Mary Holm: Hammering out the housing choices

Living next to a building project with little ones, in-laws and pets doesn't sound very relaxing. Photo / 123RF

COMMENT:

Q: I have tried to get my wife, who does not like to think about money matters, to read your column, but so far no luck.

A lot of questions I have had, or would have had, have been raised by others, but I have one now that's doing my head in.

My housing dilemma: I am a recent first-home buyer along with my wife and our 9-month-old daughter. We live in our house with my in-laws, two cats and a dog. As you can imagine for a first home in Auckland, we are a bit squished.

We intentionally bought a large site to develop, but there are a number of ways to do this with different timeframes to have enough savings to refinance the mortgage. We could either:

• Renovate and add to the existing dwelling, which would cost roughly $200,000 and take three years to save. This would limit how we could develop the site in future.

• Build a house in the front yard to live in and keep the existing house, which would roughly cost $500,000 and take us eight years to save for. But it would give us a rental income from the older house of about $500 a week if we rented it out, and also give us options to subdivide and/or tear down the old house and build two new ones in the future.

Building a new house would mean we need to live squished for a lot longer, particularly if another baby is on the horizon. And even after it's constructed it wouldn't be a particularly big house.

Adding to our existing house would mean having a bigger house overall but less potential for adding value in future and no rental income.

I'm seesawing back and forward on this. Please help. I would be stoked to see my letter published. It might even convince my financially oblivious wife to start reading the column!

A: Dear Wife: Welcome! A couple of quick points especially for you:

• Money is not difficult or demanding. You just need to understand a few basics, get things set up in a way that works for you and then you can get on with other more enthralling aspects to life.

• However, money can end up taking a lot of time and energy if you neglect things financial. That's why I hate hearing about people who have no interest in the subject.

Often it's fine if they have a partner taking care of the money, but that may not last forever. These people are the ones who get ripped off, run up huge debt or make mistakes that leave them struggling.

But that's not you any more, right? Okay, now let's look at hubby's quandary — which is now yours too!

There's no way to know which option will work better. Sure, you can make a spreadsheet and feed in numbers that will make building in the front yard look better. But you'll have to make lots of assumptions — about future land and house values, building costs, rents and council rules about what you can and can't do. Change the assumptions and the result might be quite different.

You also need to consider the hassle. As well as being squished for several more years — a big deal when you're trying to keep lots of people happy — you would have to organise the permissions, construction and so on. Most people who have had houses built will agree that it's quite a project.

And the idea of living next to a building project with little ones, in-laws and assorted pets doesn't sound very relaxing. True, you would also have that issue if you add to your current home, but for less time.

I don't know ... It just feels to me that, reading between the lines, you want me to support your first option. And therefore I do. There'll be other chances later on, when you have fewer dependants, to get into property development — if that's what you really want to do. Now is family time.

It's a bit like the recently divorced woman in last week's column who was wondering whether to buy a home. When it's hard to choose between two good options, go for the one you prefer.

Before we say, "that's that", though, here are a couple of other options that you might consider:

• When you renovate your home, could you build up instead of out — adding a second storey — to preserve the possibility of you or others developing the section later?

• Your property will be more valuable because it's big enough to build another house on. I wonder if you should sell it — perhaps to someone in a position to develop the property now — and move to a bigger house where you're not paying extra for a feature you don't have much use for.

Oh no! I've left you with more options, not fewer. I hope all this is helpful. Let me know what you — hopefully the two of you — decide.

Rest-home subsidies

Q: Two weeks ago there was a question that involved rest-home subsidies. I understand there are no longer any gift duties — is that correct? Therefore I could give away a sum of money, or a property, to family members without any problem or tax? (Just trying to help the younger ones become mortgage free.)

If that is the case, and I needed rest-home care further down the track (and had few funds left), would the family members who received the large gift (cash or property) have to pay for my care?

A: You're correct that there are no gift duties in New Zealand these days. You can give away what you want when you want to.

But the government isn't too happy if you give lots away and then ask for a government handout.

No official will say your relatives must pay for your care, but in some situations the fact that you gave them gifts could mean you don't get a residential care subsidy. So your family members might feel morally obliged to help you out.

