It’s 50 square metres of sunlight. A little two-bedroom character cottage in the historic lakeside community of Selwyn Huts, just south of Christchurch, looks like a first homebuyer’s dream. The living room is bathed in warm sun, there’s a toasty wood-burner for winter; tomatoes and sweetpeas climb out of the raised gardens in the backyard.
Asking price? Just $80,000. In Auckland or Wellington, that’s not even a deposit!
But there’s a catch – there always is, as any first homebuyer will tell you. This cottage is on leasehold land; you can’t withdraw your KiwiSaver funds to help buy it; you can’t borrow against it at any bank or reputable landing institution.
Should KiwiSaver rules be loosened to help people into homes, or to help them buy property assets to fund a secure retirement? Click here to comment.
Real estate agent Suzy McPherson likes the place herself. “I sat there in the sun in the living room and said to myself, I could easily live here – if I left my husband! It’s very idyllic and quiet.”
But McPherson knows that this isn’t an option for a first homebuyer. Not many places are. Her 23-year-old daughter has put in eight offers on houses. She finally got one – and then had to pull out because there was a problem with the EQC earthquake repairs.
“She’s 23, and she’s over it. She’s over competing for a house. She and her partner would love to get something rural with a bit of land, but they can’t do that either, because they can’t withdraw their KiwiSaver funds; it would be over their $500,000 limit.”
“People are starting to have a reasonable amount in KiwiSaver by the time they buy a house. KiwiSaver was created with that dual purpose, to facilitate that first home purchase as well to flow on to your retirement. As people start to buy their first home in their 40s, late-40s, it’s interesting to see what that means for retirement.”
– Melissa Vasta, Kiwi Wealth
McPherson reckons it’s time to change some of the KiwiSaver rules to make it easier for first homebuyers to get into the market. She’s not alone.
A real second chance for real-life situations
Janet Harris, a mortgage adviser with Point Home Loans, thinks KiwiSaver should offer a second chance to those who have drawn down to buy a home before, but things have gone wrong for them.
Janet argues that there are situations where people can’t hold onto their first homes, for whatever reason.
It’s not a hypothetical: 37-year-old Jeremy Mackay, in Nelson, is an example of someone who’s been turned down. He and his wife drew down on their KiwiSaver funds and bought a home together in 2012, for $360,000 – but a few years later the marriage broke up and he didn’t keep the house.
Now, he and his new partner are looking at buying a house. He is in much the same financial position, trying to put together a deposit in an even tougher housing market. But he doesn’t meet the criteria for a “second chance” drawdown, because he’s done it before.
He would like to see the rules changed, so he can buy a place for himself, his partner and his two children to stay. “I want a house that we can call home.”
Mackay says the rules should back people who are trying to find solutions that work. “If they’re thinking outside the box, if they’ve walked into a stop sign then they find a way around it, then having a little support from KiwiSaver to draw down – that would speak volumes.”
Janet Harris agrees that people should get a second chance if they put a good case forward. “The circumstances can be wide. It could be a relationship split-up, it could be a business having failed and you have to sell your house to pay things back. So you end up with less than you might have.”
“At present you can have a ‘second chance’ if you had a home previously but didn’t withdraw your KiwiSaver funds for it. But if you did withdraw your KiwiSaver funds, you can’t do it again. So the name ‘second chance’ is misleading.”
Tiny houses on family land
The frustrations among homebuyers are something many KiwiSaver providers are aware of.
Melissa Vasta, general manager retail and product at Kiwi Wealth, says it’s timely to question the settings under which homebuyers can withdraw their KiwiSaver funds, in order to get on the property ladder. After all, that’s the objective of KiwiSaver: to help New Zealanders build their assets.
This year alone, they’ve approved more than 2700 people withdrawing their KiwiSaver funds to buy homes – but there are also five they’ve had to turn down. That may not seem a big number, but for all those who were turned down, there will be countless more who knew they weren’t eligible so didn’t even apply. More and more people are withdrawing money to buy homes, she says.
“People are starting to have a reasonable amount in KiwiSaver by the time they buy a house. KiwiSaver was created with that dual purpose, to facilitate that first home purchase as well as to flow on to your retirement. As people start to buy their first home in their 40s, late-40s, it’s interesting to see what that means for retirement.”
