Price caps hit big-city buyers the hardest
First-home buyers who want to get their hands on KiwiSaver subsidies had better hope they live somewhere affordable as rising prices push entry-level houses out of reach in some areas.
A two-tier price cap on what people can buy with the subsidy means those in cheaper towns can afford above-average homes with what was intended to be only an entry-level subsidy, while those in more expensive areas either have to move districts or give up on the option of taxpayer help.
People on modest incomes who are members of KiwiSaver can receive up to $5000 ($10,000 for a couple) towards a first-home deposit, for a house costing a maximum of $300,000 in most areas, or $400,000 in more expensive areas such as Auckland and Wellington.
The two-tier price cap was intended to bring the subsidies within reach of big-city dwellers without letting people in cheaper towns splurge on fancy properties.
Correspondence made public under the Official Information Act shows buyers in the three biggest cities have complained to Housing Minister Phil Heatley, whose department sets the price caps, that quirks in the system are effectively ruling them out of accessing the subsidy.
Selling prices from PropertyIQ for the three months to July show the system is a boon to buyers in the distant reaches of Auckland, and in cheaper cities such as Dunedin and Invercargill, where people can buy an above-average-priced home and still qualify.
Thanks to wider Auckland's single price cap, someone in Papakura has up to $400,000 to spend in an area where the lower-quartile house price - the bracket officials consider "entry level" - is $286,000.
The same cap applies in the old Auckland city, where the lower-quartile price is $513,000, and on the North Shore where it is $499,000.
An Aucklander who complained to Mr Heatley's office in July was told the answer was to move somewhere cheaper.
"KiwiSaver First Home Deposit subsidy applicants have the option to choose a house price under the price cap with some support from taxpayers, or to forgo the subsidy and buy a more expensive house elsewhere," Mr Heatley's office said in reply.
While Aucklanders have one cap from the Bombay hills to Warkworth, wider Wellington and Canterbury operate under two limits.
One complainant wrote to ask the minister why Tawa's cap was $400,000, when Lower Hutt's, where the complainant wanted to buy, was $300,000. Unlike the Hutt, Tawa is classed as part of Wellington city so has the same cap as pricey parts of central Wellington.
In a similar divide, buyers in Selwyn, Canterbury, get an extra $100,000 leeway compared with Christchurch people, after a post-earthquake review was carried out in June and Selwyn was bumped into the $400,000 group.
The two basic caps have not changed since subsidies were first given out in 2010, but there is a ray of hope for the disgruntled.
Housing officials will review the caps in the final three months of this year, taking into account changes in lower-quartile house prices.
Funding is capped at $13 million a year, so officials will be wary of raising limits without lowering them elsewhere if it means the subsidy scheme will cost too much money.
In an email, Mr Heatley said he saw two options for the review. Either regions would move up or down between the existing price caps, or new caps could be proposed, possibly with smaller steps between them and higher caps for some areas.
"For example, if the data tells us that Christchurch lower-quartile house prices exceed $300,000, but only by $20,000, it might be more appropriate to create a new $350,000 cap instead of moving Christchurch to the $400,000 cap," he said.
The first-home subsidy is separate from the first-home KiwiSaver withdrawal, which lets people take out their and their employer's contributions to buy a first home.
Using the subsidy, KiwiSaver members - of whom there are almost 2 million - can receive between $3000 and $5000 each from the taxpayer for a first-home deposit once they have been paying into the scheme for three years, and provided they have a modest income (less than $100,000 for a couple).
Close to 4000 subsidies have been granted since the first people became eligible on July 1, 2010, with the largest number (861) granted in wider Auckland.
Housing New Zealand said it could not supply the numbers of subsidies granted for the different parts of Auckland, as these had not been collected separately since the supercity merger.
KIWISAVER WORK MAY BE OUTSOURCED
Future applicants for the KiwiSaver first home subsidy may have their claims processed by a private agency or by Inland Revenue, as officials look to outsource the work from Housing New Zealand.
But Inland Revenue is not keen on adopting the task, even though it already administers other aspects of KiwiSaver.
A paper from the former Department of Building and Housing, prepared for Housing Minister Phil Heatley and Finance Minister Bill English last September, looked at options for outsourcing work.
"It was considered that only KiwiSaver had the potential to be delivered by an agency other than the [housing] corporation or department. This other agency was the Inland Revenue Department, as they deliver some aspects of the KiwiSaver scheme," it said.
The paper, obtained under the Official Information Act, outlined the IRD's doubts. "However, after an initial analysis, the IRD considered that the home ownership aspect of KiwiSaver was not a fit with their core business and it was not a priority in relation to their existing work programme priorities," it said.
Officials recommended reporting back to ministers this month on a preferred option for transferring both the Welcome Home loan scheme and the KiwiSaver subsidy.
They were to consult KiwiSaver providers, assess the market for outsourcing work to the private sector, and look at the costs and benefits of transferring the work to the IRD.
Mr Heatley said transferring administration of the subsidy to a non-government agency was just one of the options being considered.
Superannuation and KiwiSaver scheme provider umbrella group Workplace Savings NZ and the biggest provider, Onepath, said they had not yet been consulted on the idea.
- © Fairfax NZ News
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