KASPANZ MEMBERS NEWSHEET 26:  2022  Kiwi saver |Annuity /Superannuation| Protection Association of NZ.

  Hi everybody

KASPANZ   was formed in February 2013, and we continue to enhance our reputation with our regularly refreshed website with retirement income articles and comment. The Consumer voice has to be heard, the economist voice, and a limited diet of individual commentators of various worth, needs additional stimulus and Kaspanz tries to provide that through information and influence.  Remember to click onto our website www.kaspanz.com on a regular basis to see what’s there, and remind friends and associates. We like supporters to join Kaspanz, and this is easily done on the home page.You can also get free updates of new website information per e-mail alert. Look for the home page icon. The site posts new articles weekly, and we welcome comment. See the disclaimer at the end of the newsletter re content!

EDITORIAL-Housing and comment

Why not a housing correction of 30%. A house value $1,000,000 falling to $700,000. Everyone says negative equity? So what, after massive gains in a limited period of years, a number of years of no gains,  could be described as” reality medicine”. A balancing out of unsustainable wealth increase.

Those who invest in the share market are repeatedly warned not to always  expect upward trends and  be able to work through dips and unpredictability. Why not the housing market. Is negative equity and a number of years of losses, and no capital gain, that bad! Council planners have a lot to answer for over the last decade, with their protection through the Resource Management Act  for the status quo, they have got away with it, when they should have been called to account.

In the same breath, the National Party, drift approach to policy, throughout  the 2008-2017 period, very little policy of substance, has contributed to the crisis in Health, education,  Housing , lack of wage growth, the blind eye approach meaning the 2017 Labour Government have been forced to address numerous issues.

 COMMENT

Mark Zandi, chief economist at Moody’s Analytics, said he is worried that the housing market is in for a hard landing. But the market and economy won’t crumble like last time, he expects. “The housing market is out of whack. It’s not sustainable. It is overvalued, stretched and vulnerable as [mortgage] rates rise, and affordability gets crushed,” he said. “But I’m not concerned we’re going to have a crash.”

 Andrew Orr our Reserve Bank Governor-Housing prices pose risk to New Zealand’s financial stability

The Reserve Bank is reaffirming that house prices are expected to ease, fuelled by record building activity. In a speech at the Property Council of New Zealand’s retail conference, the central bank’s governor Adrian Orr said house prices are currently unsustainable and posed risks to the country’s financial stability. Homes in New Zealand are the most unaffordable among OECD nations, with prices soaring about 30 percent in 12 months due to an acute housing shortage, historically low interest rates and cheap access to capital from the government’s pandemic-driven stimulus spending.

The jump in house prices was mainly related to the inability of housing supply to respond to changes in demand, Orr said. “The extent to which New Zealand house prices have reacted to changes in housing demand is mostly related to the inability of housing supply to respond “Houses have been scarce at a time that demand was strong. The reverse is now evolving – with housing building at record levels at a time that population growth is static.”

As a result of the supply-demand dynamics, house prices were expected to ease over the medium term, he said. “This means house prices would be moving back toward a more sustainable level – a level that can be explained by underlying economic fundamentals.”

EMMA VITZ

Earlier this month, analyst Emma Vitz created a brilliant but disturbing infographic/data visualisation that revealed what we all already knew but perhaps had not seen illustrated so starkly – we now have the worst discrepancy between incomes and house prices in recorded history.  A few days later, economic commentator Bernard Hickey outlined the cost of New Zealand’s low national debt – massive underinvestment in our core infrastructure. Hickeys articles on housing are hard hitting, but difficult to dispute

A crash may seem unthinkable to many, but the reality is that the status quo is already catastrophic for those who are living in cars and garages.

It’s easy to despair at modelling that shows this problem was a long time in the making, and that without radical intervention (and even with more moderate intervention), it will take a very, very long time to correct. For a while I’ve been wondering what if we crashed the housing market on purpose? Or, perhaps less dramatically, what could a managed transition look like?

A crash may seem unthinkable to many, but the reality is that the status quo is already catastrophic for those who are living in cars and garages (who are more likely to be Māori or Pasifika, with larger families and younger overall), those who are raising families in mouldy, damp housing and have persistent health issues. It is no coincidence that the people who are living in the worst conditions and have no personal wealth to lose, are also the most likely to be politically disengaged.

Yet for the perhaps half of New Zealanders (who are more likely to be Pākehā and older) who do own a house (often only one house, the house they live in), very likely their life savings have been sunk into this asset. A crash would be catastrophic, particular for those in retirement or approaching retirement age. The worst-case scenario is negative equity, whereby people owe more to the bank than the property is worth.

The biggest problem is that the vast majority of people’s personal wealth is tied up in housing. We have an economic system that incentivises sinking our money in housing over other more productive uses (such as investment in businesses). It should come as no surprise that our economy is underperforming, at least partially as a result of our collective underinvestment in business and overinvestment in property.

