Government may raise KiwiSaver home buyer deposit subsidy
Sunday 21 July, 2013
Government may raise
KiwiSaver home buyer deposit subsidy if RBNZ introduces loan
restrictions
Housing Minister Nick Smith
has told TV ONE’s Q+A programme that the Government will
review the current KiwiSaver maximum house price cap subsidy
to better reflect the cost of housing, specifically in
Auckland.
“We’ve had eight times the number of
New Zealanders take their KiwiSaver – their savings, their
employer contributions – pick up the Government’s grant
and buy into the housing market. There are some things
that we can do with KiwiSaver. I’m worried that the
income thresholds and household thresholds have not been
shifted for some years, and as a consequence, that’s a
barrier. I’m having a fresh look at that, and we may
make some moves in parallel with the Reserve Bank around
where those thresholds are to make it easier for home buyers
as we try and deal with this bigger problem,” Dr Smith
said.
The Reserve Bank is currently reviewing its
options in efforts to try to cool Auckland’s housing
market. It’s proposing introducing a loan-to-value ratio
(LVR), forcing banks to restrict the number of loans it
approves with deposits less than 20 per cent.
Dr
Smith told political editor Corin Dann that the Government
had made it clear to the Reserve Bank that “home
ownership’s a really important issue for us” and he was
confident that “we’re going to get a package that works
well for both the NZ economy and for those aspiring young
families that want their own home”.
The Minister
says that Aucklanders, in particular, found it difficult to
access the start-up help for Kiwisaver because the price cap
subsidy was restricted to houses $400,000 or less.
“I’m having a fresh look at that. I think it
is important that those levels are realistic and need to
respond to some of the changes that have occurred in the
market. KiwiSaver, of course, helps the concerns that the
Reserve Bank Governor has, because he’s worried about
people going in with zero, 5% – very low deposits on
homes. If we’re able to get KiwiSaver working, get
people’s deposits built up, then he is comforted by the
fact that there are less of those very risky mortgages –
95%, 100%,” Dr Smith said.
Meanwhile, the head of
the Bankers’ Association, Kirk Hope, has expressed concern
that if the RBNZ introduces loan restrictions it will simply
force desperate house buyers and small businesses to borrow
off higher interest rate lenders, or loan sharks, to build
the required deposit.
“It’ll not just be first
home buyers, but it might be small businesses that are
trying to access additional capital. High LVR loans will
reduce from around about 60 per cent, so what you’ll see
is quite a reduction in the demand by restriction for those
types of loans,” Mr Hope says.
“What you’ve
seen in places like Canada, who have applied these caps, and
Sweden, where these caps have been applied as well, is those
first home buyers accessing the unsecured lending market to
get the value of the deposit.”
Mr Hope says the
RBNZ needed to justify why imposing a loan-to-value ratio
tool was necessary.
“For example, we’re seeing
lending flows declining, high LVR lending flows declining
for the last quarter, housing approvals are declining, the
rate in growth of housing approvals is declining, so all the
figures are pointing to much more than just a seasonal
change. So what we would want to see out of the Reserve
Bank is much more justification,” Mr Hope
says.
Mr Hope says he would support the Government
raising KiwiSaver access to help first home buyers in tandem
with any LVR restrictions imposed by the
RBNZ.
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Q
+ A
CORIN DANN INTERVIEWS NICK
SMITH
SUSAN
Housing Minister Nick Smith says lack of supply is the main
issue and he's working closely with Auckland Council and
writing new government legislation to help free up land.
They plan to build 39,000 homes in three years. The
Minister spoke to Corin on Friday before flying to Australia
for a look at their social housing. Corin began by asking
him if he agreed the Reserve Bank has no option but to put
tough restrictions on bank lending.
DR NICK
SMITH – Housing Minister
There’s no gain for
homeowners if we’re going to get the sort of bubble-bust
regime that occurred both in Europe and North America.
Where the Reserve Bank Governor is going is to very much try
and avoid a major hike in interest rates. A hike in
interest rates would be bad news for all homeowners,
including increasing the barriers for first homeowners. It
would also have a negative impact on the exchange rate for
our exporters. So he’s looking at alternative
measures. Those measures have been available for a long
time. But I think because the rest of the global economy
is still slow on the recovery, the risk for New Zealand is
greater if our interest rates go ahead of other countries,
and that’s why he’s so keen to look at the alternative
tools of putting some restrictions on banks and giving out
large amounts of loans with very small deposit. The
Government’s concern is making sure that doesn’t get in
the way of improving home ownership levels. I’m
confident we’re going to be able to come up with a package
that delivers on both of
those.
