COMMENT: KiwiBuild is on the ropes.
The Opposition has called on the Prime Minister to dump the minister in charge, saying the $2 billion the Government allocated KiwiBuild in last year's Budget had produced just 33 houses in 12 months.
Some have criticised the program as middle class welfare, saying the $180,000 household income threshold is too high.
The lack of interest in the eligibility ballots and the fact that KiwiBuild homes are selling for not much less than market price suggests the Government will have to make radical changes to their centrepiece housing program.
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All of this has dominated the headlines but what has gone under the radar, and passed without much comment, is the penalty the Government imposes on KiwiBuild buyers if they sell their house within three years of purchase - 30 percent of capital gain.
This was reduced from 100 percent of the profit last year - but it is still a heavy penalty that no other first home buyer in New Zealand faces.
Although KiwiBuild prices are capped - $650,000 in Auckland and Queenstown-Lakes and $500,000 for the rest of the country - the Government clearly states on its KiwiBuild website that KiwiBuild homes "are not subsidised. They are sold at market prices."
The Government isn't building the homes - private developers are doing that. All it is doing is, according to the KiwiBuild website, "helping developers achieve a more affordable price-point by underwriting a portion of a development and encouraging them to use land efficiently. This reduces a developer’s holding costs and allows them to build faster and more efficiently."
So if the Government is not subsidising KiwiBuild homes with taxpayer money, why does it think that imposing a form of capital gains tax on KiwiBuild buyers is fair?
For example, if a first-home buyer purchased one of the 175 KiwiBuild homes in Te Kauwhata then found the commute time to Auckland too much, the penalty rate could in effect anchor them to a home that doesn't work for them.
If they wanted to relocate closer to Auckland and the market had risen, they then could not afford to relocate, having been priced out of the Auckland market by a capital gains tax.
It appears the Government is keeping the 30 percent capital gain for no outlay other than arranging a home in the first place, which raises the question: is it looking to fund KiwiBuild by taxing first-home buyers?
Housing Minister Phil Twyford has categorised the 30 percent clawback as a penalty for "breach of contract" but the policy can't be to curb flipping as last year's extension to the bright-line test was supposed to deal with that.
The bright-line rule means that you pay tax when you sell a residential property within five years, unless an exception applies. The main exemption is that the tax does not apply if you are selling your "main home". The main targets of the rule are investment properties, secondary homes and vacant properties. Property gains are included as income in the income tax return and taxed at the ordinary marginal tax rates.
In fact, this could be as much as for four years from the date a first-home buyer signs up to a proposed development. Meanwhile, a first-home buyer who buys a home outside of KiwiBuild, and potentially paying a similar market value price, is not subject to a clawback.
If KiwiBuild is in place to increase the supply of affordable homes in parts of New Zealand where there is a shortage, then the reselling of KiwiBuild homes within the three-year window would not reduce the supply of housing in the market.
And because the homes are being sold at market value - the gain or losses on the homes would be in line with the rest of the market.
If the homes are being offered at “market prices”, wouldn't a first-home buyer be better off passing up on a KiwiBuild home and buying one of the balance houses off the developer? That way, they would keep any capital gain like every other home purchaser in New Zealand, should they choose to sell.
For a government committed to improving home-ownership, the clawback seems to be a wrong-headed way of doing so. Twyford would be wise to revisit this aspect of the policy.
