Interim Retirement Commissioner on benefits of loosening KiwiSaver rules around first home withdrawals: 'If we can get more people on the property ladder earlier, there may be less liability to taxpayers later'; Minister Faafoi hesitant

Interim Retirement Commissioner on benefits of loosening KiwiSaver rules around first home withdrawals: 'If we can get more people on the property ladder earlier, there may be less liability to taxpayers later'; Minister Faafoi hesitant
Image sourced from Flickr

Interim Retirement Commissioner Peter Cordtz sees merit in relaxing the rules so that people who use their KiwiSaver to buy a house don’t have to live in that house.

Under the KiwiSaver Act 2006, eligible members can make withdrawals for a first home if they intend to live in it.

This "intention" is something a KiwiSaver member has to prove to their provider, usually by committing to living in the house for six to 12 months. 

However Cordtz believes there are benefits to scrapping this rule to enable more people who have never owned property before to use KiwiSaver to buy a house and “create a long-term investment to aid retirement”.

His rationale is that with home-ownership rates declining from a high of 78% in the 1980s, to about 55% today, more people are coming under financial pressure renting in retirement.

And where does this burden fall? On taxpayers.

He points out that about 12% of over-65s are renters, making them eligible to apply for the Accommodation Supplement if they are struggling. 

The Government spent $170 million in the year to March 2019 on over-65s receiving this supplement – a 92% increase from 2013.

Cordtz notes that this cost comes on top of New Zealand Superannuation, which costs $39 million a day and is forecast to rise to $120 million in the next two decades as the population ages.

“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,” Cordtz said.

“The cost of declining home ownership is a problem that affects all of us, and we need a circuit breaker.

“If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”

Cordtz recognises that high house prices in the likes of Auckland, Wellington and Tauranga mean it’s difficult for KiwiSaver members who work in those cities to purchase homes 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,” he said.

KiwiSaver withdrawals to finance first homes have risen steadily in recent years. In the year to June nearly $1 billion was withdrawn by first-home-buyers, up from $870 million in 2018. First-home-buyers withdrew almost as much as over-65s.

Cordtz recognises the argument that too much retirement savings are already being withdrawn for property, without making it easier to do so.

“But since the prospect of a capital gains tax was scrapped, property is still one of the best long term investments people can make to help fund their retirement, as well as giving security of tenure,” he said.

The issue is up for discussion in the Commission for Financial Capability’s three-yearly Review of Retirement Income Policies.

The public has until October 31 to make submissions before the Commission reports back to the Government with recommendations in December.

Faafoi hesitant 

Commerce and Consumer Affairs Minister Kris Faafoi didn't want to comment on the idea until he received Cortdz's official recommendations in full. 

He believed the KiwiSaver model was serving its purpose by helping people save for their retirement, but commented: "Some of the social problems that we face now are definitely different to back in mid-2000s when home ownership or housing in general wasn't as concentrated as it is now.

"I think having the ability to use it [KiwiSaver] to buy a first home has been useful for a lot of predominantly younger kiwis, but opening it up to even more New Zealanders to use it for an investment property takes away fundamentally from what KiwiSaver was set up for."

For and against

In July interest.co.nz’s David Hargreaves raised his concerns over the growing amount of KiwiSaver funds being used for first homes.

He questioned whether this was artificially raising house prices.

He also made the point that there was a risk that if the housing market tumbled, people who would otherwise have been insulated by having a diversified investment through KiwiSaver, would be knocked back along with other property owners.

And he argued that first home withdrawals were pushing the problem of retirement affordability down the track to future generations.

Meanwhile interest.co.nz’s Jenée Tibshraeny was supportive of first-home-buyers using their KiwiSaver for homes they don't live in. 

She argued giving them access to residential property, in the same way they have access to other asset classes as they save and invest for retirement, wouldn't be a game-changer for the property market. Rather it would give first-home-buyers another option and go a tiny way to helping improve intergenerational inequality. 

Like Cordtz, she made the case that owning property at retirement was favourable to renting. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

41 Comments

Comment Filter

Highlight new comments in the last hr(s).
11
up

""“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,” Cordtz said.""
That is a problem; a big problem and fiddling with KiwiSaver will not remotely fix it. I'll advise my four working kids not to copy me and invest in housing and get lucky (bought in Auckland not on the route of the Otago railroad). The wisest move is to spend and spend and when you retire let the state provide your housing.

Already, with the existing provision for early withdrawals from KiwiSaver for first-home buyers, its purpose is compromised. To widen this to encourage savers to become landlords turns KiwiSaver into a mere managed fund with an undeserved Government subsidy. The $512-a-year "tax credit" should be abolished, then contributors can spend their own savings as they please, retire with no savings left, then get the universal NZ Superannuation. Simple.
https://www.stuff.co.nz/business/116572275/kiwisaver-could-be-used-to-bu...

