The Organisation for Economic Co-operation and Development (OECD) is suggesting the Government changes tack on an approach both it and its predecessors have taken to housing policy.
The Paris-based organisation recommends, in a new report, the Government scraps policies specifically aimed at helping people buy their first home to prevent this putting upward pressure on prices.
It suggests the Government keeps focusing on policies aimed at increasing the supply of houses, including public houses.
The OECD wants the Government to stop allowing people to withdraw funds from their KiwiSaver accounts for their first-homes.
It wants First Home Loans and First Home Grants available to low-income earners who buy low-cost homes gone.
It wants funding for KiwiBuild, which sees the Government underwrite low-cost new builds for eligible first-home buyers, completely reprioritised.
The organisation is also much less concerned than the Government is about the effect the Reserve Bank’s macroprudential policy has on first-home buyers.
It suggests the Reserve Bank complements its loan-to-value ratio (LVR) restrictions imposed on banks’ mortgage lending with debt-to-income restrictions or the introduction of minimum interest rates banks have to use when assessing borrowers’ abilities to service debt.
Finance Minister Grant Robertson in 2021 gave the Reserve Bank the ability to impose such restrictions on the condition it would “have regard to avoiding negative impacts, as much as possible, on first home buyers, to the extent consistent with the Bank’s purposes and functions”.
The Reserve Bank’s consultation on the possible introduction of debt serviceability restrictions closes on February 28.
As for the OECD’s recommendation on KiwiSaver withdrawals, the Government has expressed no intention of changing this.
First-home buyers have relied heavily on the policy, withdrawing $143.2 million from their KiwiSavers in November 2021, according to the latest available Inland Revenue data. This is equivalent to 8% of the value of new mortgages banks wrote first-home buyers in that month.
As for First Home Grants and Loans, the income and house price caps connected to these have had to be revised up to make more people eligible. The Government paid 583 grants in December 2021, meanwhile 70 First Home Loans were issued.
Finally, KiwiBuild is quietly fading into the background. There are currently only houses in one development in South Auckland available for sale. Another development in Rotorua in underway.
As at December 2021, 1,909 KiwiBuild homes had been sold.
The price caps haven’t been lifted for some, despite building costs and market values soaring. They’re capped at between $500,000 and $650,000 depending on location and bedroom number.
What are the OECD’s solutions?
The OECD suggests the Government goes further to increase the supply of houses, including public houses and purpose-built rentals.
It says the Government should give local councils access to additional revenue linked to local development, and shift the tax base for local government rates to unimproved land value.
The Government is offering councils grants for infrastructure to support housing development, but won’t go so far as to share GST revenue with them.
Another recommendation is to, “Increase user charging for water and roads, and remove barriers to greater use of targeted local taxes on property value increases resulting from changes in land use regulation or from infrastructure investment.”
The OECD says, “No progress has been made [since its last review] in increasing user charging for water, which is limited to Auckland, Nelson and Tauranga, or introducing congestion charging, although it is being considered in Auckland for 2024, when major improvements in public transport will be completed. Barriers to greater use of targeted local taxes on property value increases have not been reduced.”
The OECD notes the New Zealand Government spends little on social housing and a lot on housing allowances, compared to other developed countries in the OECD.
For example, as at December 2021, 6,000 Ministry of Social Development “clients” were receiving Emergency Housing Special Needs Grants. These are people who can’t remain in their usual place of residence, if they have one, and have nowhere else to go. As at June 2017, there were 4,345 fewer people receiving this grant.
Looking at part of the Government’s build programme, 7,156 public homes and 1,328 transitional homes have been built since June 2017 (according to the latest data from December 2021).
100 Comments
More regulation is just what we need, not.... such as a mandated servicing rate, which banks already do by the way. The KS withdrawal has been a brilliant system to encourage the young to save into a locked account. Most dont have a savings ethic so this helps build a routine habit. When should we implement OECD policy... today, tomorrow? What happens to those savers who have already built a substantial balance in anticipation of withdrawing it for first home. Stopping those people from doing that amounts to retrospective legislation.
