productive - you're not doing things differently to the owner occupier who would own that same house.

In fact, you may even be spending LESS money into the economy than an owner occupier of the same house would. OO's like to redecorate, do landscaping, re-paint rooms and update the kitchen and bathrooms. Landlords do those things much less often, and often spend as little as possible when they do do it, so as to maximise their returns.

That's before you even take into account, that if the property is cashflow positive, you are charging your tenants more money than it would cost themselves to live there.

If the tenants are saving $30-40 per week because they're not lining YOUR bank account, they'll either save that money themselves, or spend it into the economy themselves - that's a coffee a day for a week, even with the very modest profit of $30-40 per week that's no longer going into your pocket.

[Bob Kane]

Note that I have already stated that landlords can offer a service in the case where they are renting properties to people unable or unwilling to buy houses and they are offering a service when they construct a house that otherwise would not have existed.

Can I shorten that to this:
"landlords can offer a service in the case where they are renting properties to people unable to buy houses"
Conclusion A: If the tenant can't buy the house then the landlord is offering a service.

So really all that remains to be argued against my position, is that a landlord is somehow doing someone a favour when they buy a house and rent it out to that same person who wanted to buy it, but couldn't quite afford the mortgage payments / deposit compared to what the landlord was willing to offer the previous owner that they were able to get finance with a bank for.

Can I shorten that to this:
"So really all that remains to be argued against my position, is that a landlord is somehow doing someone a favour when they buy a house and rent it out to that same person who wanted to buy it, but couldn't quite afford the mortgage payments / deposit "
Conclusion B: The landlord is not offering a service if the tenant can't buy the house.

There seems to be a conflict between conclusion A and conclusion B.

I think you're arguing the landlord is not offering a service if the landlord is stopping the tenant from buying the same house?
I wonder how often that happens?
Maybe never or 1%?
All the remaining times the landlord is offering a service?