She asks, what if the rules around withdrawing money from KiwiSaver for housing were reviewed? What if young people were allowed to build homes on family land? What if it were easier for people to draw down money for a “second chance” at owning a home, after a marriage break-up or similar? “These might not be the answers – but we’ve got to let people ask the questions. We need to explore ways to make things work.”
Vasta understands the frustration: she has friends and family struggling to buy their first homes. “Even five years ago, the urgency wasn’t quite at this level.”
And she, too, has just gone in with her mum to buy a first home, a two-bedroom apartment in a 10-storey building in central Wellington. “Me, I’ve always rented. Then I went halves with my mum on an apartment, just two years ago.”
She lived there with her mum for a year, up to lockdown – before deciding she needed to move out and rent her own place again. “I couldn’t quite do it any longer!”
Others, she says, don’t have those choices – and that’s why it’s important that KiwiSaver doesn’t arbitrarily rule out solutions.
Freedom to buy away from home
The Commission for Financial Capability has advised the Government to model the potential range of impacts if the owner-occupier requirement for first-home withdrawals from KiwiSaver was to be withdrawn. So what does that mean? As the Commission’s personal finance leader Tom Hartmann explains, their suggestion is not intended to manage New Zealand’s housing prices.
Rather, the Commission’s mandate is to help New Zealanders build up their assets, and owning a home is one way of doing that. That house shouldn’t have to be their home; it might be that a young person living and working in Auckland can’t afford to buy a house there, but can afford to buy one back in Taumarunui or Taihape.
“There’s a lot of fear about this proposal, about the impact it could have on our sensitive housing market. So we definitely need housing expertise in the modelling.”
Of course, they might one day live there, or they might not. They might just rent it out.
So is this just using KiwiSaver to leverage someone to become a property investor? “Yes. In the wider sense, that everyone who owns property is, in fact, a property investor. That they are growing their position by owning property.”
Investing in infrastructure
KiwiSaver is flawed by inequity, the Prime Minister’s Business Advisory Council has warned. Fraser Whineray, the council chair, says people on good incomes can afford to contribute, and claim the matching employer contribution of up to 3 percent. But those who can’t afford to make their own contributions then get hit by a double whammy; they don’t get the employer contribution of the Government contribution.
He would like to see KiwiSaver made compulsory. And he’d like KiwiSaver money enabled to invest in building residential housing, or public-private partnerships, so regular Kiwis have a stake in infrastructure investment. “How do New Zealanders get a share of the action through their KiwiSaver funds? Because then I think they wouldn’t be so concerned about public-private partnerships and someone making a dollar out of it, if they had an opportunity to participate.
“And what a great 10, 20, 30-year type product that would be for their retirement savings, rather than a dose of New Zealand equities and a dose of Aussie equities and a dose of bonds. Which is what it is at the moment.”
He says this, combined with innovative solution to free up land and build houses (like flatpack houses) could help drive down house prices. “The bottom line is, we’ve got tonnes of land. Just look at what you can get for $300,000 in the US!
“Imagine if our house prices had stopped at $500,000 here, not $1m. This would be the most amazing place in the world to live. And we would create and retain so much human capital.”
Supporting building and rent-to-buy schemes
There’s only one answer to the housing crisis and that’s increasing the supply of houses, says Sense Partners economist Shamubeel Eaqub. So KiwiSaver needs to be about both helping to build, and to buy. He’s nervous about easing the constraints on withdrawing KiwiSaver funds for housing, unless there is a simultaneous increase in the supply of houses.
“If supply does not increase then it just chases up house prices even faster, as various policies to help people into ownership have shown,” he says. “Leveraging KiwiSaver capital to build houses makes a lot of sense. Especially the bond portion.”
Investing the fixed income portfolio in residential real estate investment trusts would provide “a huge amount of capital” building properties for about a 4 percent rental return. “This would give us rent-controlled apartments which would be more secure for tenure and finance for the tenants, and the KiwiSaver members would now have a good quality inflation indexed ‘bond’ in their portfolio,” he argues.
“The reason for high house prices is slow, insufficient and mismatched supply. Policy shifts that increase demand (physical, investor, or through KiwiSaver) make house prices more expensive,” he says. “You have to think through the consequences.”
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