I agree that pulling the pin on FHB who have been pushing all their savings into KS is like moving the goal posts. We, and everyone else, has an ageing population. Pensions should be pensions and savings should be savings. I feel that the OECD have a point here. How the government would manage the transition, I have no idea sorry, it’s why they get the big bucks.
Regarding KiwiSaver, not giving people access to their own investments is one way to go about things.
House prices could be radically lowered today if retail banks were only able to loan money already in existence for mortgages on pre-existing properties.
But I agree the other subsidies can go.
No sane politician wants to be associated with pulling the rug out from under FHBs who were weeks from being able to buy by withdrawing their kiwisaver. So the only palatable options are 1)change nothing or 2) stop any future contributions from being able to be withdrawn for First home purchase, and watching the contribution holidays count up at a rapid rate.
Scrap the FHB withdrawals then will mean even less hope for the first home buyer. Meanwhile anything associated with Government increasing supply of houses is long gone...kiwibuild. Just watch all the empty sections on the land they are going around buying up...just watch the non delivery of the sections and houses, it's just Kiwibuild in disguise.
Kiwibuild was a good idea while Labour were in opposition. It would have saved the construction industry from the massive slump post GFC. By the time Labour got into power the construction industry had picked itself back up and was near capacity. There wasn't really any need for additional stimulus from the government. Perhaps in a few years there could be another slump in housing construction and Kiwibuild might become the right thing to do again.
Kiwibuild as originally designed by David Shearer was to be a mass house building scheme for FHB's delivered by the government, with the establishment of large scale prefabrication plants etc. Just what was / is needed. Even today, if this was executed competently it could mean 3 bedroom townhouses for FHBs in Auckland for circa 650K (rather than current market prices of 900/950K plus)
Unfortunately it morphed in to something completely different and unsustainable under Ardern.
An Australian treasury report was uncovered some time ago that made it clear that first home buyer grants were bank income boosters in drag.
They were not done out of concern for the young, but for the banks.
Unfortunately I lost the link.
So be careful what you wish for - all of these schemes, such as accessing kiwisaver have another motive - to keep the ponzi going.
If they want to do that, I think they need to grandfather existing Kiwisavers in. You would be pretty annoyed if you saved a bunch of extra money into your Kiwisaver under the condition it could be withdrawn for a home purchase, and then all the sudden it wasn't. Would such a change in conditions even be legal?
Yes when they say they are trying to help first home owners with these policies, they should say "we're going to help the next first home owners are first to use the policy" After that, prices reset to a higher level and all they do is reduce Kiwisaver balances so transferring needed retirement funds into the house prices of today.
You might be right in assuming you coudln't buy in a market overinflated with other Kiwisaver buyers (and investors with tax breaks).
But lets take a scenario where, instead of allowing FHB to use their Kiwisaver, if they had instead done something to actually help FHB (by restricting tax breaks and lending to investors).
Sure you wouldn't have had a kiwisaver balance to use as a deposit, but neither would other FHB. And now you are competing with investors that can't leverage up to the hilt, and use tax advantages and the extra borrowing by using IO terms, tax write offs, to outbid you.
Suddenly the market is different and prices are lower and you simply need to save (a smaller) deposit, you would have been fine. And guess what, you also have your retirement savings intact sitting in a Kiwisaver account.
IMO it was always a bad idea to allow kiwisaver to be withdraw for first homes. IMO it has helped push house prices even higher as FHBs competed against one another for a limited supply of houses, pushing up prices. Also it potentially means those withdrawing money for a first home may have less retirement savings, and esp as shares and stocks over the long term have done better than capital gains in a house. Many First home buyers also didn't qualify for the government grants because they didn't put enough of their salary into kiwisaver, many because the rents they were paying were too high, so they couldn't afford it.
