The CGT Question Hamiltonians Should Be Asking

On the surface, a capital gains tax on investment property is an easy policy to understand. Tax some of the gains made when investment properties are sold, leave the family home alone, and use the revenue to help fund public services. If you don’t own an investment property, you might reasonably conclude there’s not much in it for you to worry about.

But there’s a problem with looking at housing policy purely through the lens of who receives the tax bill. The person paying a tax and the person ultimately affected by it are not necessarily the same person. In Hamilton, where almost half of households don’t own the home they live in, that distinction deserves more attention.

Labour is proposing a 28 percent tax on gains made on residential investment and commercial property from 1 July 2027, payable when the property is sold. The family home would be exempt. Its argument is that the current system gives property an advantage over other forms of investment and that changing the tax treatment could encourage more capital into productive businesses while raising revenue for public services.

There is a legitimate debate to be had about that. But there is another question we need to ask: what happens to Hamilton’s housing market if the tax changes the way property owners behave?

Much of our rental housing is provided by private owners, including people with only one or two investment properties. Decisions about whether to buy, sell or continue owning those properties are influenced by interest rates, insurance, rates, maintenance and compliance costs, rental income and the potential long-term return. Change one part of that equation and it is reasonable to expect some people will make different decisions.

Some prospective investors may decide not to buy a rental. Others may choose a different investment. Existing owners may sell, while others may hold properties for longer because selling is the point at which the tax becomes payable. Multiplied across a city, those individual decisions have the potential to change the housing market.

And that matters because Hamilton needs rental homes. We have students, young workers, families saving deposits and people relocating here for employment. Home ownership is an important aspiration for many New Zealanders, and reducing barriers for people who genuinely want to own should remain a priority. But home ownership is not the only measure of a successful housing market. A growing city also needs an ample supply of good-quality rental homes, in the places people want to live, at prices they can afford.

If a landlord sells and a first-home buyer purchases that property, home ownership has increased. That can be a very good outcome. The buyer may also have previously been renting, so it is too simplistic to argue that every investor sale automatically makes a rental shortage worse.

But changing the ownership of an existing house doesn’t create another dwelling. That, to my mind, is the bigger question for Hamilton: what are we doing to encourage the creation of more housing?

Hamilton is growing. We want people to move here, take the jobs our businesses are creating, study here, raise families here and contribute to the city. They need somewhere to live.

If tax settings make purchasing existing rental properties less attractive but encourage investment into building additional homes, that could ultimately be positive for Hamilton. But if they simply encourage capital to leave residential housing without enough new rental homes being created, we need to understand the consequences of that too.

That does not mean introducing a CGT will automatically cause Hamilton rents to rise. Rents are influenced by incomes, population growth, housing construction, interest rates and many other factors. But it would be equally simplistic to assume we can materially change the financial return from providing rental housing without changing anyone’s behaviour.

Nor does any of this make a capital gains tax inherently good or bad policy. Australia and Canada have taxed gains on investment property for decades and their housing markets continue to function. Their experience demonstrates why the detail matters. Tax rates, exemptions, treatment of losses and incentives for new construction can all influence investment decisions.

The debate therefore shouldn’t simply be about whether property investors should pay tax on their gains, nor should it become a contest between landlords and first-home buyers.

The more useful question is whether our housing and tax settings, taken together, will produce the homes Hamilton needs.

Almost half of Hamilton households don’t own the home they live in. They may never personally receive a capital gains tax bill, but they have a very real stake in what happens if the policy changes decisions about providing, building, buying and selling housing.

As we debate CGT this election, that is the question I’d like to hear much more about: not simply who should pay tax on housing gains, but what settings will help us create the housing a growing Hamilton actually needs?

• Investment decisions may change: Some property owners may choose to buy, sell or hold differently once future capital gains are taxed.
• Rental supply is worth watching: If investment in rental housing falls without enough new homes being built, renters could ultimately feel the effects.
•  Investor sales aren’t automatically bad for renters: When a rental is bought by a first-home buyer, that buyer may also leave the rental market.
• The real opportunity is new housing: If tax settings encourage investment away from existing properties and towards new builds, Hamilton could benefit from additional supply.
• The detail matters: The impact will depend on the final tax design and how investors, developers and the wider housing market respond.
• Renters have a stake in the debate: Almost half of Hamilton households don’t own the home they live in, so housing policy matters well beyond those who actually pay CGT.