The government has admitted it got the settings wrong for First Home Grants and as a result the scheme is heading for the lowest number of grants paid out since it began.
The grants aim to help first home buyers raise a deposit but price caps are widely seen as far too low in an overheated housing market.
Changes were made in April to make it easier to access the grants of up to $10,000, but the numbers being approved have now dropped for the third month in a row.
In April, 1045 grants were paid, dropping to 954 in May and 807 in June.
While the number of grants paid was 4 percent higher this quarter (2806) than the first quarter of this year (2698), only 5504 grants in total have been paid this year.
At this rate, it will be the lowest number of grants paid since 2014, the year the scheme was launched.
The number of grants paid have been consistently dropping over the past four years, from an all time high of 17,160 in 2018 to just 13,978 in 2020.
This came as no surprise to First Home Buyers Club's Lesley Harris, who said the cap for a new build in Auckland of $700,000 simply doesn't cut it.
"It's just so disheartening for people to have something there as a bit of a carrot and then when it comes down to it, realise that you know there's only a very small pinch of people that actually qualify."
Lesley Harris wants the government to get rid of the KiwiSaver requirement for the grant, and to do away with not only price caps but the income caps for couples of $150,000.
"In order to get a $600,000 mortgage, which is very much what you would actually need to generally get a first home in some of the main cities, you're going to need to have a combined income of over $150,000, with no children and no debt. So what we're actually seeing is they're just seeing way too many hoops."
National Party housing spokesperson Nicola Willis said the government should have known the caps could not keep up with runaway prices.
"They were warned the caps were too low. They denied it and look, we can see from the evidence now that yes, the caps were too low and the scheme is not assisting first home buyers in the numbers that were promised or in the numbers that have historically been achieved."
Housing Minister Megan Woods agrees that the price caps aren't high enough and said she had been working on it.
"The work that I'm doing at the moment is around indexing those first home products to house prices. Now, there's a careful balance that needs to be struck here; we don't want the products themselves to become inflationary and a source of inflation to house prices."
"But we are doing that work because at the moment to change the caps you've got to go back to Cabinet every time."
Woods said she will announce changes to the price caps in a couple of months.
The government is yet to consider the income cap or KiwiSaver requirement, but Woods said she was open to the idea.
Prime Minister Jacinda Ardern told Morning Report any changes to First Home Grants need to be balanced.
"They are constructed in such a way so that we don't see first home buyers taking on more debt than they're able to sustain."
But, she said unsustainable house price growth is impacting first home buyers and is a concern for the market more generally.
The government has pulled every lever it has available, she said, despite ruling out a Capital Gains Tax.
"Yes, I ruled out Capital Gains Tax because I had to listen to New Zealanders who told me they did not favour that policy but that has not stopped us making substantial moves across housing because there is no one thing that will fix this market which is why we are doing many things."
The finance minister and the Reserve Bank are moving to tighten mortgage lending, in an attempt to dampen the property market.
Ardern said she had to allow the Reserve Bank to do their job.
"We have said explicitly in our MOU with the Reserve Bank that we want them to ensure that they try not to impact first home buyers to the extent that that is possible."