Property Investors have long been blamed for property price increases and making it harder for first home buyers to achieve their first home.
It was also recently announced that many first home buyers are taking advantage of Kiwisaver to increase their achievable deposit on a new home. While this is a wonderful result for these new home owners, there is little doubt that this is also a factor in higher house prices.
The number of first home buyers using KiwiSaver to buy their first home has increased by more than 700% over the past two years. In the year to March 2013, KiwiSaver has helped 10,733 New Zealanders to put down a deposit on their first home.
The government is also increasing its contribution to support KiwiSaver first home buyers. A deposit subsidy of $1000 per year of contribution is available for up to five years. 4488 subsidies worth $15.7 million were paid out in the financial year to May 2013, up from 3163 in 2012 and 1071 in 2011. Additional funding was provided in the 2013 Budget to help fund this growth.
First home buyers can withdraw some or all of their savings to buy a home after they have been a member of the scheme for three or more years. A subsidy of $1,000 a year also provides up to $5000 to individual first home buyers or $10,000 to couples. As Kiwisaver started in 2007, 2012 was going to be the first year that contributing first home buyers could gain their maximum subsidy.
The NZ Property Investors’ Federation predicted in 2009 that Kiwisaver was likely to produce an increase of first home buyers in 2012 and that this was likely to have an affect on house prices in that year.
This appears to have occurred as in the year to March 2013 there was an increase of 18,213 property sales over the previous year, with 11,733 of these being first home buyers using Kiwisaver as part of their deposit. While this result was predicted and is exactly what the Kiwisaver withdrawal policy is for, it also has a large affect on demand for housing.
When looking at the reasons for house price rises over the last year, there is no doubt that a higher number of first home buyers have perversely made it harder for themselves and contributed to the overall increase in house prices. It is certainly not the only reason, but we cannot escape the fact that it is part of the reason.
This view has also been backed up with recent comments from co-director of the Retirement Policy and Research Centre at Auckland University, Michael Littlewood and BNZ chief economist Tony Alexander.
I’m not trying to implicate first home buyers as the sole reason for rising property prices, just raising the point that they are part of the equation. There has also been a net increase of 2542 people migrating to New Zealand in the year to March, an unknown number of foreign based property investor purchasers. On the supply side there has not been sufficient new properties built while the cost of building continues to increase.
These are some of the reasons for rises in property prices, but there are also structural factors influencing prices. These include restrictions on land supply in some areas (most notably Auckland), high costs of building materials and extra infrastructure costs falling on new home buyers through high reserve contributions and other council charges rather than spread across all property owners through higher rates.
While housing has always been an emotional topic, we need to remember that it is a complicated issue and we need rational rather than emotional discussion if we are to get correct housing policy. Without this rational discussion we will undoubtedly end up with “solutions” to perceived problems that may not even exist, such as rental property owners having a tax advantage. As always this will fail to meet people’s expectations, lead to unexpected consequences and involve ever more hand wringing over New Zealand house prices.
The NZPIF will continue to supply correct information and analysis in the housing debate so that New Zealand rental property owners can continue to provide good quality housing to New Zealand Tenants.