As you do
From Stuff, where GJ Gardner are asking for a GST exemption for their industry
“For example, if the average Kiwi purchases a house worth $600,000, they end up paying $90,000 in GST.”
That’s not a house+land worth $600k, that’s just the value of the new building. In Auckland, the ratio of land to building value averages about 60:40, so you’d expect that to be $1.5 million of real estate. The average Kiwi isn’t quite buying at that level.
At that 60:40 ratio, even if there were no increase in construction costs as a result, the impact of removing GST would be to reduce the price of new homes by about 5%. Auckland prices have increased by twice that much this year already, so it’s not going to solve the problem. In fact, the price reduction would almost certainly be smaller than that — if prices are constrained by available money, and GST is decreased, people will spend some of the savings on more expensive construction.
GJ Gardner are right that the only solution to housing prices is more homes, but in Auckland it’s either going to be necessary to decrease the price of land or reduce the amount of land a home occupies to have a big impact on prices.
Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »
Agree. Worse, once we start zero-rating stuff because it’s seen as meritorious, where do we stop? This kind of thing wrecks the whole tax system.
11 years ago
“impact of removing GST would be to reduce the price of new homes by about 5%. Auckland prices have increased by twice that much this year already, so it’s not going to solve the problem.”
Things are worth doing of they put a dent in a problem. It’s very rare that one policy solves an entire problem completely. Not that I know much about this specific idea.
“reduce the amount of land a home occupies”
Yes please.
11 years ago
Sure, if the policy had no cost, a <5% improvement only for newly-built homes would still be a step in the right direction.
But this policy would be a hole in the uniformity of GST, and would be a subsidy for relatively wealthy people at the expense of the rest of the country. At that price, I'd want a much bigger impact.
11 years ago