#Morganfoundation @top_nz do not understand the transitional gains trap

It is unfortunate that the Morgan foundation economists and purported economists do not understand the concept of rent capitalisation when discussing tax concessions for housing in New Zealand.

The classic example is how restrictions on supply result in the capital value of taxi licenses going up, and now through Uber, collapsing.

The same goes with a tax concession for any particular asset. The value of the tax concession will immediately capitalise through a spike in prices.

After that, the underlying trend price growth will continue. For housing prices to continually rise, there must be a restriction on the supply of land. Tax treatment changes will only result in transitory price spikes.

There is nothing special about private homes have been an exemption from capital gains tax in New Zealand. What matters is the restriction on land supply.


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