They Just Do Not Get It!

Recently there has been a lot of comment around should the Reserve Bank relax the restrictive loan to value ratio (LVR) lending rules for first home buyers. People who want the rules relaxed tend to be involved in the property industry and have been accused of feathering their own nest, whilst others are arguing that there is no economic evidence that it is required at all.

What they do not get is that the discussion should not be focusing on personal interests or economic evidence, it’s about fairness between the generations. Let me explain. Anyone who is 45ish or older purchased their first home when houses were a lot cheaper in terms of the purchase price as a percentage of income. At that time, the average house price was 3.5 times the annual income, now in Auckland it’s 9 times. At the same time, the Government paid all their university education costs as the student loan scheme did not start until 1992.

Now that that generation and those who came before them have made a nice big capital gain on their property they are telling the generations that come after to:

• get a big student loan

• pay for their Govt. super

• pay the increased health costs of the retirees

• and at the same time save a house deposit of more than $150,000!

This does not make for very good intergenerational equity.

New Zealand home owner rates have been dropping steadily for years, from about 76% in 1985 to about 63% now. If you own a home you are more likely to engage with the local community, strong local communities lead to a stronger society. In short, owning your own home is good for everyone. There needs to be some rebalancing between the generations and relaxing the LVR ratios with some guidelines and controls for first home buyers would help!