It’s tough for kids
Q: In my letter that ran in your column last week, I said, “We all struggled to buy our first house”, and you replied that my comment would enrage the young, as house prices relative to incomes used to be much lower.
I know I’m being tough on the kids. It really isn’t possible today to buy a house like our first. Outside dunny, a bathroom in name only, a stove that had a single functioning element and no oven, and a copper and mangle for the nappies, sheets and our clothes.
Because there was match lining, not Gib, you couldn’t keep a candle burning inside the house during a storm. The wind coming through the walls blew it out. Concepts like draught-proofing, insulation and double glazing simply didn’t exist then.
But the kids are right, the house didn’t cost me 10 times my wages. Houses have been gentrified out of reach for some people to buy, but now they are lovely to rent and live in.
A: Sounds like my first flat, on Tinakori Rd in Wellington, with the loo across the back yard and the cold and damp everywhere. It burnt down soon after. Good riddance!
Nobody wants to go back to those days. Improvements like insulation and double glazing have not only made houses nicer to be in, but also healthier.
But modern houses are often unnecessarily large. In 1974, the average New Zealand house was 120 square metres. By 2010 it was 200. That’s a huge jump.
By 2019 the average had dropped back to 158sq m – both because stand-alone houses had become smaller and because there were more townhouses, retirement villages and so on. But 158sq m is still nearly a third bigger than in the 1970s.
While houses here are somewhat littler than in Australia – which has the world’s biggest houses according to worldpopulationreview.com – we come second, slightly ahead of the US. Our average house is nearly twice the size of German houses, and way more than twice the size of UK houses.
What fills up all the space? Most New Zealand houses these days have more than one bathroom and toilet, more than one living area, and three or four bedrooms. And rooms are bigger than necessary. Also, many have a double garage attached to the house.
Meanwhile, families are smaller than a generation ago, and our ageing population means more places house just one or two people. Back in 1886, the number of people per house averaged 5.2. Now it’s 2.7.
First homes don’t need to be so big. Children can share bedrooms, and one living room and one bathroom are enough.
The trend towards tiny homes might be a step too far for many people, particularly those with young children. But there’s a happy medium. Let’s see more small houses being built – and more families happily moving into them.
Property values halved
Q: Feel free to ignore this naive thought …
What if we all agreed that from some arbitrary date (e.g. 1 June 2024) our homes (and the land they are on) are worth only half of today’s value? Just think of all the worry and stress we would immediately eradicate.
Of course, the banks would need to agree that we only owed them half of whatever is left on our current mortgage, too. There must be a mathematician who can come up with a formula that could make this work equitably (even for pesky investors who have used equity to buy more property) and would enable us to get back to more sustainable income-to-house-value ratios.
I know this won’t impact the cost of materials for building a house, but I can only manage one problem at a time.
A: I love bold visions. But while some people’s worries and stress would lessen, others’ would grow dramatically.
The bankers would probably go broke. And that would affect all of us. No government guarantee could cope with widespread bank failures.
And what about people planning to sell their home and move overseas – unless you are planning on the whole world doing this?!
Those borrowing against the value of their properties so they can invest in other property would presumably be okay, as you suggest. They could borrow less, but the property they were buying would cost less.
But what about people borrowing against property to fund a business? Or to get desperately needed medical drugs? Or to pay for higher education?
The trickiest part of all would be getting everyone to play along. This would obviously have to be enforced by the government, which feels awfully like dictatorship.
It’s a fascinating idea, but ...
Q: This was in an article called “What happened Monday” on the interest.co.nz website:
“KiwiSaver funds under management reached $105.3 billion in September. This is up $4.5 billion from June and up $14.3 billion from a year ago. These rises are not impressive. They rose $4.6 billion in the March 2019 quarter on a base of just $52 billion, so this latest increase is lame by comparison.
“Meanwhile the IRD reports that KiwiSaver contributions in the September quarter were $3.3 billion, so earnings for the quarter were only $1.3 billion or plus 4.8 per cent pa. Given you can get 6 per cent in a six-month term deposit (5.3 per cent after tax for many contributors), you can see why the result should be considered lame.
“The NZ Super Fund managed plus 9.5 per cent or double the KiwiSaver industry returns in the same period.”
Trust it may be worthy of a comment in your column.
A: Indeed. But at the risk of seeming like The Great Defender of KiwiSaver Providers – at first, anyway – the points in the article are a bit worrying, for several reasons.
The comparison with the NZ Super Fund is rather unfair. First, the Super Fund is investing for the very long term, so it makes sense for it to hold largely shares and other higher-risk, higher-average-return investments.
Meanwhile, a large proportion of KiwiSaver members are either planning to spend some or all of their savings within the next 10 years – and are therefore wiser to be in lower-risk funds – or they are simply more risk-averse than the sophisticated Super Fund advisers. We would expect their returns to usually be lower.
