Downsizing the Family Home to Fund Retirement in NZ (2026): The Numbers and the Traps

Downsizing is the most common way New Zealanders release home equity, but selling costs, retirement-village ORA deductions and the care-subsidy test all eat into what you actually free up. Here is the net picture.

For most New Zealanders, the family home is the largest asset they own, and selling it to buy something smaller is the most common way to turn that asset into spending money. It can work well. But the gap between the sale price and what actually lands in your account for retirement income is often much wider than people expect. This guide walks through the real net numbers and the traps that catch people out.

TL;DR: Downsizing is the most common way New Zealanders release home equity, because the large majority of people aged 65+ own their home. ⁹ But selling costs (agent commission commonly around 2.5–4% plus GST ⁸), the price of a smaller replacement home, and a retirement-village deferred management fee of roughly 20–30% of the entry price ⁷ can shrink the cash freed up far below the headline sale price.

Why is downsizing the most common way to release home equity?

The reason is simple: for most retirees, the home is the money. The large majority of New Zealanders aged 65 and over own their own home, which makes it most retirees' single largest asset and the natural place to look when they want to free up capital. ⁹

That high rate of home ownership is why downsizing comes up so often in retirement conversations. NZ Super provides a base income — as at this article's date, $1,076.84 a fortnight after tax for a single person living alone, ⁵ or $1,656.68 a fortnight combined for a couple who both qualify ⁶ — and many people want to top that up. Selling a larger home and buying something smaller, cheaper to run and easier to maintain is one way to do it, and unlike a reverse mortgage it does not involve borrowing against the home.

There are other ways to access home equity (a reverse mortgage, or staying put and drawing on other savings), and we cover the comparison in reverse mortgage vs downsizing in NZ. Downsizing is just the most common, partly because so many retirees already hold their wealth in bricks and mortar.

How much cash does downsizing actually free up after costs?

This is where expectations and reality often part ways. The national median residential sale price was $770,000 as at this article's date. ¹ That is well above $700k, so even a partial downsize can release real capital. The market context at the time was flat rather than booming: prices rose 1.7% month-on-month in February 2025 but were still down 0.6% on a year earlier. ²

But the sale price is not what you keep. Several costs come off before any money is "freed up" for retirement income:

• Selling costs. Real estate agent commission commonly runs around 2.5–4% of the sale price plus GST. ⁸ On a $770,000 sale that is roughly $20,000–$30,000 or more in commission alone, before legal fees and marketing.
• The replacement home. Unless you are moving in with family, you still need somewhere to live. A smaller home, townhouse or apartment in the same area can cost a surprisingly large share of the sale price.
• Buying and moving costs. Legal fees on both the sale and the purchase, moving costs, and any work on the new place add up. Across all of this, total costs commonly reach into the tens of thousands of dollars. ⁸

Here is an illustration of how a sale price becomes net capital freed up. The figures are illustrative, using the national median ¹ and Sorted's cost ranges ⁸ — your own numbers will differ depending on where you live and what you buy.

In this illustration, a $770,000 sale frees up roughly $165,000 for retirement income — meaningful, but a long way from the headline price. The single biggest variable is the cost of the replacement home. If you only trade down by $100,000, almost all of that is eaten by transaction costs and you free up very little. The bigger the genuine drop in property value, the more cash you release.

This is an illustration based on the stated assumptions, not a prediction. Actual results will differ depending on your sale price, replacement home, and costs.

Townhouse, apartment or retirement village — what's the trade-off?

Where you move shapes both how much you free up and what living costs you take on. The broad options:

A townhouse or apartment keeps you as the legal owner, with the upside and the responsibilities that brings. A retirement village is a different model entirely, and it is the one most often misunderstood, so it is worth its own section.

How do retirement-village occupation right agreements (ORAs) really work?

Most New Zealand retirement villages are sold under an occupation right agreement (ORA). This is the trap people most often underestimate, because an ORA is not the same as buying a house.

Under an ORA you generally pay an entry price for the right to occupy a unit — you do not own the unit itself. When you leave (or your estate sells the right after you die), a deferred management fee (DMF) is deducted from the capital returned to you. That fee is typically around 20–30% of the entry price, and it usually accrues over roughly the first three to five years of occupancy. ⁷ On top of that, residents generally do not share in any capital gain on the unit. ⁷

The combined effect is the single biggest reason downsizing into a village returns far less capital than people expect. Consider an entry price of $700,000 with a 25% deferred management fee. On exit, around $175,000 is deducted, so roughly $525,000 is returned — before any other costs — and if the unit's market value rose while you lived there, that gain belongs to the operator, not you. ⁷

None of this makes villages a bad choice. Many people value the security, the community and the freedom from maintenance, and pay the fee knowingly for those things. The point is to read the specific ORA carefully — the fee percentage, how it accrues, who keeps capital gain, what the weekly fees cover, and the conditions for exit — so the decision is made with eyes open. The Retirement Commission's guidance at retirement.govt.nz is a good independent starting point. ⁷

How does released capital affect the Residential Care Subsidy test?

This is the trap that surprises people most, because it can cost subsidy entitlement years later. While you own your home and (in some cases) a partner lives in it, the family home is generally exempt from the Residential Care Subsidy asset test. Sell it and convert it to cash, and that cash is countable. Releasing equity can therefore push someone over the asset threshold for the subsidy that helps pay for long-term residential care.

