Disappointment in the recent change to the KiwiSaver HomeStart grant scheme.
I really did hold my breath a little in the hope that the Government would take their lead from our cousins in Australia and the UK in updating our first home buyer’s product into something more accessible and useful for buyers in the Southern Lakes. Unfortunately this was not the case and the changes will offer minimal assistance in our region.
Increasing the cap from $450,000 to $500,000 for existing property and $550,000 for new build appears to be way out of kilter with the lowest house prices in Queenstown yet alone an average sale price of $910,000.
The income cap increases are also poultry $80,000 to $85,000 for single earner and $120,000 to $130,000 for two or more earners. Considering the household income required to service the average
mortgage in Queenstown with a 20% deposit these changes again miss the bulk of the market here.
Nick Smith’s position
With Nick Smith being quoted in the local Mountain Scene that the government are not here to help people buy flash houses, I have to wonder what they are here for. Looking at these caps they are
clearly not here to help anyone in this area purchase their first home. While we agree that an entry level home does not need to be a mansion, it should be a of high standard as we don’t want to be encouraging low quality housing stock to be built simply to meet the criteria for the grant, we already have enough shoddily built, poorly insulated houses in New Zealand.
How was the price cap calculated?
According to Smith the government set the new cap limits based upon data provided by Core Logic. When you scratch the surface of the data it really concerns me the house types that are bundled
together to produce these stats as they do not resemble the types of properties first home buyers or anyone looking to buy a family home would consider.
Core Logic data examined
The data states that from 1st April 2015 to 31st March 2016, 23% of all houses throughout Queenstown Lakes District were sold <$500,000 and 32% <$550,000.
Now being in the mortgage advisory industry and working with clients who have been left frustrated over the last 12 months at not being able to find anything under $700,000 as a family home let alone
$550,000 I do not see these statistics as an accurate representation of the reality here.
I was also left scratching my head as to how this could possibly have happened, maybe the sections were left in the data and that compromised it? I therefore obtained the data to take a look myself
and unfortunately it was far more concerning.
The data used to assess a realistic purchase price for first home buyers to buy or build family homes throughout Queenstown Lakes included the following property types:
· 30m2 studios – Most banks won’t touch these but if they do usually a 50% deposit would be required.
· Managed apartments – Here typically a 35-50% deposit is required. Some you can opt out of management contract and live in therefore reducing the deposit required typically to 20%. Note: Quite a few sold are within hotels complexes so this is irrelevant for the purpose the data has being used for.
· 32 Bowen Cottages – These should never have been included as they are not proceeding and never settled so should never have been within the data in the first instance.
So once you scrape away the apartments (not houses) you are left with a more realistic 5% within the district falling within the caps and then how many of these are actually in Queenstown?, it
appears even less.
When you consider the houses that were under the new cap are now worth over $600,000 that 5% diminishes even further and provides us with a more realistic estimate of the true value of this product,
which in reality is close to zero.
Who is the HomeStart grant really for?
Maybe I have a different expectation or I saw the HomeStart grant as something else. Its function appears to really only assist very few and by the data used to support the first time buyers cap they are expected to purchase apartments, managed apartments or studios and not two+ bedroom homes.
My opinion is that it should have the ability to assist all first time buyers into their first home, not apartments only and have the ability to assist families too meaning more than one bedroom houses.
It’s very easy to sit and criticise and not put forward other options so here are my thoughts:
Equity loan from the Government
The government should offer 5% interest free loan for up to 5 years to match the home buyers deposit. When the home buyer sells the government take 5% of the capital gains or portion there of once sold if home owner has repaid some of it. This then opens the door for RBNZ to offer support and as a consequence our major banks.
RBNZ (Reserve Bank of New Zealand) assistance
Whilst the banks in Australia are being investigated for not passing on all of the OCR drops recently, one can only assume the same can be asked of the Australian owned banks here in NZ.
We understand the RBNZ are making it more expensive to lend to investors and home owners with less than 20% deposit and that is seemingly why the banks cannot pass all of the savings on.
Regardless, the RBNZ should make it cheaper for banks to lend to first home buyers and make it an exempt activity. This will enable banks to lend to first home buyers with less than 20% deposit
without it impeding the 10% cap imposed.
On the back of RBNZ making it cheaper to lend to first home buyers, the banks can then offer deals that match 20% deposit purchasers, opening 1st home buyers to the best deals in the market when they need it most and cash incentive for solicitors fees etc when they need it most, at their first purchase.
Free doesn’t mean Best
So my proposal does not propose any gifted deposits or any price caps as I feel a first home buyer product should be for everyone buying their first home and I don’t see why you should have to purchase substandard property because it is your first home.
The issue is people cannot possibly save $50,000 to $70,000 through their wages. It will come from equity of previous properties, cash flow from businesses, sale of a business, gift or inheritance.
A gifted deposit is not viable for the government on a large scale and hence the reason I believe the caps are so low. Removing the gift, removes limitations.
Let’s scrap the HomeStart grant, think bigger and not demand a FREE solution, but support that we are willing to pay for once we establish ourselves after five years in the housing market.
There are caps up to $750,000 in Australia and $1,200,000 in the UK so why so low in New Zealand which is a very expensive place to live and property debt to income ratios higher than most?
You can argue it is very expensive to build in NZ and you should be able to buy land and build for $550,000. I agree but you can’t so caps (if at all) must be based upon where we are today and you simply cannot buy an entry level 3 bedroom existing property in Queenstown for under $500,000 or build for $550,000.
You may be one of the lucky few who have purchased a section for $200,000 and awaiting title to be issued and could squeeze in at $350,000 build but if you are buying land today, no chance.
We will be meeting with Todd Barclay during the next month to discuss our concerns and our ideas. We know he is very keen to tackle the real issues people are facing in our area when trying to buy
their first home as he has done so recently himself.
Please post any feedback and comments as we will share with Todd and post an update afterward.