September 28, 2014 12:00pm by David Farrar

Some people rorting KiwiSaver home subsidy

Speculators are cheating the KiwiSaver scheme that helps first-home buyers by using it to purchase rental properties.

The rort emerges as the new Government prepares to double taxpayer subsidies under the scheme – a flagship policy in National’s election campaign. An extra $218 million will be available – money that could be diverted into speculative property investments, rather than first homes for young families.

People who use the KiwiSaver first-home deposit subsidy scheme must live in the house they buy for a minimum of six months and it cannot be used as an investment property during that time – a rule designed to dissuade speculators from taking advantage of the popular scheme.

Fairfax NZ has learned of instances where first-home buyers have moved out of their property soon after buying it – or not moved in at all – and are instead renting it out.

This is not surprising. Our lessons of history is that when there is a financial incentive to do so, people will change their behaviour in order to gain the incentive. Any government agency proposing or evaluating a policy should brain-storm all the different ways people might try and rort the system.

Housing NZ financial operations manager Matthew Smith said first-home buyers using KiwiSaver for a deposit could be made to pay back their subsidy with penalty interest if they were caught breaching the rules. They would be required to remedy the breach or pay the subsidy back with penalty interest charged at a current rate of 5.75 per cent.

Smith said applicants were required to sign a statutory declaration stating they would live in the property for at least six months. “We also contact the owner after five months to check they’re still resident in the property,” Smith said.

But Bolton said there was no follow-up system to confirm buyers had stayed in the home.

I guess one needs to know the size of the problem, to decide whether one needs to physically check up on applicants.

My preference would be that the Government doesn’t give out taxpayer subsidies to aspiring home owners, but insteads work more vigorously with local government to free up land, reducing the cost of housing for all New Zealanders.