It’s never good to look at fund performance over just three months. Sure, David Chaston, who wrote the piece, addresses this by comparing the KiwiSaver and Super Fund performances over the same short period. But still, it’s only one period. I bet there have been other quarters – when share markets tumbled – when KiwiSaver outdid the Super Fund.
The comparison with term deposit returns is tricky. KiwiSaver fund managers could, at least theoretically, move money to bank term deposits when interest rates are relatively high, but would that be a good idea? They could well be selling shares, bonds or property at low prices – a bad move.
And when should they move back, given that over the long term returns on these other investments are highly likely to be higher than on term deposits?
As I’ve said so often, people who time markets sometimes get it right, but more often they don’t, and end up worse off.
But KiwiSaver providers aren’t blameless. While disappointing KiwiSaver performance can be “blamed” to some extent on members for choosing lower-risk, lower-average-return funds than is warranted by their situations, providers could do more to educate their investors on this.
And it’s important to note that changes in total funds under management are heavily affected by fees. While some providers have made progress in reducing their fees, many are still charging too much.
The taxpayers of New Zealand – through the KiwiSaver government contributions that we all pay for - have handed providers a gift. These contributions have made investing in their products much more attractive. In exchange, providers should keep their fees as low as possible.
Q: I can add a little to your comments last week about how NZ shares have done in the last 50 years.
Just before and just after 1973, we spent $22,000 on side-by-side houses (in the right place) in Auckland. Your $1000 in that time has become “a lot more than $120,000″ in the NZ share market, but I’ve just looked up the Auckland Council CV for the land (only) we bought then and which we still own. It’s exactly $5 million. My calculator reckons that that is 227 times more.
I think it’s the ability to “sweat” property that can work for some people. Sweat is a word that the fancy money men use to mean making stuff work a bit harder. You can double the value of your $120,000 shares by doubling your $1000, but you can double the value of your house spending less.
We are all shaped by our experiences - yours selling a house at the wrong time, mine watching colleagues losing their shirts in the 1987 share crash. More than 120 times improvement in value in 50 years is, as you say, better than inflation, and saving is better than not if you are able.
We know house values crashed in Pompeii in AD79, and it can happen here.
A: Congratulations on the success of your property investment. It’s a great response to my story about losing 30 per cent on a house around 1990.
But I wasn’t meaning to imply that my loss was typical, just to point out that it could happen. Perhaps I should have added that the house I owned before that nearly doubled in price in just two years, when we lived in Sydney.
My point is that property investment is hugely varied. Often it goes well, sometimes extremely well. But sometimes you lose – and that tends to be overlooked.
On sweating a property investment, you’re right, there’s scope to make changes that will enhance your returns in a way you can’t with shares. On the other hand, it takes time and energy. And all sorts of things can go wrong with a property, whereas a share fund investment just sits there while you go to the beach.
I’ve long concluded that both investments usually work well over decades – although either can go wrong, especially in the short term. Deciding which to choose is largely a matter of personality and interests.
Meaningful Christmas gifts
Many charities offer Christmas gift programmes. You buy items for people in need that are given on behalf of your family or friends. For example, you might donate money for school equipment in developing countries. You receive an acknowledgement to give to your relative or friend to show what they have “donated”.
It makes a great Christmas gift — more meaningful than buying stuff for one another that is often not wanted.
Each year, this column runs a list of charities that take part in these programmes. I’ve asked each one to describe their programme in 20 words or less:
Caritas Aotearoa New Zealand: 0800 22 10 22 or www.caritas.org.nz/caritas-gifts “Caritas Gifts of hope, life, peace, or learning enable our life-changing work in Aotearoa New Zealand, and around the world.”
ChildFund New Zealand: 0800 808 822 or www.childfund.org.nz “ChildFund NZ: Gifts that Grow - life-changing help for children where they need it most, including Gaza and the Ukraine.”
Leprosy Mission New Zealand: 0800 862 873 or www.reallygoodgifts.org.nz. “Share God’s love with people facing leprosy this Christmas; for as little as $10 for a pair of protective sandals.”
Mend NZ — Mobility Equipment for Needs of the Disabled: 021 060 9631 or www.mend.org.nz. “Give African or Himalayan youth a limb to walk to school or hearing aid to hear for the first time.”
Save the Children New Zealand: 0800 167 168 or gifts.savethechildren.org.nz. “Give the gift of a bright future! From clean water to a school library, your Good Gift helps kids thrive.”
Tearfund NZ: 0800 800 777 or www.giftforlife.org.nz. “Protect a child from human trafficking ($15), give a hen ($20) or goat ($55) or plant a coffee plant ($20).”
The Fred Hollows Foundation NZ: 0800 227 229 giftofsight.hollows.org.nz “Give a gift to a loved one and the gift of sight to someone in the Pacific.”
World Vision New Zealand: 0800 800 776 or www.worldvision.org.nz/smiles “From chickens to fast-growing seeds, you can help change a life this Christmas with a World Vision Smiles gift.”
Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to firstname.lastname@example.org. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.