Meme credit: Technomage

What a joke Kiwibuild is turning out to be. It was supposed to be a programme to build houses for families who are ‘locked out’ of the property market but instead provides housing for upwardly mobile middle-class couples who don’t need any kind of subsidy. The properties had to be for first-time buyers and had to be used as a principal dwelling. They were also not allowed to be sold for at least 3 years but then it was announced (or rather slipped under the radar) that houses COULD be sold within the first 3 years, but if they were, there would be tax payable of 30% of the capital gain.

For most people, as the houses are built at a significant discount, that would probably still be worth doing if they wanted to sell within the first 3 years. Contrast that with the fact that, if someone buys a rental property and sells it within 5 years, the Bright Line Test requires that they pay tax on all of their capital gain earned within that time.

The argument given is that people’s circumstances might change and that it is punitive to tax them on a gain made because they were forced to sell but exactly the same situation may apply to people forced to sell within 5 years under the Bright Line Test, and there is no leeway there at all.

But wait! There’s more… and it just gets worse and worse.?Newshub?reports: quote.

Newshub can reveal more details about how KiwBuild owners can use the scheme to make some serious cash.

The Housing Minister is defending his decision to soften the penalties for those who flip the houses. But what about those who don’t even live in them, and rent them out instead?

“I wanted to clarify one or two things in relation to the Newshub story last night,” he told reporters.

“To require that the owner forfeits the entire capital gain would be unfair in our view, and would likely mean that they would struggle to then go on and buy another home.” end quote.

Them’s the breaks, as they say. Everyone who goes into the Kiwibuild ballot knows what the rules are. But wait until you read this. quote:

There’s more; it’s not just selling, but renting KiwiBuild homes. Buyers are supposed to live in the house for three years, not rent it without permission.

Documents obtained by Newshub show if they do – and they’re caught – they’ll only be penalised 30 percent of the income and get to keep 70 percent. end quote.

So the government that has bashed landlords almost out of existence is going to allow Kiwibuild houses to be rented out and will allow 70% of the rental income to be kept. What mugs we taxpayers are. quote.

The Minister was at pains to justify his backdown. The rules are:

  • KiwiBuild buyers can only sell within three years with permission. If you get that, you keep all the profits.
  • If they’re caught selling without permission, the government can stop the sale.
  • If the sale does go ahead, the buyers are only liable to hand over 30 percent of the profit. end quote.

The thing is that there are discretionary clauses within the scheme that allows for individual cases to be reviewed if a property really does need to be sold, so there is no apparent need to relax the rules any further. Also note that penalties will be applied only if caught, which means that some property sales or rentals may slip under the radar but that is not the real problem here. The problem is that these houses should not be rented out in the first place under any circumstances. Kiwibuild was always supposed to be about providing homes for families, not assets for speculators.

I’ll bet there will be a rush to go into the ballot for those Kiwibuild homes in Wanaka and Queenstown now, seeing that they can be rented out. Buyers will get a property at a discount, rent it out to tourists on AirBnB, keep 70% of the rental income and then be able to sell after 3 years and keep the entire capital gain unlike those property owners affected by the Bright Line Test. This is a major anomaly in the tax system that needs to be corrected immediately.

The only conclusion that can be drawn from these major concessions to the scheme is that Kiwibuild is an abject failure and the government, and particularly Phil Twyford, is well aware of it. I guess the failure of the ballot for property in Queenstown was a signal that the scheme is not going well, and as Auckland house prices have begun to ease off, it is quite possible that the sort of people that can afford Kiwibuild property can afford to buy now anyway.

Families on low to middle incomes are locked out of the property market, as they always were, and if you think about it, this must mean that the potential buyers for Kiwibuild houses are not numerous. It is one thing to put your name into a ballot, but quite another to actually qualify and then buy a house. Some of the Kiwibuild houses probably don’t appeal to all buyers and let’s face it, with prices around the $650,000 mark, most buyers who qualify have plenty of choices anyway. That is the trouble.

So it appears the government is worried that it has guaranteed the sale of a large number of houses that may not be sold. Remember that there is $2 billion of taxpayers’ money allocated to Kiwibuild. Thus, they are having to mitigate their position. Relaxing the rules around selling or renting out the properties make them much more attractive to potential buyers, but make a complete mockery of the scheme. Let us rename the entire programme for what it really is. Kiwifarce. Coming to a town near you.