As a first step, we could either ban ownership of more than one property, or use the tax system to heavily disincentives the purchase of investment properties. People could still potentially still invest in housing through managed funds, which could be used to invest in affordable, well-designed housing projects with good amenity. Covenants could be placed on private property to prevent owners from selling beyond a price calculated by an agreed formula. Individual homeownership could be disincentivised through the taxation system and phased out over time in favour of collective forms of housing.

Secondly, we have a retirement system that assumes the majority of retirees will own a home and will be mortgage-free as they enter retirement. Major changes – including to the rate of superannuation – would be required, at least in the short-medium term given our high cost of housing and limited availability of appropriate housing for older people. At a time when we are considering raising the age of superannuation to reduce projected national debt, any moves to increase the rate of super may be politically unpopular and potentially fiscally unsustainable (although serious consideration of the introduction of a universal basic income is yet to occur).

Finally, being a renter is precarious, expensive, and hazardous to our health. The residential tenancies act offers insufficient protections to renters, and our hot property ownership market means tenants are regularly forced to shift when the property is inevitably sold, and are vulnerable to frequent rent increases. If we, as a first step, removed the ability for people to own more than one house, this would also remove the incentive to become private landlords. A shift towards collective ownership – this could be at a whānau, community, or state level – would remove private landlords from the system, offering well-managed collectively owned housing or affordable secure rental options.

As Bernard Hickey and others have wryly noted, we don’t have an economy so much as we have “a housing market with bits tacked on.” Any moves to shift the dominance of the housing market in our economy will be a threat to the overall stability of the system. Measures will need to be taken to protect the stability of the overall financial system (including deposit insurance, which is set to be up and running by 2023).

Yet if we as a society collectively accepted that people would lose unearned capital gains on their properties but would be protected from negative equity and mortgagee sales, a managed transition may be possible, enabling us to firmly establish housing as a human right and move away from housing as a financial asset.

SNIPPETS

 Greed or Need!

Larger dwellings on average, the size of the average new dwelling being built was just under 140 square meters in 1991. The size peaked at over 200 square meters in 2010, and now the average new dwelling size is 156 from a still high 180 four years ago. It will take a long time for newly constructed smaller dwellings to have much impact on the average size of the overall dwelling stock, but this element contributes to community good and economic balance!

Public debt as a percentage of gross domestic products in NZ might even get to 54%In a low inflation and low interest economy, there is a solid argument to borrow sense to borrow, targeting infrastructure needs etc.  How does such a figure compare to others in the OECD. Current figures 2021

• NZ 28%
• Australia
• 41%
• Germany 57%
• UK 87%
• USA 107%
• Japan 238%
• Singapore 110%

ON-LINE TROLLS-ANON

Sooner rather than later, the community and Govt, need  to end Internet anonymity, or at least to ensure that every online person is linked back to a real person: Anyone who writes online should be as responsible for his/her words as if he/her were speaking them aloud.  Human rights, including the right to freedom of expression, should belong to real human beings, and not to anonymous trolls.  Regulation, standards, whatever the term you wish, but communication technology platforms should be no different re their rules, code of practice and enforcement practice as anything else!

REVIEW OF RETIREMENT VILLAGES LEGILSATION

From: Michelle Reyers <michelle@retirement.govt.nz>
Sent: Tuesday, 25 January 2022 9:52 am
To: Alec Waugh <alwaugh@xtra.co.nz>
Cc: Te Ara Ahunga Ora Retirement Commission Office <office@retirement.govt.nz>
Subject: RE: Retirement Village Review

Kia ora Alec: Thank you for your email.

As you are aware in June 2021 Te Ara Ahunga Ora Retirement Commission released a report and recommendations following public consultation on a white paper studying the effects of the complex legal framework governing the retirement village sector. We reported on our findings from the submissions we received, and our Summary and Recommendations report recommends a policy framework review. This report, along with additional information, is available at the following link Legal framework report 2021 | Retirement Commission Te Ara Ahunga Ora

The review of the Retirement Villages Legislation is currently with the Ministry of Housing and Urban Development, which will lead this work. I’m pleased to advise that Hon Poto Williams, Associate Minister of Housing (Public Housing), has announced that the Government will look to progress a review of the Act, hopefully beginning toward the end of this Parliamentary term.

Michelle Reyers, PhD, CFA | Retired Persons Lead

Winners and losers in Kiwi Saver 2021

Daniel Smith17:03, Jan 20 2022

Last year some Kiwisaver funds raked in the cash with phenomenal returns, while other previous top performers fell on hard times.The variation between funds came in a year that was a roller-coaster for capital markets as new variants of Covid-19 appeared, supply chain shortages caused a slowdown in international trade, and a long run of low interest rates came to an end.

But through it all more than 3.1 million people had invested in KiwiSaver which grew to a total of more than $81 billion.But not all funds performed alike, and research company Morningstar has revealed the winners and losers for KiwiSaver 2021.

