Pensioners are finding that NZ Super isn’t enough for rates, insurance and power, while more working age homeowners are facing the prospect of retiring with a mortgage still to pay, writes Catherine McGregor in today’s extract from The Bulletin.

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Mortgage free, not financially free

Paying off the mortgage used to mean freedom in retirement, but today, even mortgage-free pensioners are struggling with rising fixed costs. Susan Edmunds’ reporting in RNZ shows how the idea that a paid-off home equals cheap living is disappearing as the cost of rates, insurance and electricity climb higher. RNZ’s survey of non-mortgage homeownership costs found the priciest places to live include Carterton and central Wellington – the latter largely caused by high insurance premiums – while Ōtorohanga and Whangārei are among the cheapest.

Rates rebates and the winter energy payment help, but for those relying solely on Super, they’re a drop in the bucket against annual fixed costs of $6k–$9k before maintenance or food. On RNZ’s Saturday Morning this weekend, retirement commissioner Jane Wrightson noted that 40% of pensioners live on NZ Super alone, with another 20% only slightly better off – a reminder that the problem is widespread.

Downsizing no easy fix

A graph shared recently by the NZ X account Charted Daily, based on Stats NZ data, shows the share of households with two or more spare bedrooms jumped from 27% in 1986 to about 40% in 2023 – suggesting that older owners are downsizing later, or not at all. In another RNZ piece, Edmunds explains why. First, supply: one- and two-bedroom homes are a minority of new builds, especially in the regions. CoreLogic’s Kelvin Davidson notes downsizing is hardest where two-bed options are scarcest (the West Coast, Waikato and Bay of Plenty), and relatively easier in townhouse hotspot Christchurch, with Wellington and Auckland offering more apartments.

Second, the maths: the price gap between an older three- or four-bed house and a smaller, high-spec townhouse or apartment is often narrower than people assume, and selling costs are higher. Many also end up buying a nicer apartment than they originally planned, further eroding the capital they hoped to free by selling their home, says economist Ed McKnight.

The new reality for working-age homeowners

Releasing equity may help some current retirees, but those still in the workforce may end up without much equity to release, writes Auckland University researcher Claire Dale in The Conversation. Most pertinent is the fact that fewer people own their own home – homeownership fell from 75% in 1991 to about 60% in 2023. Of those who do own, an increasing proportion will retire with a mortgage still to pay; only 38% of 55–64-year-olds are mortgage-free. The cohort aged 35-49 looks most exposed, Dale writes: many bought as prices surged to the 2021 peak, when house values rose far faster than incomes.

“KiwiSaver is unlikely to replace the traditional housing nest egg,” she adds. “New Zealanders have, on average, NZ$37,079 in their KiwiSaver accounts, with thousands of people reaching close to retirement age with less than $10,000 saved.”

Why rate cuts aren’t turning into a spending surge

Even beyond retirement, housing pressures are reshaping behaviour. In the Sunday Star-Times (paywalled), Rob Stock reports that lower mortgage rates haven’t sparked a rush of spending, with the extra cash eaten up by rising bills. As Infometrics’ Nick Brunsdon puts it: “The money just disappeared into everyday life; insurance, electricity, food.” After years of high interest costs, households are paying down debts and rebuilding savings rather than splashing out, writes Stock. People are, in general, overly worried about losing their jobs and think inflation will be higher than the experts’ predictions. “All up, it paints a picture of households not expecting an improvement in the next 12 months, though that is what economists are telling them to be ready to enjoy.”

Read more:

• Max Rashbrooke: A new suspect in the case of New Zealand’s property investment obsession (The Spinoff)
• Quality of life dropping for Otago seniors: survey​ (The Star)