Diane Plant

Keith Melville is right to warn that the proposed Capital Gains Tax (CGT) is being presented as a simple solution to complex housing and fiscal problems, while its real-world consequences are being glossed over.

The key question that remains unanswered is who this policy helps.

Much of the modelling and many of the promises around a CGT rely on one critical assumption: that landlord behaviour will remain largely unchanged. That assumption does not hold.

We only need to look at the period from 2021 to 2024, when interest deductibility was removed, to see how quickly behaviour changed.

Landlords sold, new investment slowed, rental supply tightened, and rents rose.

Capital is mobile, and when the economics no longer stack up, behaviour adjusts rapidly.

Evidence from overseas, and from New Zealand’s own recent experience, shows a consistent pattern when extra taxes are added to rental properties. In the short term, some rental properties are sold as landlords exit the market.

These homes are rarely bought by struggling renters.

They are more often purchased by people with existing equity or significant savings, buyers who would likely have bought anyway.

Meanwhile, the supply of rental housing contracts.

Over time, reduced rental supply leads to higher rents.

As rents rise, saving a deposit becomes harder, not easier. At the same time, demand for owner-occupied housing increases as people try to escape rising rents, placing upward pressure on house prices.

The long-term outcome is both higher rents and higher house prices, the opposite of what is promised.

Supporters of the CGT argue it will fund three free GP visits per year.

That promise is immediate and ongoing. CGT revenue is not. A CGT raises money only when assets are sold.

Investors who intend to sell will do so before the tax comes into force, while those who remain are often long-term holders with no intention of selling for many years.

Revenue is therefore delayed and uncertain.

At the same time, reduced rental supply increases government housing costs through higher accommodation supplements, emergency housing, and greater demand for social housing.

These costs begin immediately and compound over time.

Any CGT revenue is unlikely to offset these pressures, let alone provide a stable funding base for free GP visits.

Housing policy must be judged on outcomes, not intentions. If a policy reduces rental supply, raises rents, pushes house prices higher, and fails to deliver meaningful net revenue, it does not help renters or taxpayers.

When a policy worsens housing outcomes and leaves the public finances worse off, it is hard to see why any government would pursue it.