Kiwibuild could have been the solution, but the government needed to put money into it, and developers could make far more money not selling kiwibuild houses.
It's just unbelievable that government actually allow and encourage people to withdraw their future retirement fund kiwi saver for their first home. Not even mention that government and RBNZ encourage people to take huge amount of debt. Imagine if they lose their houses due to certain circumstances or economy down turns. It seems that the government and RBNZ here are not for their citizens. All they want is to take control by putting people into more debt, so they can crack the whip.
Buying your first home isn't about capital gains, its about getting off the rental treadmill and having control over your own life. And then you ignore the fact that the capital gains on your first house are probably leveraged 4:1, so no, stocks in your kiwisaver do not typically do better.
I suggest that "the" solution would have been to limit immigration to a level consistent with housing availability, transport infrastructure, etc.. Yes, you might reply about the wisdom of hindsight, but calls to dampen the excessive exuberance of immigration have been strongly voiced for at least the last decade...just didn't gel with successive governments who welcomed the sugar rush of incoming funds brought in by these immigrants, but failed dismally to even acknowledge the associated needs for housing, jobs, infrastructure, etc..
When will we learn that the most frightening words in the English language, are, ..."hi, I'm from the government and I am here to help you."
If the goverment really wants to help FHB, why can't they have a 2 tier interest rate. One low interest for FHB and one much higher for investor? Like Australia did in 2017 and the effect immediately took the heat out of the market for the 2.5 years from 2017 to 2019?
Yawn. More neoliberal BS from an organisation still deeply indoctrinated in neoliberalism.
The Auckland Unitary Plan enables a huge amount of supply, and that potential has been acted on in the last 3 years by developers. At the same time the house price debacle has got considerably worse.
Supply certainly has relevance up to a point (especially overseas where there are decent economies of scale and much more easily developable land), but the house price debacle is much more about demand and the ultra loose lending on super cheaper money.
The one thing they are right on is the need to build much more public housing. Despite the govt's hype, they only added one hundred or so houses in Auckland last year (once demolished houses are accounted for). Pathetic.
I am sure there is some fault in management as they are not able to read the simple charts or they don't want to understand the severity of the problem intentionally.
The same old rhetoric "there is no silver bullet" for this problem is always floated. What OECD is saying make more sense to correct the market otherwise it will go up and up if there will be no check like this.
Property owners are voters, voters want financial security and housing facilitates that transaction.
Their idea of financial security may be disrupted by monetary and market instability. There is going to be a price to pay for all the money printing and credit creation.
Kiwis want their quarter acre dreams with kids having a yard to bounce.
You can't increase the supply of houses when the cost is fixed and escalating without increasing the price- someone has to pay for it.
A better way is to upgrade the current loan period from 30 to around 35 - 40.
This will then make it affordable for everyone.
"A better way is to upgrade the current loan period from 30 to around 35 - 40"
You are plain mental...lets just let people take out million dollar mortgages when they are born - that'll fix it and keep this ****ing debarcle going.
If you aren't a troll you are a heartless, unsympathetic and sad little person.
You can't increase the supply of houses when the cost is fixed and escalating without increasing the price- someone has to pay for it.
What you have just written is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent comment were you even close to anything that could be considered a rational thought. Everyone in this forum is now dumber for having read it.
Bizarre.
The idea Kiwis all want "quarter acre dreams" is completely outmoded. Stuck in the 1990s / early 2000s.
We can easily allow a whole lot more building near existing infrastructure and green spaces - just give people freedom to do so, out from the control of awful authoritarian NIMBYs.
Finding new ways to enable more wealth to be captured from young people is an abhorrent idea when there are better ways to increase supply of homes and tackle speculative demand. Why are some always about how to make young people pay more to existing asset holders? Grasping, grasping, grasping...
I've always thought using kiwisaver to buy your first home meant business money is being funelled directly into the housing market, as well as government money too.