"Any gifting of money or property might affect eligibility for a Residential Care Subsidy, and this will be assessed upon application," says George Van Ooyen, group general manager client service delivery at the Ministry of Social Development.

"Every case is individual and must be considered on its own merits. We encourage anyone with any concerns to contact the Ministry for advice."

Broadly speaking, the rules are tougher if you give away assets within five years of applying for a subsidy, but there are also rules about earlier gifts.

For more info, see tinyurl.com/ResCareNZ, in particular "Step 2 — We'll check your assets".

Welfare wrongs

Q: The recent letter to your column illustrates all that is wrong with the welfare system.

A 51-year-old man is eking out an existence on welfare when he receives a $50,000 inheritance. The ministry points to the purpose of the Social Security Act that states, "People should look to their own resources before seeking support", to justify its $241 cut to his weekly payments.

This means there will be nothing left from his inheritance in a little over four years. He will arrive at retirement with nothing to supplement the state pension. Many long-term beneficiaries have no home and no KiwiSaver and become reliant on grants, supplements and food parcels in retirement.

The problem is the purposes and principles of the Act have been interpreted very narrowly since Labour introduced them in 2007. The original intention of the welfare system was to income test only — not expect people to run down their assets or borrow.

The man loses entitlement to means-tested supplements just because of his modest inheritance.

The fundamental problem is that over time core income-tested benefits have fallen relative to general living standards. This is why supplementary benefits are needed.

The Welfare Expert Advisory Group has drawn attention to the woeful level of core benefits and the heavy reliance on means-tested top-ups. They have also stressed how the purposes and principles of the act need a radical overhaul. It is about time we heard the Government's response.

It is to no one's advantage for people to be so desperately poor that even a modest windfall can't help them.

Could we not transform NZ society by restoring the original principles, thereby enhancing the dignity and prospects of people in tough circumstances?

A: You asked for a Government response, so here it is:

"This Government is committed to making the welfare system fairer and more accessible for all New Zealanders," says Minister of Social Development Carmel Sepuloni.

"An important part of the welfare overhaul work programme is the review of the principles and purpose of the Social Security Act 2018, in response to the recommendations in the Welfare Expert Advisory Group report. This is under way.

"A work programme is also under way to address financial support in the welfare system."

She adds that the Government has already made "significant announcements in our work to overhaul the welfare system and address recommendations in the Welfare Expert Advisory group's report".

She lists the following:

• Indexing benefit increases to wages.
• Lifting abatement thresholds.
• Parents will no longer have their benefit reduced under section 192 (formerly 70A) for not naming the other parent of their child.

"We have also invested in 263 more frontline MSD staff who are focused on getting people into sustainable work. The combined funding for these initiatives is $611 million over four years."

The minister adds that the Government invested $5.5 billion in the Families Package as soon as it came into power.

"By 2020-2021, changes from the Families Package will improve the incomes of 384,000 families by an average of $75 a week and will lift tens of thousands of children out of poverty."

Getting back to the Welfare Expert Advisory Group, Sepuloni says the Government has started work on 19 of its recommendations, and commissioned work on 10 more.

"I will be taking a paper to Cabinet by the end of the year outlining a plan for the next steps in the overhaul of the welfare system.

"You can read more about this Government's work to overhaul the welfare system in the Cabinet paper: Welfare Overhaul — Advice from the Welfare Expert Advisory Group and Next Steps." The paper is at www.tinyurl.com/WelfareOverhaul.

To which I can only add that I hope the changes help people like our correspondent. It doesn't seem right that he can't benefit from a small inheritance.

Message to Dads:

Happy Father's Day tomorrow! But does it need to be a day when your family members "prove" their love by spending heaps on you?

How about asking them not to do last-minute shopping today? Or if it's too late for this year, ask them to make this the last Father's Day when they spend money on you?

Instead, they could ask how you would like to celebrate the day in a way that doesn't cost much. If your children no longer live with you, perhaps a phone call from them is all that's needed.

I don't like meanness, but giving doesn't have to have a price tag attached. I'm so sick of hearing about people with big unnecessary credit-card debts — often run up on gifts the recipient doesn't even like.

(Yes, I will run a similar message before next Mother's Day!)

- Mary Holm is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or click here. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.