CORIN
It is going to, isn’t it, get in the road? All
the banks say that this is going to lead to falling
homeownership levels – this new measure to try and
restrict low-deposit loans.
NICK
I don’t accept
that.
CORIN
What are you going to do to stop
that?
NICK
No, I don’t accept that, because the biggest
barrier to home ownership is actually those moving house
prices. And if it’s possible for us to be able to get
some measures in place that will put some constraint on the
extent to which those houses are booming in price, then that
actually helps the home buyer as well. It is a tricky
balance, but it is one that I am confident the Reserve Bank
and the Government is going to be able to deliver, that will
keep interest rates low as long as possible, that will take
the heat out of that Auckland housing market while we focus
on getting the engine room of the house-building industry
moving as quickly as possible to build those new homes we
need.
CORIN In the short
term, it’ll be the first home buyer over the next year to
two years before that supply comes on board and while those
new restrictions from the Reserve Bank are in place that
will suffer, that will find it potentially after
September—
NICK I
don’t automatically accept that.
CORIN ...much
harder to get a loan.
NICK
I don’t accept that.
Of course, a number of the people that are buying homes are
those that are investors. These are the people in their
50s and 60s; they’ve got a few bob; they’re wanting to
invest. They will be equally, and if we look at some of
the very-low-deposit loans that are being granted by banks,
they are as much for the investor part of the house market
as it is for the first home buyer. The Government has made
it plain to the Reserve Bank that we want to see
homeownership rates improving, and that’s where I’m
quite confident that we are going to be able to come up with
a package that will see those issues of financial stability
addressed, improved homeownership and try and take that
bubble out of, particularly, the Auckland
market.
CORIN
So are you saying that when we finally see what the
Reserve Bank Governor has come up with there will be some
considerations for first home buyers? Because he has said
he does not want exceptions,
exemptions.
NICK
Well, I think we’re in a little bit of the space
of, you know, dancing with shadows in that the Reserve Bank
Governor has not yet made his decision. He’s
independent. He needs to make those. He’s consulted
with the Government, the Government’s made plain that home
ownership’s a really important issue for us, and I think
we just shouldn’t prejudge and allow these issues to work
through. I’m confident, having been involved in those
discussions, that we’re going to get a package that works
well for both the New Zealand economy and for those aspiring
young families that want their own
home.
CORIN
Would you do anything outside those negotiations to
help first home buyers? Perhaps lift the threshold on the
KiwiSaver First Home Buyer grants or the Welcome Home
grants?
NICK
Well, the KiwiSaver scheme is really booming. You
know, we’ve had eight times the number of New Zealanders
take their KiwiSaver – their savings, their employer
contributions – pick up the Government’s grant and buy
into the housing market. There are some things that we can
do with KiwiSaver. I’m worried that the income
thresholds and household thresholds have not been shifted
for some years, and as a consequence, that’s a barrier.
I’m having a fresh look at that, and we may make some
moves in parallel with the Reserve Bank around where those
thresholds are to make it easier for home buyers as we try
and deal with this bigger problem.
CORIN So, correct
me if I’m wrong, but are they around about $400,000? Is
that the limit for a house under the KiwiSaver scheme? So
you would be looking to potentially raise that threshold a
little higher,
maybe?
NICK Those
house prices vary around New Zealand. Currently, it’s
400 (thousand) in Auckland. The problem is there are not
many homes in Auckland that you can now buy for 400
(thousand), and that’s making it really hard for
Aucklanders particularly to be able to access that start-up
help for KiwiSaver. I’m having a fresh look at that. I
think it is important that those levels are realistic and
need to respond to some of the changes that have occurred in
the market.
CORIN And so
you think it’s fundamentally not a bad idea, though, for
people to use, ultimately, their retirement savings as a way
of getting into the first— be a first home buyer and get
into the market?
NICK
Oh, I’m hugely
encouraged and very positive about the way the KiwiSaver
scheme is helping New Zealanders build up a decent deposit
to be able to buy their own home. We saw this year over
$130 million of deposits placed on homes from over 11,000
New Zealanders from their KiwiSaver funds. That’s an
eight-fold increase of just two years ago. And while it is
retirement savings, the most important part of KiwiSaver is
savings overall. If young Kiwis are using their KiwiSaver
funds to buy their first home, that is a good thing. I
think all New Zealanders acknowledge that if you get to your
retirement years and you don’t own your own home, that
you’re having to pay rent, that you’re not in nearly as
good a position as if you’d been able to get that deposit
and own that first home. KiwiSaver, of course, helps the
concerns that the Reserve Bank Governor has, because he’s
worried about people going in with zero, 5% – very low
deposits on homes. If we’re able to get KiwiSaver
working, get people’s deposits built up, then he is
comforted by the fact that there are less of those very
risky mortgages – 95%,
100%.
