Making more houses more expensive

Retirement Commissioner Peter Cordtz is suggesting people could be allowed to withdraw KiwiSaver funds to buy investment properties:

Home ownership has been declining for the past 30 years, from a high of about 78% in the 1980s, to about 55% today.

Māori and Pasifika have fared the worst – today only 35% of Māori and 20% of Pasifika own their own homes.

About 12% of New Zealanders aged 65-plus are renting, making them eligible to apply for the Accommodation Supplement if they are struggling. The cost to taxpayers of the accommodation supplement paid to people 65+ has already increased 92% in the past six years, from $88 million in 2013 to $170 million in the year ended March 2019.

This is on top of the cost of NZ Super, currently $39 million a day and forecast to rise to $120 million a day in 20 years due to the ageing population.

“Super wasn’t designed to cover rent – it currently pays $411 for a single person; $632 for a couple. At that rate, it assumes you have housing sorted,” says Cordtz.

“The cost of declining home ownership is a problem that affects all of us, and we need a circuit breaker,” says Cordtz. “If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”

One idea open to public submissions is to loosen the KiwiSaver rules related to withdrawing savings for a deposit on a first home. Currently, the KiwiSaver member has to live in that property, but high house prices in cities like Auckland, Wellington and Tauranga mean it is difficult for members who work in those cities to purchase a home there to live in.

“If they could buy a property in a more affordable part of the country, they could use it as an investment to progress on the property ladder or simply to retire to one day,” says Cordtz.

He says the idea originally came from a Māori mortgage broker who was trying to help clients buy property near whānau in areas other than where they worked.

“We see this as an idea that could help a lot of New Zealanders get on the property ladder and create a long-term investment to aid retirement,” says Cordtz. . . 

I see this as an idea that could make it harder for a lot of other New Zealanders get on the property ladder.

High prices in several places is a problem for people wanting to buy their first home or upgrade an existing one, and not just the cities mentioned. Wanaka and Queenstown are at least as expensive.

The root cause is one of supply and demand.

Allowing people to use KiwSaver funds to buy investment properties will give people a bit more to spend but do nothing to increase the number of properties available.

Won’t that spread the problem of rising prices fueled by demand outpacing supply to other places, many of which have lower wages than in the places where people are already struggling to buy a first home?

The last thing would-be home owners in smaller towns and less densely populated cities need is buyers from other places competing with them and spreading the problem of property inflation wider.

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