@Lapu, Its genius, dad of the year material right here :-)

11
up

A bit unusual that the retirement commissioner is recommending going from a higher return investment to a lower return investment. This seems counter to expectations.

20
up

No no no no. Just, no. NZ doesnt need more incentives to buy more houses. Does this guy really think that this proposal would benefit the marginalised ethnic groups he references? If anything it would enable those wealthier and with higher incomes to raid the KS earlier and exacerbate the wealth gap.

Exactly. The purpose of KiwiSaver is non-housing investment.

Also, say I withdraw money from KiwiSaver and buy and investment property and then sell that investment property, am I going to be required to repatriate the money back to KiwiSaver? What about the returns from owning property once the mortgage is paid off? What about removing equity? Will I be allowed to put debt back on a property?

Also, this proposal is heavily reliant on the proposition that it is advantageous to buy an investment property when you can’t afford to buy a house. This sees lots of people buying pretty sh*** houses in far flung places. Only after a period of time will we have any idea whether this is a good idea but my guess is a lot of people will be harmed by either - a precipitous fall in regional houses prices or long term stagnation in prices due to weak regional housing markets or massive issues with the cost and difficulty of managing properties at a distance.

Basil Brush,

Well said. This nonsense comes from a Retirement Commissioner-what an idiot.

18
up

... so , do we have a reset , and change the brand of Kiwisaver to Kiwibuildsaver ?

How appalling is this , to give a tax break to accumulate funds into a Kiwisaver account , for it to eventually be used as a house deposit !

... as if our wildly overpriced houses require a further stimulus to push their prices even higher .... worsening their unaffordability ...

There's a thought.
Seems like now is the time for kiwi saver funds to be out of the Australian banks. Equity wise.
Like all the other international fund managers and hedge funds are not buyers now.

21
up

It's worrying that the commissioner is using real estate industry propaganda like "property ladder". Sounds like they've been hook line and sinkered, and now are just lining up FHBs for the slaughter.

He is probably more concerned with the boomers soon to be retiring rather than what happens in 30 years time when no one will remember what he said today.
The money is already locked away in kiwisaver and is an investment for retirement. The retirement commissioner seems to be undermining kiwisaver saying its completely pointless as property will have greater returns, which I don't understand. If you really believe that property will continue to perform there are many property based kiwi-saver funds that will deliver excellent returns if property somehow continues to double every decade.

Accommodation supplement is also asset tested. So these people not only rent, but they have assets less than $8,100 (single). Where has all the money gone?

17
up

“If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”

The key to reducing the burden on the taxpayer is to lower the cost of housing, not continue to throw every subsidy they can at it.

... so true ... the country has developed a lopsided economy ... skewered towards a largely unproductive asset , houses ...

How does enabling more people to enter that market improve anything...

Seems almost a generational perspective...everything must be done to keep prices high.

Give us access to Kiwisaver before 3 years then... we have over 25k in Kiwisaver, which we can't touch for another 16 months. This would give us our 20% deposit to buy NOW.

You and all your mates pulling out of KS and bidding on the same properties = what do you think?

Maybe it might push that price up..so you are back to square one and that 20% deposit is now only 15%?

This idea is a boomer idea to keep their property inflated prior to cashing in on retirement.

Super is not the program for housing & housing industry.
It supports price and cost rises, does nothing to stop owner occupiers being forced out by weight of investor activity using easy credit.

Demanding such is terrible thinking.

So, let’s increase demand when supply is constricted, and will be at the current migration levels for at least a decade. Property, unlike shares, is more of a zero sum game, and one person’s (the speculator) gain is another’s (the couple who are now priced out of buying) loss. At least with equities the price will reflect the fact that the company is producing more or being more efficient. Property investment should be restricted to new builds dedicated to the rental market.

Take a look around on the ground, rather than media stories. Supply isn’t constricted in many places and there’s a lot more building in the pipeline. It’s just too expensive for people at the lower end to buy.

This would serve the purpose of keeping the property bubble afloat rather than helping people out. I feel sorry for the people who’d be lured in to this. Perhaps start this at a time when property prices aren’t sky high, then it might actually be a good investment. Of course they’d probably tighten the rules again if property prices did drop so people couldn’t invest in the bargains appearing at a time like that!

This idea will fuel inflation. More money, same amount of houses will result in prices going up.