As at this article's date, the asset thresholds were:

So a couple where one partner needs residential care and the other stays in the family home is tested at the lower $155,873 threshold on assets other than the home and car. ⁴ If they have already downsized and turned the house into, say, $200,000 of investments, that cash is now counted, and it could put them over the limit — whereas an unsold family home would have been exempt. (These were the figures in force at this article's date; the thresholds rose on 1 July 2025, so always check the current numbers at workandincome.govt.nz.)

We are not suggesting anyone should hold or sell a home to game a subsidy test, and the rules are detailed. The point is that converting an exempt asset into a countable one has consequences that may not surface for years. We cover this in more depth in Residential Care Subsidy asset thresholds in NZ. This is general information only — for advice on your situation, including the legal and care-funding side, an appropriately qualified professional should be involved.

Where can the freed-up money be invested for income?

Once capital is freed up, it needs to work. Sitting entirely in a low-interest bank account preserves the dollar figure but tends to lose buying power to inflation over a long retirement. The usual aim is a mix that produces income while keeping some growth, sized to how long the money has to last.

Options people commonly consider include term deposits, managed funds and KiwiSaver (you can keep contributing and withdrawing after 65), and income-focused funds. New Zealand providers in this space include Simplicity, Kernel, Booster, Milford and Fisher Funds, among others — each with different fund options, fees and risk levels, set out in their product disclosure statements.

The right mix depends on your other income (NZ Super, any KiwiSaver, part-time work), your spending, and how comfortable you are with the value moving up and down. It often makes sense to coordinate this money with your KiwiSaver rather than treat them separately — see combining KiwiSaver with other savings in retirement.

Returns are not guaranteed. The value of investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future performance.

What emotional and practical traps do people underestimate?

The numbers are only part of it. The traps that catch people most often are practical and personal:

• Trading down by too little. As the table above showed, a small drop in value gets swallowed by transaction costs. If the new home costs almost as much as the old one sold for, you free up very little after paying agents and lawyers twice.
• Underestimating the new home's running costs. Apartment body corporate levies and village weekly fees can be substantial and ongoing, eating into the very income downsizing was meant to provide.
• The cost and stress of two transactions. Selling and buying close together is stressful, time-pressured and expensive, and a flat market ² gives less room for error on timing.
• Leaving the community. Moving away from neighbours, friends, family and familiar services has a real cost that does not show up in any spreadsheet, and it is a common reason people regret a move.
• Irreversibility. With an ORA in particular, exit costs mean that changing your mind is expensive. It pays to be confident before committing.

When does downsizing beat a reverse mortgage?

Downsizing and a reverse mortgage both turn home equity into spending power, but they suit different situations. Downsizing tends to make sense when you genuinely want a smaller, lower-maintenance home anyway, when the value gap between old and new is large enough to clear the transaction costs, and when you are comfortable moving. A reverse mortgage lets you stay in the home and borrow against it, which can suit people who are deeply attached to where they live but want some cash — at the cost of compounding interest that reduces what is left for your estate.

Neither is universally better. The full comparison, including the interest mechanics and the effect on your estate, is in reverse mortgage vs downsizing in NZ. And if the question is really whether to carry a mortgage or rent into retirement at all, see retiring with a mortgage or renting in NZ.

Smiths Financial does not provide advice on mortgages or reverse mortgages, or on the legal and conveyancing side of buying and selling. This is general information only — please consult an appropriately authorised professional for those.

Frequently asked questions

How much does downsizing actually free up after costs?

Much less than the sale price. On a sale at the national median of $770,000, ¹ selling costs (agent commission commonly 2.5–4% plus GST ⁸), the cost of a smaller replacement home, and buying and moving costs can together leave roughly $165,000 in our illustration — and far less if you only trade down a little. Total transaction costs commonly run into the tens of thousands. ⁸ Your figure depends entirely on what you sell and what you buy.

Will a retirement village give me my money back when I leave?

Usually not in full. Most villages use an occupation right agreement, where a deferred management fee of around 20–30% of the entry price is deducted on exit, accruing over the first few years, and residents generally do not share in any capital gain. ⁷ So the capital returned can be substantially less than what you paid in. Read the specific ORA carefully before committing.

Does selling my home affect the Residential Care Subsidy?

It can. The family home is generally exempt from the subsidy's asset test, but cash from selling it is counted. As at this article's date the asset thresholds were $284,636 for a single person or a couple both in care, ³ and $155,873 (excluding home and car) where one partner is in care and one remains at home. ⁴ Converting an exempt home into countable cash can push someone over the limit. Thresholds change, so check current figures at workandincome.govt.nz.

Is downsizing better than a reverse mortgage?

Neither is universally better. Downsizing tends to suit people who want a smaller home anyway and where the value gap is large enough to clear the transaction costs. A reverse mortgage suits people who want to stay put, at the cost of compounding interest. The right choice depends on your home, your health, your family and your plans. See our comparison for the detail.

How should I invest the money freed up by downsizing?

That depends on your other income, your spending and your comfort with risk. Many people use a mix of term deposits, managed funds and KiwiSaver to produce income while keeping some growth against inflation. NZ providers in this space include Simplicity, Kernel, Booster, Milford and Fisher Funds, each set out in their product disclosure statements. Returns are not guaranteed and values can fall as well as rise.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority to provide financial advice on personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds, and is a member of the Financial Dispute Resolution Service (FDRS), a free and independent dispute resolution scheme. Smiths Financial does not provide advice on mortgages, reverse mortgages, or legal or conveyancing matters. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 14 March 2025.