CORIN
Sure.
NICK
Because they have that
larger deposit.
CORIN
Just very finally, on the issue of land-banking.
I know this has been a big issue for you. You’re very
hot on this issue. Will you actually in any way follow
through and really force some of these speculators that are
holding on to plots of land, around Auckland in particular
but other places, to actually sell, to actually move? Can
you force them to do it?
NICK
Well, land banking is a
major concern, but it really is a product of land-supply
policies not working. If you see section prices in
Auckland over the last three or four years have been raising
at about 16% per annum, a businessperson is going to take
the attitude that that’s less than the cost of their
capital, and they’d actually be kicking themselves if they
went and sold off a hundred sections three or four years
ago. We need to change the dynamic, free up more land
through the accord and the agreement that we’ve reached
with the Auckland Council so that we’re not getting that
huge appreciation in land values. I do find it really
offensive that somebody buys a block of land for $900,000 15
years ago, has done absolutely nothing with it, now on the
market for $112 million. That needs to be stopped, and the
best way to do that—
CORIN There’s an
argument, though, that says this has been tried in London
with a similar problem in that the talk there is they need
to actually get in there and compulsory— take these
properties back off in a compulsory way – actually force
them to
move.
NICK Oh, no,
I don’t think that sort of approach would work in New
Zealand. My view is that those land bankers are simply
responding to the commercial incentives, and the job for
Government and Council is to change those incentives, and
that is what we’re going to achieve through that Housing
Accord and through that Special Housing Areas legislation.
By freeing up more land, you won’t get that massive
increase in land values, and as a consequence, you’ll
encourage them to bring that land to
market.
Q +
A
CORIN DANN INTERVIEWS KIRK
HOPE
SUSAN
The Reserve Bank is growing increasingly concerned about the
overheated housing market, primarily in Auckland. In efforts
to cool the market, it may implement loan restrictions,
forcing home buyers to raise a bigger deposit when buying a
house. But will it work or will it drive those desperate to
own a home to borrow at higher interest rates simply to meet
the loan threshold? Kirk Hope, CEO of the NZ Bankers'
Association, is with
Corin.
CORIN
Kirk, thank you very much for joining us. Do we
have a boom? Do we have a housing boom that we should be
worried about?
KIRK HOPE – CEO, New
Zealand Bankers’ Association
Well, I
think we’ve got a supply issue, and that’s well
documented. And the Government’s, you know, trying to
bring about 39,000 houses online over the next three years
in Auckland. You know, if they do that, they’ll address
part of the problem, I
think.
CORIN
But in terms of the figures, we’ve got anywhere
up to 20 per cent, some say, house price inflation annually
in Auckland. That looks like a boom, doesn’t
it?
KIRK
Well, if you look at the last two cycles, I think
the peaks were 25 per cent and 20 per cent, and I think
currently the number’s more like 12 to 13 per cent in the
Auckland housing market. Bear in mind, the rest of the
country isn’t experiencing that type of house growth –
house price growth.
CORIN So what I’m
getting at here – have we got a problem that needs to be
addressed by the Reserve Bank with these new
tools?
KIRK Well, I
think that’s a question that’s very much up for grabs,
to be perfectly honest. I think one of the things that we
would like to see is the Reserve Bank’s justifications if
and when they use, in particular, the loan-to-value ratio
tool.
CORIN So you
don’t think we need to be resorting to these new
tools?
KIRK
Well, I think what we need to see is much more
justification for it. For example, we’re seeing lending
flows declining, high LVR lending flows declining for the
last quarter, housing approvals are declining, the rate in
growth of housing approvals is declining, so all the figures
are pointing to much more than just a seasonal change. So
what we would want to see out of the Reserve Bank is much
more
justification.
CORIN
But, I mean, it’s pretty clear the prices are
going pretty crazy in Auckland at least. I mean, we’ve
had the IMF, for example, they’ve been saying consistently
now that it’s 15 per cent overvalued. I mean, it’s
widely agreed that our housing market is overvalued, isn’t
it?
KIRK
Well, I guess the challenge there is to determine
what impact you can have on the demand side and what impact
you can have on the supply side and how those two meet,
actually.
CORIN
So you’re saying that the banks are already
cutting back on these low-deposit loans that the Reserve
Bank wants to really limit? You’re saying that the banks
themselves are restricting these?
KIRK
Yeah, absolutely, so the
flows and the high LVR loans for the last quarter have
reduced by around 30 per cent to 25 per cent, so it’s
actually quite a significant reduction in a quarter. The
stock— The number of homes or number of loans that are in
the high LVR stock across the banking portfolio sit around
22 per cent, and that will drop
back.