This is ridiculous. First Kiwisaver is crippled by first home buying withdrawal (which may not leave enough time to be ready for retirement). Then add an investment property on top of it to make sure retirement investments are not diversified. They have done this in Australia and people have created crazy private schemes where some may lose everything in their falling market.

Any retirement fund should not have more than 10% property due to risks and low returns, although it is helpful for when the other portions of a portfolio are not performing. Most Kiwis think of their home as a retirement investment. Once you have a home you already have too much invested in property and a single asset. Diversification is needed to not place retirement at risk.

GIven that the retirement commissioner does not understand this it is clear they are not suitable for the job.

"...there may be less liability to taxpayers later". Wow, we really are living in the economy of perverse incentives. This quote will have to be laid down for later enjoyment in the years to come.

Can't really add anything to what has already been said, except to say that if this guy doesn't get the job as Commissioner, what's the bet that his next job will be property related?

Housing should be a necessity not an investment.

A quick look at this chaps linkedin profile confirmed what I suspected.... absolutely no investment background at all.

He spent ~10 years running NZ Rugby League and based on the quality of this 'research' it is painfully obvious he isn't up for the job.

Try googling portfolio theory and see what they tells you about having a completely undiversified investment strategy, If this is too tough, try getting your head around the risk of 'having all your eggs in one basket'.

This suggestion is nothing short of embarrassing.

The big question is whether property investment has been a net benefit to the economy as a whole. I don't know how they don't see the creating money to outbid each other on an non-productive asset that is generally decreasing in value as it depreciates is just plain dumb!
They should at least restrict investors to new builds. Imagine if all that investors capital was pumped into actually creating something rather than simply rent-seeking, which creates nothing and probably makes us worse off.

Exactly. And this is where the difference in definition between valued-added investors, and the non value-added speculators needs to highlighted.

If done correctly, value is added by developing the land, and building the property so the whole is greater than the sum of its parts, ie 1+1=3. The extra difference is for the work and risk taken, ie a fair profit, which others don't mind paying for as it is a true cost of production, and would be a cost they would have incurred themselves if they had the time and skill to have developed it.

But to buy land/property and not to do anything productive with it that it was designated for, and in fact withhold it from the market to increase your monopoly position and gain super profits because of that, is speculation and money gouging at the expense of others.

And yet this non value-added speculation is actively encouraged by Central and Local Govt.

I wonder if Mr Cordtz would consider a racehorse as an investment,i want one,got no money but i know where i do have some money.

"“If they could buy a property in a more affordable part of the country"
Simple but obvious question, what the fudge are the people living in those places supposed to do.
Oh I see, it's the regions so who gives a rats.

Pay extortionate rent, subsidise the absentee landlord by claiming the accommodation supplement.

Yea that's the other part to his story. I've failed in life as I really do not understand how to live of the largese of the state, and baby boomers despite their speed at decrying the lazy generations following appear damn good at it coupled with an ability to learn and adapt.

I bought in a more affordable part of the country a couple of years back. What I do is leave the house just after 5 am to catch a train to my job in the city. I get home after 6 pm, eat dinner and sleep.

This is the true irony. Compact city methodology causes houses to be less affordable to where people work, and the work located in areas where people may not want to live.

Pushing homeowners to the fringe and beyond to find a property of the type and price they can affordable, even with the extra time and cost involved.

Zoning restrictions increase sprawl.

If you really wanted people to live and work closer to the center you would reduce zoning restrictions both up and out. Paradoxically you need to lessen restrictions on the fringe as the price for all land going back in to the CBD is set at the fringe, ie you cannot reduce true affordability going in, if there are restrictions on the fringe.

The only way you can lower the price in the Auckland urban zone under the present system is to build smaller (although you pay more $m2), lower the quality, and/or build supply to the point where its $ price point is exceeded and prices collapse, ie someone has to lose money so others can buy at a better price.

WTH! Who is this Peter Cordtz coming up with this rubbish? I'm not going to buy a place in Hamilton, where I eventually want to retire, and rent it out while also renting in Christchurch where I work... I don't want to be a landlord and have to deal with all that BS. I just want to buy a cheap place locally, do it up a bit to make it comfortable, and keep saving so I can eventually move when I retire. The fact that the middle class in Auckland, Wellington and Tauranga can't do this is just appalling.

Bang on, this is an absolutely ridiculous suggestion.

One can only hope that this guy is not 'Acting' in this role for much longer.

Debacle.
This once great country is screwed.

Are many of the Labour Ministers and appointees Nats in disguise ?

Gareth Kiernan's analysis of this particularly bonkers idea is worth a read:
https://www.stuff.co.nz/business/opinion-analysis/116604750/we-shouldnt-...

Utter confusion in this Government .............. do they or dont they want investors >