The great half-billion KiwiSaver home withdrawal
Young KiwiSavers withdrew close to half a billion dollars from their savings pots in the past twelve months, just so they can get on the housing ladder.
In the year to the end of July, KiwiSavers took out $499.03 million to put deposits on their first homes.
That was 10,000 more KiwiSavers than withdrew money for their retirements, said Charlotte Lockhart from Perpetual Guardian, the country's largest trustee company.
She said 26,957 withdrew money to buy homes, compared to 16,982 who closed their accounts because they needed the money for retirement.
Now, there are concerns they have mortgaged their futures.
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KiwiSaver is unusual among superannuation schemes globally because it allows funds to be withdrawn for first-home purchases. Many young buyers also qualify for government grants of up to $20,000 which boost their deposits further, if their combined income is below $130,000.
That helped young KiwiSaver members achieve the Kiwi dream of owning their own home, Lockhart said.
But it came against a backdrop of central and local government policy failures which have allowed property prices to skyrocket, most notably in Auckland, where the average sale price for a house in August was $1m.
Lockhart said: "Although the scheme was set up to help people save for their retirement, it increasingly appears to be a tool for desperate home buyers to secure a deposit. The sheer number of KiwiSaver members using it as a house buying vehicle raises some difficult questions."
She, and others, consider KiwiSaver first home withdrawals are contributing to inflationary pressures on an already over-heating property market.
"KiwiSaver funds are usually used to help get a bigger deposit, which can then be leveraged into buying a more expensive home. Even with a loan-to-value limit of 80 per cent, an extra $50,000 on your deposit could be parlayed into an extra $250,000 on your home purchase," Lockhart said.
KiwiSaver funds may well be finding their way into lower-priced suburbs, fuelling localised price inflation.
The other problem is whether we are creating a future retirement problem for young home-buyers being forced to take out enormous mortgages, which many are predicted not to have paid off by the age of 65.
Housing campaigner Hugh Pavletich said: "All it (the KiwiSaver first home withdrawal) is doing is enticing young people to even more severely excessive debt. That's what really saddens me. It is conning them into excessive mortgage slavery."
"We should not be spending any more than three times our household incomes on a house with a debt loading of no more than two and a half times our household incomes," he said. "Anything about that is essentially wasted money."
Eric Crampton from the New Zealand Initiative economics think-tank says giving taxpayer money to people to compete to buy too few homes is bad policy.
When KiwiSavers withdraw money for deposits, they are allowed to take out not only thier own contributions, but those made by their employers, and the tax credits gifted them by the government.
"We are still in a market with many years of pent-up demand, and it will take a long time to bring that down," he said.
If the property market were responding to demand, with enough land being freed to meet demand, then the KiwiSaver first home withdrawal scheme would not be a problem.
"Prices could only rise until it made sense to turn a paddock into a subdivision," he said.
With so many young people saving for homes through KiwiSaver, it would be unfair to stop withdrawals, he said.
Lewin Dickson and his partner Briony have just used their KiwiSaver funds to put a deposit down on a house.
"We were living in Auckland, but because of the house prices there, we were pushed out. We moved to Palmerston North," he says.
He is a social worker who specialised in working with people with both mental health and addiction problems. She is a midwife.
Both are the type of people Auckland needs, and in former generations, two income earners like them would have been able to put down roots in their chosen city.
The move has been good. "We are pretty happy because the idea of just struggling on in Auckland wasn't good."
Having a massive mortgage in Auckland would have just continued the struggle, even if it had been possible to find a house they could stand on their tip-toes to afford.
"KiwiSaver was the thing that tipped the scales for us, to make buying that much easier," he says.
That and finding a house buyers were steering clear of because it had once had low-level meth contamination, probably from P being smoked in the house.
But, he adds that his experience in Auckland has left him disillusioned with politicians whose policy failures have enabled house prices to rise so high.
"I feel sold-out," he says.
He's also seen how rising housing inequality in Auckland has pushed low income and vulnerable people even further to the margins.
He worries for some young people who mortgaged themselves to the hilt to buy in the city.
"Once we switched to looking outside of Auckland, it was really easy. It was like, 'Wow! Look what you can get for $250,000 or $350,000!'"