High-paid families feeling the squeeze as costs pile up

Tuesday, 29 May 2018

Big mortgages and rising rents are putting pressure on even New Zealand's higher-earning families.

Just over half of New Zealand households cut back on heating their homes in winter due to the cost.

In Auckland, 55 per cent of households go cold in a bid to save in the power bills. In Wellington, it's 52 per cent. In Canterbury, it's 50 per cent.

David Marra, manager of the Christchurch Budget Service, said his team were seeing an increasing number of people earning more than $65,000 a year who wanted help - often because their mortgage costs were taking a greater share of their incomes.

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Only 2 per cent of clients were beneficiaries.

As part of the Christchurch rebuild, more 'executive' homes had been built, he said, which came with large home loans.

People often also took on a lot of consumer debt.

 'It doesn't take much - an accident, a pregnancy, a change in income, a change in employment, and the wheels come off.That's the reality.'

Financial coach Shula Newland said rising rents also added pressure. 'For low- and middle-income [earners], if the government top-ups haven't gone up at the same rate, that is going to put the squeeze on.'

Statistics NZ data shows 30,000 households earning more than $100,000 last year said they did not have enough money to live on. Another 116,000 said they had only just enough.

Economist Gareth Kiernan, of Infometrics, said middle-income households tended to spend a higher proportion of their income on private transport, recreational and cultural services, newspapers, books, stationery and holiday costs.

'Rising petrol prices could be an obvious one that is currently squeezing household budgets.'

He said mortgages should not be a major factor because interest rates were still low.

'However, if people have overstretched themselves to get into a property then, given the current environment of minimal wage growth, it's possible that some are struggling to make ends meet.

'Increases to benefits, the accommodation supplement, or the winter energy payment will generally be targeted at lower-income households.

'So although those households might be getting squeezed just as much the expense side, their total in-the-hand incomes might be performing better than those in the middle classes. The struggle is all relative though, and it would be hard to make the case that the middle class is more deserving of a break than the lower class.'

Newland said she saw people giving up house maintenance because they could not afford it. 'Then they end up with a house that devalues.'

They might also skip car insurance or visits to the dentist. 

'It is a question I always ask, and you can bet that if they say no they don't get check ups, it will be followed with a 'but I have lots of work that needs doing'.  Of course that isn't funded, so it gets put off or they use debt.  If it is essential though, they can get money out of KiwiSaver, which a lot of people don't realise.'

Newland said people who could not afford them were often sold contracts for expensive mobile phones.

'When they don't  pay that and it gets referred to debt collection and they get to keep the phone, but they go back to the prepay option of $20 a month or less and they survive fine.  When the mins run out they switch to communicating via data, and visa versa.'

No guarantee of work

Financial coach Hannah McQueen said many people had resigned themselves to not getting ahead because of their big mortgages. 'Heaven help us when the interest rates go up.'

Marra said there were also serious problems for people who worked as contractors, rather than employees.

Up to about 20 per cent of the workforce is defined as self-employed. He said a law change in 2016 which stopped employers offering 'zero-hour' contracts had prompted many who did not want to commit to hours to switch their staff to contactor relationships instead.

That meant no guarantee of work, no surety around the length of a contract and notice periods could be as little as an hour, he said.

Some workers did not even realise that they were contractors, not employees, he said, and did not know they were meant to pay their own tax and ACC payments. 'They just think they're employed earning good money until Inland Revenue starts calling.'

Some would then come to his service with large debts, he said.

Marra said official assistance was also lacking for contractors who suddenly found themselves out of work when a contract ended because they did not fit the model of work that Work and Income staff were trained to deal with.

They would then turn to payday lenders and other debt to cover their living costs.'Those lenders are charging upwards of 500 per cent.'