Of course being a potential first home buyer, I have mixed feelings. For the good of the country, yes scrap it. For me.... please keep it :)
Lets see if I understand the OECD's logic here.
- Ban KiwiSaver withdrawal's for first homes
- Young people won't have enough capital to compete then and this will subdue the housing market
So I think I've got this right so far, lets keep going!
- Young people won't initially be able to compete because they aren't good at saving outside of KiwiSaver <insert evidence found everywhere>
- Young people will then be forced to start saving from scratch toward a deposit for KiwiSaver
- Those young people who are disciplined enough, educated enough, and have high enough salaries (remember there's now no 3% employer and Gov contribution going towards the deposit) will then have to save whilst navigating high CPI inflation, low wage inflation, rising interest rates, continued property inflation, <insert geriatric economic Nostradamus quotes>
I think I don't need to go any further because I'm obviously missing something here, me and my small brain!
How about instead we focus on 1.) increasing supply, 2.) creating financial incentives for the 92% of demand that is existing property owners to head towards other financial assets (i.e. lower PIR tax rates)?
But what do I know, lets just ruin another generation shall we.
Remove the no money down equity leverage deposits. Simple as that. I know of someone who is 5 years from retirement who had a plan to sell up and relocate to a small town. Next minute they have an extra rental property (from 1 to 2) and their owner occupied property, all leveraged with not a dollar down.
Even I was told that I could leverage the equity in my first home to keep it as a rental and buy another property to live in. So what do I do? Go out there and compete with a First Home Buyer so that I can hold a title on property surplus to my needs, that I really am not entitled to because I have not used any of my own money.
Good question. Maybe the Interest guys could look into it. At the same time they might follow up on my lead about there only being a net one hundred or so gain in social housing dwellings in Auckland in 2021.
There's a townhouse development called Te Mara being marketed in Mt Roskill, 2 beddies starting at 925k!! In Mt Roskill! I mean it's quite a central suburb, but it's also a pretty down at the heels one.
The big problem with it, as far as I am concerned, is while the income cap is 130K for eligibility, in reality you need to be very near that cap for it to be affordable, and even then it's borderline.
Example:
Andy and Sarah are both 32 and earn a combined income of 120K. They have a 5% deposit for a 900K, 2 bed townhouse in Auckland.
Under the scheme, the government will bring their deposit up to 20% (ie. the govt has a 15% share in the equity).
That results in a mortgage for Andy and Sarah of 720K.
Let's say they take out a 30 year mortgage, at 5%. That results in an outgoing of $891. Factor in rates, insurances and body corporate and that's likely to be outgoings of close to $1000 pw for housing. As their take home pay after tax is $1800, that means 55% of their net income is going to the mortgage - a figure considered far too high (40-45% really should be the absolute max).
See where I'm coming from?
If government built the townhouses, with big economies of scale and sold at no profit, for say 650-700K - then it becomes a totally different proposition.
Yeah.
Although these days many women are effectively forced back into work after 6 months because of mortgages.
We didn't do that for both our kids, my wife was therefore out of the workforce for 5 years, this affected our ability to save for a house and was a key reason why I was well into my 40s when we bought our first home.
Don't regret it though, we hated the idea of sending our kids off to those nasty daycare centres for 30-40 hours per week.
We're a bit old fashioned in that respect. We don't think they are good for childrens' wellbeing at all.
But each to their own.
Accomodation supplement is 1.5 Billion per year to subsidise households to rent houses they could otherwise not afford. That money flows into the pockets of landlords as untaxed capital gains. Why not stop doing that instead. What would happen to house prices then?
That would incentivise people to invest away from Kiwisaver, lose the employer matching benefit, probably start later and not put enough away.
Unfortunately flooding the market with supply means developers run at a loss so that doesn't happen. You have to bring in the infrastructure in the ground and force councils to increase land availability then get out of the way.
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