Rental property tax treatment helped inflate property values - OECD

These are among the conclusions in the OECD Economic Survey of New Zealand, which includes a number of wide ranging observations about the New Zealand property market.

While the report said the Government addressed some of the issues in the 2010-11 Budget, "Introducing a comprehensive realisation-based tax on capital gains would further reduce the bias towards housing investment relative to other assets."

The report calls for the favourable tax treatment of housing and inefficient regulatory constraints on supply to be reformed.

"These distortions exaggerated the surge in house prices, giving rise to wider wealth inequalities and a heavy dependence of households' long-term financial positions on volatile property values. Despite the slump in housing demand, property prices remain at high levels relative to rents and average incomes, keeping affordability low for less affluent households."