Are crowds right?

Over the last few years there has evolved a new business funding tool called crowdfunding. In the past new and small businesses that could not access bank and/or finance company funding would turn to what are commonly called the three F’s: family, friends and fools. But with crowdfunding, which has recently been given limited government approval, small businesses can turn to a wider audience for funding, without having to go through the expensive regulatory process of an IPO.
But does turning to a crowd for funding give a business any greater guarantee of success? Just because a whole bunch of random people choose to put money into a project or business, does that mean it will necessarily work?

We could ask the same question about commonly promoted views in the media. Because various arms of the media and commentators regularly trot out a concept as if it is the truth – does it mean that it is the truth?

Summer tends to be a slow news time. Or perhaps because during the summer what is left of the media news gatherers take time off to expose themselves to the mid-day sun, the same old stories surface.

Once again this summer there has been an attempt to stir the “housing affordability” debate. This is of interest as to many, property is residential property. As we well know, residential property is but one, albeit large and important, sector of the property market. And industrial property is most certainly not residential property. Although there are some price drivers in common, not all are.

Whether or not Auckland house prices are as “unaffordable” as some commentators make out is debateable. Is an Ellerslie 3 bedroom comparable to a Manhattan apartment?

There are a raft of factors which have impacted on the escalation in house prices. The effect of the RMA, low interest rates, lack of competition in the building materials sector, the small scale of our construction industry, and the influx of offshore money all doubtless pay their part.

But another aspect that is regularly, and erroneously in our view, raised, is the lack of a capital gains tax. We regularly see raised in the media the view that a capital gains tax in New Zealand would take some of the heat out of the industry. I tire of the times I read, or listen to, the viewpoint that we do need a capital gains tax, but that it would never fly politically.

The problem with this argument is that we already have a capital gains tax ! It is just that it is not applied. It could be termed an anomaly. Or it could be a form of political amnesia. Our understanding is that if one is trading property as a business, then tax applies to any gains. If there is any grey area as to what a business is, then surely any doubt is removed if interest payments are claimed as an expense – as is the case  in many negatively geared residential rentals. So, can you deduct expenses as tax- deductible, but not pay tax on the capital gain?

Apparently – you can have your cake and eat it.

But how long will it be before this tax is fully and fairly implemented – as it should be?