The original sin at the heart of KiwiSaver
Wednesday, 4 March 2026
Henry Cooke is deputy political editor of The Post, and writes a column every Wednesday.
OPINION: When the bill to create KiwiSaver was introduced into Parliament 20 years ago this month, its potential impact on the housing market did not rate much of a headline.
Dr Michael Cullen mentioned that the scheme would “encourage home ownership” as the sixth of the six features he listed. John Key spent most of his speech suggesting the real reason Kiwis couldn’t save was because Cullen had not given them the tax cuts National had promised at the 2005 election, alongside an ill-fated prediction about the scheme’s popularity
National MP Craig Foss offhandedly mentioned that the direct subsidy element for first home buyers would likely get eaten up in high house prices, suggesting it would send house prices $5000 higher.
If only.
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When the bill was introduced in 2006 the median New Zealand dwelling cost $295,000, and the median household income was $59,000 - meaning the average house would cost the average family five years of total income.
In the years since, house prices shot up a lot faster than incomes. At their peak in 2022 they were about 8.3 times the median household income, with far greater ratios in major centres. Even now, with consistently subdued prices, it remains at around 6.5.
KiwiSaver withdrawals for home buying and nothing else - especially alongside the grants that for a long time accompanied them - are a classic example of a “demand subsidy”. These exist all over the economy, especially for politically touchy products like fuel and housing. Their goal is generally to help people afford things, which they may well do in the first instance - but by driving up demand and giving people more money for that specific product, they may well drive up the price of that product itself.
This original sin harmed both the housing market and the scheme itself. It contributed to runaway house price growth and stopped KiwiSaver being a purely retirement savings vehicle. $1.9 billion was withdrawn for first-home purchases last year, all at the average age of 34.
If that $1.9b was instead invested in the aggressive funds any 34-year-old would be wise to put it in, and made what aggressive funds have for the last decade, it would be worth $24b by the time they retired in 2057.
That is quite a lot of money New Zealanders could have to play around with that will instead be sunk into the unproductive housing market.
It also highlights why Australian governments have consistently rejected calls to allow their huge super funds be withdrawn for first homes.
On Sunday the Government announced it would make this distortion even worse, allowing KiwiSaver withdrawals for more types of farm purchase and the purchase of homes people don’t live in, if they are forced by their job to have a tenancy elsewhere. These changes are minor in the scheme of things but just go to show how much the original purpose of KiwiSaver as a retirement savings vehicle has been eroded.It is far from the silly idea Judith Collins promoted in 2020 to allow KiwiSaver funds to be withdrawn to start businesses - but that this policy was even considered says a lot.
You cannot blame the unaffordability of homes predominantly on KiwiSaver. Treasury officials have suggested in recent years that they think in a “supply-constrained” market of housing any subsidisation of demand will likely lead to higher house prices, rather than more people buying houses. This was more of an issue with the “welcome home grants” introduced alongside KiwiSaver, increased by both National and Labour governments, and wisely wound back a few years ago by the government.
The real issue is massive constraint on supply - the lack of new homes being built in places people actually want to live. Our last three governments have made major steps to address that with sweeping zoning changes, with some success, although we are seeing a massive walkback on “intensification” in Auckland. If we were building the houses for all the demand we have seen for housing in the last two decades, the added subsidy from KiwiSaver would probably not be much of an issue.
But it is still quite stunning with the unfair power of hindsight to see how blind people were when designing KiwiSaver to the inherent issue with allowing almost the entire thing to be withdrawn towards a house purchase.
Helen Clark told me on Monday she did not remember it being much discussed at the time. Officials responding to some concern about it at select committee provide a bit more context to the decision-making, suggesting the ability to withdraw was crucial for getting young people involved in the scheme, as many of them might decide to “opt out” if the rewards wouldn’t come until age 65. This probably remains a good reason - but really only highlights the problem with not making the scheme compulsory.
I asked Labour’s Barbara Edmonds, National’s Nicola Willis, and ACT’s David Seymour whether this setting was a mistake with hindsight. None thought it had been, and all generally suggested it had helped people into homes.
Yet are we really sure KiwiSaver has not just helped people who would have already bought homes buy more expensive ones? In 2006, 66.9% of households owned their own home. By 2018 that had dropped to 64%. Across society it doesn’t seem to have done much.
It would be incredibly hard to unwind this inbuilt problem this late in the game. Too many people planning to buy their own homes now rely on KiwiSaver. I’m one of them. But it would be nice if at some point for our politicians - most of whom will be campaigning on some change to KiwiSaver - to admit we might be stuffing a little bit too much into this one policy. One doesn’t need to reverse one’s sins to get into heaven - just repent.