Let’s make more of KiwiSaver for homeownership
Let’s make more of KiwiSaver for homeownership
By Derryn Mayne - Century 21 New Zealand owner
Across New Zealand, real estate listings and sales in the second quarter were generally slow, but then July saw an unexpected lift.
The Real Estate Institute of New Zealand (REINZ) has revealed that house sales across New Zealand in July were up 3.7% on the same month last year - the highest number of sales for July in three years. At the same time, Auckland experienced a 6.6% lift in sales volumes year-on-year.
The REINZ chief executive noted that it was the first time in eight months that we’ve seen the number of properties sold around the country increase on an annual basis, suggesting that we’re starting to see some early signs of growth.
It’s great to see that this winter has not dampened the spirits of home buyers. However, ongoing challenges are by no means over - one being that New Zealand’s much-talked about housing shortage remains to be resolved.
According to two economists the country is short of 130,000 homes, up from 100,000 last year, and they believe the shortage could get worse.
Despite a surge in construction activity and residential building consents hitting multi-decade highs, it has still not been enough to keep pace with demand. New Zealand’s population growth continues to outstrip housing supply.
Although population growth had slowed from its peak in early 2017, New Zealand is still feeling the effects of the past surge and continued gains, according to the economists.
Nonetheless we’re seeing some encouraging growth in consenting which can only mean more stock coming to market in the next few years.
StatsNZ said Auckland consented 13,881 new homes in the year to May, up 13% from the previous year. While nationally, in the year ended May, the number of new dwellings consented was 34,672, up 6.3% – the highest since 1974!
With the Government continuing to wrestle with a housing shortage, affordability issues, and its KiwiBuild programme, Century 21 New Zealand and REINZ have been leading the charge lately, proffering some constructive ideas that would see more first-home buyers get on the property ladder.
One area of potential improvement that has interested me is HomeStart. The scheme enables people who withdraw their KiwiSaver savings for a first-home deposit to receive a subsidy if they meet house price and income caps.
Currently, KiwiSaver HomeStart provides eligible first-home buyers with a grant of up to $5,000 maximum for individuals or $10,000 for couples to put towards the purchase of an existing home. The grant is doubled if it’s for a new home.
It’s over 12 years since KiwiSaver came into effect. Many Kiwis have been contributing to the scheme for a long time, and so I believe the HomeStart grant now needs to recognise and reflect that reality.
Instead of a capping the grant at $1,000 every year for just their first five years of contribution, why not extend that out to 10 years? That would effectively double the maximum grants to $20,000 per couple for an existing home and $40,000 for a new home. That would really help first-home buyers to come up with a deposit.
Late last year the Government made some tweaks to the eligibility of its Welcome Home Loan scheme and KiwiSaver HomeStart grants. However, as part of its KiwiBuild ‘reset’ and housing rethink, it’s now time to have another look at these schemes to make them more successful.
The Reserve Bank doesn’t look like it’s going to change its loan-to-value ratio (LVR) policy in a hurry, meaning most first-home buyers still have to stump up the required 20% deposit. Even for so-called affordable homes in many of our main centres now, that remains a big barrier to entry.
The cruel thing for prospective first-home buyers is that the Official Cash Rate is at a record low level as are bank interest rates, making serving a mortgage in many cases cheaper than renting.
We know that rents in the likes of Wellington are growing twice as fast as wages, and that rents in less-affluent districts like Kaipara have gone up 45% in the past five years. What’s more, TradeMe reported recently that every region in New Zealand had higher rental asking prices in May than they did a year ago, with many experts warning it will only get worse for renters.
Instead of people’s retirement savings just sitting in KiwiSaver accounts helping to fund external private and public sector initiatives, we should be empowering and enabling more renters with a KiwiSaver accounts to get into homeownership – a factor which has historically proven to be a huge advantage come retirement.
Like REINZ, I also believe the HomeStart price caps need to also be reviewed ongoingly, particularly given the solid rise in house prices across much of provincial New Zealand in recent years.
This winter Reserve Bank data showed that first-home buyers are an increasing part of the housing market. There was $926 million in lending to first-home buyers in June this year, up from $713 million two years ago. Let’s now keep driving this momentum.
Lifting the caps on KiwiSaver HomeStart grants, is just one easy way to enable more first-home buyers into the market. What’s more, now is the perfect time. On top of increasing rents and record low interest rates, house prices have finally started to settle in most areas.
Derryn Mayne is Century 21 New Zealand’s owner.