NZ Herald 15 May 2010

AWho knows? But I agree with you that house prices are out of whack, and logic says they’ve either got to fall fast or perhaps just go nowhere for quite a long period, while wages catch up.

While any fall in house prices this year is likely to be blamed on whatever’s in next week’s Budget, I reckon that the unaffordability situation as you’ve described it is likely to be just as important a factor.

And it’s not just wages that seriously lag behind house price growth. Here’s an excerpt from another reader’s letter: “I have been a residential property investor for about 17 years. In my first property, the rent paid for the mortgage. Since then house prices have increased 400 per cent but the rent only 90 per cent.”

That huge difference in growth rates can’t last either. Normally, low rent relative to house prices will depress demand for houses because:

• More people will see renting as better value than home ownership.
• Fewer people will want to own rental properties, because the income they generate is low.

In recent years, though, rapidly rising house prices have buoyed demand — which in turn has further pushed up prices. First home owners have sacrificed lots to get a place of their own, fearful it will cost much more next year. And landlords have invested with both eyes on capital gain.

But once these two groups realise the fast growth is over, I suspect economics will kick in.

As yet another reader has put it, “If some property investors can come to accept that the average house price should not, in the long run, rise faster than average rents, and if they come to fully appreciate all the hassles, expenses and risks involved, they may finally give residential property a miss… allowing prices to fall back to a sensible equilibrium — defined as an economically viable relationship between rents and prices.”

Hang in there. There might be a longish wait. House prices could even rise fast again before sanity prevails.

In the meantime, it’s great that you are in KiwiSaver. When you finally do get in a position to buy a home, you can get considerable help from the scheme — the right to withdraw much of your money, and perhaps to get a subsidy.

AI do agree. I’m afraid there’s no option.

Here’s the word from Inland Revenue: “To make PIE tax a final tax it is based on either or both of the last two years’ income.” You can use whichever of those two incomes is lower.

“This means that it takes two years before an increase in your income will increase your rate, and only one year for a decrease in income to lower your rate. Your current year income is not taken into account.”

Over most people’s lives, this will work to their advantage, as incomes rise much more often than they fall throughout a typical career.

Unfortunately for you, though, your income has dropped considerably soon after PIEs came into existence. So it’s hard luck for you. But at least it’s only for one year. Next year you can lower your PIR rate to 21 per cent.

AThe time at which people can get their money out of KiwiSaver has always been NZ Super age.

That means that nobody is guaranteed to get access to their money at 65. However, when — and I do think it is “when” not “if” — a government raises NZ Super age, it would be politically disastrous if they didn’t give lots of warning. My guess is that everyone over 55 can expect their NZ Super to start, and KiwiSaver to stop, at 65. But for a 20-year-old it could well be 68 or even 70.

Is that a bad thing? I don’t agree with your point about a crash. In every market slump there will be some people just about to start withdrawing their money — even if the NZ Super age remains as it is. As you say, anyone close to spending their money should have it in conservative investments. If they don’t, more fool them. They’ve had plenty of warning — from me and others.

Beyond that, it makes sense to raise the NZ Super age, given how much superannuation costs and the fact that people are living much longer lives than when 65 was decided upon.

You might say that’s tough on the young. But they will get decades of KiwiSaver contributions from the government, plus compulsory employer contributions. And if the NZ Super age is raised, they will get even more years of those contributions — which stop at KiwiSaver withdrawal age.

True, government payments to KiwiSavers are much lower than to superannuitants. But over all, the young will do pretty well out of KiwiSaver.

AGiven that beneficiaries and others not in the workforce can join KiwiSaver, I don’t think it’s quite right to say KiwiSaver is a scheme for the rich.

However, it does seem that most of what you say is correct. It’s not compulsory for employers to make KiwiSaver contributions to temporary workers — including casual workers and those on contracts lasting 28 days or less — who are already in the scheme when they start the job.

Nor can they ask their employer to deduct 2, 4 or 8 per cent of their pay to go into KiwiSaver.

They can, though, make contributions directly to their provider. And, contrary to what you were told, there’s nothing to stop an employer from also contributing voluntarily if they wish. You might want to show this Q&A to the government department and suggest they check with Inland Revenue, which verified this.

It’s different for temporary workers who are not members of KiwiSaver. Unlike those in permanent work, they won’t be automatically enrolled when they start a job. But if they opt in to KiwiSaver after starting the temporary job — either by approaching their employer or a provider — they will be in the same position as other employees.

This means contributions will be deducted from their pay, and their employer will have to make compulsory contributions.

I agree with you that this doesn’t seem fair. And it might be difficult for a temporary worker to negotiate with an employer to get them to make voluntary KiwiSaver contributions.

But take heart. Inland Revenue says this issue has been identified, “and officials are currently considering the matter.”