CORIN
But was it 30 per cent? That’s when the Reserve
Bank started to get worried, wasn’t
it?
KIRK
The flow was at 30 per cent, but the overall stock
is sitting at 22 per cent.
CORIN So you think
that that’s enough, that if they self-regulate the issue,
no need to come in with the heavy
stick?
KIRK Well, I
think banks are probably in a pretty good place to make an
assessment of the risks that they want to take, and New
Zealand banks by and large tend to be pretty conservative if
you’ve seen the way that they’ve acted over the global
financial crisis, over the recession in New
Zealand.
CORIN
Well, some people might have issue with that. If
you look at, say, back at the year of 2003 when the Reserve
Bank Governor was ramping up interest rates to kill off the
housing market at that point, we saw the banks go offshore,
access cheap money, bring it back in and have a mortgage
war. I mean, that did not help the
economy.
KIRK
Well, I mean, I suppose what I’d say about that
is we’re in a different set of circumstances now. But if
you look back at that period of time, the question you’d
have to ask is were banks lending irresponsibly? And
probably a good sign of that is the number of mortgagee
sales did not massively increase over the recession. So last
year, for example, there were about 2200 mortgagee sales in
New Zealand, and there are around 1.5 million mortgages in
New Zealand, so that’s a very tiny proportion. It shows
you that notwithstanding the
rhetoric—
CORIN
Right, so we can trust the banks that you can do it
on your own; you don’t need to be
regulated?
KIRK
Well, I think if the Reserve Bank do choose to
regulate it, they certainly need to be quite up front with
the public about why they’re doing it and why they see it
as necessary at this
point.
CORIN
Okay, let’s get to the impacts. What will be
the impact if they bring in these so-called speed limits on
low-deposit loans? What will be the impact on first home
buyers and people trying to get into the market?
KIRK
Well, it’ll not just be first home buyers, but it
might be small businesses that are trying to access
additional capital. High LVR loans will reduce from around
about 60 per cent, so what you’ll see is quite a reduction
in the demand by restriction for those types of
loans.
CORIN
But for your average couple, say, in a big city
that is trying to get on the property market, can’t get a
big deposit – they’re going to be out of
luck?
KIRK
They will be, or alternatively, what you’ve seen
in places like Canada, who have applied these caps, and
Sweden, where these caps have been applied as well, is those
first home buyers accessing the unsecured lending market to
get the value of the deposit.
CORIN So we’re
talking about going to, what, loan sharks
or…?
KIRK Higher
interest rate lenders, that’s for
sure.
CORIN
And this has clearly happened in other
jurisdictions?
KIRK
Yes. There’s been
an— There was a very significant increase in unsecured
lending in both Canada and Sweden after they implemented the
caps.
CORIN
But isn’t the issue here about financial
stability? That’s the Reserve Bank’s real motivation
here. This is what it’s trying to stop, because these
loans are risky. These big loans to, I guess, lower-income
New Zealanders are potentially risky. Isn’t that the
problem?
KIRK
Well, I mean, that’s exactly the problem, and the
point at which you determine how much risk is too much is
the problem that the Reserve Bank faces, because no one
wants to see the type of bubble-bursting that we’ve
experienced or that, you know, has been experienced in other
economies. So, yes, that’s exactly what they’re
looking at.
CORIN
What about exemptions, this idea? I mean, we know
that John Key and others have been pushing hard to try and
get the Reserve Bank to put some exemptions in for first
home buyers. Could that work? Could you give them some
exemptions?
KIRK
Well, certainly, I think if the Reserve Bank’s
main issue is the fact that first home buyers are driving
the market, then they’re probably quite unwilling to go
for exemptions. What the Government could do, other things
like they’ve done in the past – subsidies for first home
buyers, lower interest loans for first home buyers, things
like that.
CORIN
The flip side of this is that those who do have
cash will benefit, won’t they?
KIRK
Well, that’s one thing
that we’ve argued, that what will happen is if you’ve
got plenty of equity and you’ll be able to continue to
access the market, and that’s not going to make the market
slow down.
CORIN Just one last
thing. KiwiSaver – that’s one way to try and boost
first home buyers. They can get access to a grant. Is
that the type of thing you think that could help in
tandem?
KIRK Yeah,
absolutely. I mean, it would have to be done, I think, in
conjunction with, you know, the Government’s supply
increases, because you obviously don’t want to create a
worse problem than what you’re trying to fix in the first
place.
CORIN Kirk
Hope from the Bankers’ Association, thank you very much
for your time.
KIRK
Thanks.
ENDS