The clear front-runner in growth assets categories was Milford Asset management which had the best returns of 6.4 per cent in the moderate category, 18.4 per cent in the growth category and 20.2 per cent in aggressive. In the balanced fund category, the ASB positive impact fund came out on top (12.5 per cent), closely followed by Milford (12.1 per cent), and Pathfinder balanced fund taking third place (11.7 per cent).

Pathfinder took out the top spot in the conservative category (4.85 per cent), a whole percentage point higher than the runner-up, the former default fund, ANZ conservative fund (3.7 per cent).

As of June 2021, over 3.1 million New Zealanders have invested in KiwiSaver, totalling over 81 billion dollars.But it was not all winners in KiwiSaver last year and there was some large variation between those at the top, and those who fell short.

On the loser side of things, several of the most lacklustre funds were managed by Juno, who had the worst performing balanced fund (1.2 per cent), the worst performing moderate fund (negative 0.5 per cent), and the second-equal worst performing growth fund (4.3 per cent).AMP also did not have a good year with the worst performing growth fund (3.6 per cent), the worst aggressive fund (6 per cent) and the second-worst moderate fund (0.27 per cent). KiwiSaver advice firm Better Saver, said Juno’s abysmal returns were a prime example of why savers should pay no attention to one-year returns.

“In the 2020 financial year the Juno Growth fund was the top performing growth fund with returns of 30.3 per cent. Now they have gone from number one to second to last. That is the reason why we don’t look at one-year returns period. It is really dangerous to pick a fund from a one-year return for that exact reason,” Taylor​ said.

Taylor​ instead recommended looking at a minimum of a three- to five-year return when selecting your funds, as consistency of return would beat a single high performing year in the long run. “Fisher Funds, Milford and Generate are three funds that are consistently in the top performers of KiwiSaver returns. Pathfinder are another fund that are so far doing great, but like Juno, they are a newer fund and we don’t have as in-depth data on them yet. But all of them show to consistently outperform their peers,” Taylor​ said.

David Boyle​, head of sales and marketing at Mint Asset Management said the last five to six years had generally shown excellent returns for most KiwiSaver funds, but the real test may be soon on its way.“This long golden summer could soon be heading into autumn. The next three to five years will be a real test for KiwiSaver investors. This expectation of seeing double-digit returns year-on-year is unlikely to continue. We may see even more negative returns,” Boyle​ said.

Market uncertainty was a time for KiwiSaver managers to show their worth, using the opportunity to communicate with members and guide them through, he said.The worst case scenario for KiwiSaver was another instance of high fund switching seen in the market dive in March 2020, when thousands of people, largely younger investors lost money, Boyle​ said.

“I would caution KiwiSaver investors to not try and chase perfection by looking at last year’s returns. This is a long game and investors need to remember to think long term with their decisions,” Boyle​ said

WINNERS AND LOSERS FOR KIWISAVER 2021

​​​​​Conservative:

Winners

1. Pathfinder KiwiSaver Conservative Fund – returns: 4.85 per cent
2. ANZ Default KiwiSaver Scheme Conservative – returns: 3.71 per cent
3. Booster KiwiSaver Conservative Fund – returns: 2.75 per cent

Losers

1. ASB KiwiSaver Scheme’s Conservative – returns: 0.15 per cent
2. Simplicity KiwiSaver Conservative Fund – returns: 0.32 per cent
3. Westpac KiwiSaver-Defensive Conservative – returns: 0.59 per cent
4. Balanced:

Winners

1. ASB KiwiSaver Scheme’s Positive Impact – returns: 12.53 per cent
2. Milford KiwiSaver Balanced Fund – returns: 12.19 per cent
3. Pathfinder KiwiSaver Balanced Fund – returns: 11.78 per cent

Losers

1. JUNO KiwiSaver Balanced – returns: 1.20 per cent
2. AMP KiwiSaver AMP Income Generator – returns: 4.24 per cent
3. Summer Balanced Selection – returns: 4.76 per cent

Growth:

Winners

1. Milford KiwiSaver Active Growth Fund – returns: 18.49 per cent
2. Pathfinder KiwiSaver Growth Fund – returns: 16.56 per cent
3. One Answer KiwiSaver Growth Fund – returns: 15.61 per cent

Losers

1. AMP KiwiSaver Nikko AM Balanced – returns: 3.60 per cent
2. JUNO KiwiSaver Growth – returns: 4.31 per cent
3. Nikko AM KiwiSaver Scheme Balanced – returns: 4.31 per c

DISCLAIMER

The  information in this newsletter is of a general nature only, and is not professional advice. Kaspanz accepts no liability for its accuracy. The newsletter is principally the work of the current chairman of Kaspanz, and articles and views are not to be regarded as Kaspanz policy. The intent of the newsletter is to provide information only, to assist the reader in their own various view points, and is not paid content, it is compiled on a voluntary basis, in an attempt to be helpful to readers in retirement income matters. No liability is assumed by Kaspanz for losses suffered by any person or organisation relying directly or indirectly on information published on this site. Views expressed in any article are the views of the authors individually,  and or the editor  and do not necessarily reflect the view of Kaspanz .