Earlier this month, Interest.co.nz reported that young Kiwis are now raiding their retirement accounts – known as Kiwisaver – in order to get a foothold in the housing market:
Soaring numbers of young Kiwis are now raiding their retirement savings to climb into a rapidly inflating housing bubble.
…close to 11,000 young New Zealanders had cashed in KiwiSaver retirement savings to buy houses in the past year…
[Kiwisaver] has provided NZ$217.6 million of people’s own savings and government grants towards the purchase of a first home.
…as the RBNZ tries to play catch-up with the rising housing market and ensuing inflation, who will suffer most? Why the people who grabbed every cent they could and put it into a first home of course. They will be the ones most slugged by higher interest rates…
Today, Interest.co.nz reports that New Zealand’s housing minister, Nick Smith, has indicated that changes will be made to make it easier for first home buyers (FHBs) to raid their Kiwisaver accounts to fund their home purchases. In the process, the Government hopes to circumvent new loan-to-value ratio (LVR) restrictions to be implemented by the Reserve Bank of New Zealand (RBNZ) that would raise FHB deposit requirements:
It’s official: The KiwiSaver scheme has now become the HouseSaver scheme.
The Government is making it quite clear it sees the scheme as nothing more or less than a short-term piggy bank that can be smashed open as soon as possible and the money inside pumped into the rapidly rising house market.
Housing Minister Nick Smith, in a Television New Zealand interview screened over the weekend, said the Government was looking at tweaking the KiwiSaver scheme to make it easier for people to access funds from it to buy first homes…
This move by the Government comes at a time when the Reserve Bank is considering imposing “speed limits” on banks’ high loan to value (LVR) lending…
Essentially the Government, having been frustrated in its efforts to get first-time buyers exempt from any limits on high LVR lending, is now seeking to go around the RBNZ measure – and actively undermine it…
“If young kiwis are using their KiwiSaver funds to buy a first home that is a good thing” [Smith].
“I think all New Zealanders acknowledge that if you get to your retirement years and you don’t own your own home, that you are having to pay rent, that you are not in nearly as good a position as if you had been able to get that deposit and own that first home.
As noted previously, New Zealanders already hold a disproportionate amount of their wealth in housing (see below IMF charts).
Therefore, diverting more financial resources into housing risks an even bigger fallout in the likely event that the housing market one day experiences a painful correction.
The above move from the National Government also shows why FHB affordability can only really be attacked from the supply-side or via curbing tax laws that favour property investment (e.g. winding back negative gearing). Simply curtailing credit, via LVR restrictions, impacts disproportionately those whom most need help, namely FHBs. So while the LVR limit might place downward pressure on housing prices, FHB access to the housing market (and home ownership rates amongst 25 to 34 year-olds) could actually worsen.
