A.       This is one of several questions I received after my column last week on KiwiSaver benefits for first home buyers.

Housing in New Zealand has become increasingly unaffordable, particularly since the house price boom of the last decade. Providing assistance such as the First Home Deposit Subsidy is one way to help lower income workers into their own home.

I contacted Housing New Zealand to find out how many applications they had processed to date for the First Home Deposit Subsidy. A spokesperson told me that demand had exceeded all expectations. By 31 May 2012 a total of 3440 applications had been paid out, totalling around $11.2 million dollars (an average of $3255 per application). The amounts will continue to rise as more people qualify. Applicants may receive a maximum subsidy of $5000 for 5 years’ contributing membership. They do not have to withdraw their KiwiSaver funds as well, but applicants need to have belonged and contributed to a KiwiSaver scheme, complying fund or exempt employer scheme for at least three years.

Those who wish to apply for the First Home Deposit Subsidy should submit their application in good time – allowing at least 20 working days from the date of application to receipt of the funds. I was told by an adviser from the office of the Minister of Housing, Energy and Resources that ‘Often people don’t realise that they don’t have to wait until an offer is unconditional to submit an application – they can submit an application while the offer is conditional and then let HNZC know when it goes unconditional and the settlement date.’ 

Are we going to see another housing bubble? The 2002 – 2007 housing bubble was fuelled by property investors and speculators rather than by low income workers buying their first home. The current Government has already implemented some tax changes to make property investing less attractive, and Labour is proposing a 15% capital gains tax on the sale of investment properties and second homes. 

The First Home Deposit subsidy is only available for homes under $300,000 (or $400,000 in Auckland, Wellington, Queenstown and the Selwyn District) so we are only looking at a segment of the housing market. 

Home ownership has benefits for society at large. Home ownership allows people to raise their standard of living by improving their home; it is associated with higher wealth as, unlike renting, mortgage payments are a form of saving. Home ownership also protects against rent inflation for those, like retired folk, on fixed incomes, and it may also provide a source of equity that can be drawn on in an emergency. A high level of home ownership also creates more stable communities as people are less inclined to move. For these reasons it is important for Government to have policies like the First Home Deposit Subsidy which will encourage and increase home ownership.