KiwiSaver could be used to buy rental properties

Monday, 14 October 2019

KiwiSaver fees are calculated as a percentage of funds under management, so as people save more, the fees they pay rise, even though fund managers don't have to work any harder.

KiwiSaver members should be allowed to withdraw money from their accounts to buy rental properties, not just first homes, the Retirement Commissioner has suggested.

Acting commissioner Peter Cordtz said it was one suggestion up for discussion in the three-yearly review of retirement policies.

He will present recommendations to the Government at the end of the year.

He said home ownership had declined over the past 30 years from about 78 per cent in the 1980s to 55 per cent.

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Māori and Pasifika have fared the worst – today only 35 per cent of Māori and 20 per cent of Pasifika own their own homes.

That can be a problem for people at retirement. About 12 per cent of people aged over 65 are tenants.

A first home might be out of reach for people in expensive areas, but a rental property in another town could be more achievable.

The cost to taxpayers of the accommodation supplement paid to people aged over 65 has increased 92 per cent in the past six years, from $88 million in 2013 to $170 million in the year ended March 2019.

Cordtz said the pension was not designed to cover the cost of renting.

He said allowing some people to purchase an investment property as their first step could help more people into their own homes over the long term.

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

At the moment, buyers have to live for at least six months in a house they use KiwiSaver money to buy.

But Cordtz said he had heard that the cost of housing in Auckland, Wellington ad Tauranga made it difficult for some people to take that step.

Peter Cordtz said it was worth considering whether first-home withdrawal provisions should be expanded.

'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.

He said the idea originally came from a Māori mortgage broker who was trying to help clients buy property near whānau in areas other than where they worked.

'We see this as an idea that could help a lot of New Zealanders get on the property ladder and create a long-term investment to aid retirement.'

KiwiSaver withdrawals to finance first homes have risen steadily – in the year to June nearly $1 billion was withdrawn by first home buyers, up from $870 million in 2018.

He said, since the Government had shifted away from the idea of a capital gains tax on residential property, property was one of the best long-term investments people could make to fund their retirements.

Economist Cameron Bagrie wasn't impressed.

He said, if the withdrawal criteria were relaxed, it would soon lead to people suggesting that KiwiSaver accounts should be accessed for other asset classes. 'What about someone who wants to buy a farm? Or a commercial property? What's special about residential property? If you're looking at it as an investment it opens the door to that Pandora's box.'

Property investor Nick Gentle said some people living in regional New Zealand might not be pleased to have Aucklanders buying up properties in their towns and pushing up prices.

He said, when investor loan-to-value restrictions were first introduced, with tighter rules only for Auckland, it led to a 'stampede' out of the city.

That pushed up prices in cities within a two-hour drive, he said.

'You'd have to be careful that doesn't happen again.'