COMMENT: Back when I was a kid in the early 1960s, Flipper was an American TV show about a bottlenose dolphin in Key Largo in Florida – a kind of marine version of Lassie. Each week, Flipper would work with his owner, Porter Ricks, to resolve some sort of conflict, find a lost treasure or rescue a hapless swimmer or boatie. (I say “he”, but Flipper was actually played by five different female dolphins called Susie, Kathy, Patty, Scotty and Squirt). Like Lassie, Flipper epitomised all that was good in the world and, as a result, was a much-loved character of the times.
Fast forward 55 years and the word flipper in New Zealand triggers a very different reaction. It’s now an increasingly derogatory term used to describe somebody who buys a house with the intention of selling it, at a profit, within a short timeframe – usually less than 12 months.
Also known as traders, flippers operate across a spectrum which makes it difficult to pigeonhole them as wholly good or wholly bad for the market. At their best, flippers buy a property and renovate it – often taking great pride in their work – before bringing it back into the market in the hope of making a profit. In doing so they are helping to improve the quality of stock in the market and often extending the life of heritage homes – so there’s an argument to say that they are performing a public good.
Not so the flippers at the other extreme. These people buy houses in a hot market with no intention of doing anything other than waiting for a few months and selling back into the market and profiting from rising house prices. In my opinion, these people are leeches and are the housing market equivalent of Wall Street corporate raiders. As such, they deserve all of the opprobrium levelled at them.
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Unlike property Investors, whose long-term business model is to rent their properties and provide accommodation, (meaning that their taxable income is derived from the rent paid on those properties), flippers are in the business of buying and selling property quickly and their ‘income’ is the profit made on those sales.
As such, there’s no question that flippers should be taxed on their profit because flipping is the source of their income, but up until 2015 many of them were avoiding paying tax because of confusion over the rules.
Ashley Church: “I doubt many of us will mourn the loss of a couple of thousand flippers.” Photo / Ted Baghurst
To address this, the then National Government introduced a new tax test to ensure that those who were flipping houses were paying tax. Called the Bright Line test, the measure was intended to make sure that anyone who bought and sold a property that wasn’t their family home, within two years, paid tax on any profit. Two years was more than long enough to capture even the most tardy flipper and meant that a messy area of tax law was tidied up – but sadly, displaying their now trademark incompetence in respect of all things property, the Labour Government saw fit to extend the Bright Line test to, first five, and now ten, years – thus capturing not just flippers but also those who provide the bulk of our nations rental accommodation in their capital gains tax net.
But has the recent extension to 10 years had any impact?
There are certainly signs of a reduction in the number of people engaged in flipping property for a living. According to recent figures from OneRoof's data partner, Valocity, the number of properties sold within 12 months of being purchased has halved during the first six months of this year – from 1,620 in 2020 to 641 in the first half of 2021.
But these people were already impacted by the 2015 two-year rule and the more recent increase to five years – so the suggestion that this drop represents Mum and Dad flippers leaving the market because of the 10-year rule stretches credulity. The change is far more likely to be the result of changing finance rules and bank criteria, difficulty in sourcing labour and materials in the fraught Covid environment and a growing realisation that holding a property for the medium to long term produces a far better return on capital than a quick sale in a relatively risky venture.
It’s also worth noting that these aren’t large numbers and are unlikely to make any real impact on the market. I doubt many of us will mourn the loss of a couple of thousand flippers and, while we may lose a few more heritage homes, these numbers will be more than made up for by the increase in supply of new dwellings, over time.
What should be of far more concern is whether the Government’s ideologically driven decision to increase the Bright Line test to 10 years has the effect of reducing the stock of available rental accommodation, over time, and further pushing up the cost of renting – but the answer to that question won’t be obvious for another two or three years.
