Housing: State Sacrificing Last Home Buyers to First Home Buyers – This Will Hurt. Say NO.

I know of a retiree couple who lost their home from guaranteeing the business loan of their son. It was a god-awful mess. But on the advent of the expected Reserve Bank change to loan-to-value ratio (LVR) rules, inter-generational stress is set to become a phenomenon of the state’s further intrusion into the voluntary relationships that should be allowed in our economy were it a free one

If we had laissez-faire capitalism we wouldn’t have central banks; they are signposts to the planned economy the West is slowly destroying itself with. But that fact is outside the point of this post. Tightening the LVR rules are about ensuring buyers need more equity, or a bigger deposit to buy their first house, and by this means, so we are told, about trying to bring house prices down for first home buyers. I’m not the first to point out the irony the rules themselves may be responsible for ensuring up to half new-home buyers won’t be able to afford to buy their first home at all. This post is rather about another unintended consequence likely to cause acute hardship, and destroy the bonds that hold families together.

To circumvent the new rules, Westpac already has announced its guarantee scheme called ‘Family Springboard’ which leverages a family member’s savings or home equity to lower a borrower’s LVR. Sounds great, doesn't it?

To all the mums and dads who will be invited to participate in this scheme by their offspring: NO. Do not let your children emotionally blackmail you into the risk of losing your retirement. Because I can also tell you, children, circa 2013, at least eleven out of every ten of them, when it comes to money and your savings, have a tendency to be selfish little shits, with no comprehension around risk, or your welfare. Not really. You are too old to risk your assets on the risk appropriately taken by the young. There will be all sorts of pressure applied on you through this, because your kids want what you waited for now; so if you must, loan them, or gift them, the balance of the deposit they need - they have saved something, right? - your loss is then restricted to that; but under no circumstances allow the banks to take what will no doubt be an unlimited guarantee over your peace of mind and the material result of your lifetime's work. And if you can’t afford the cash to loan your children their deposit, then doubly so, you cannot afford to be guaranteeing them, because if it goes wrong, remember August 2008, remember 1987 - and be warned there’s quite likely a bigger bust coming - then you truly are losing your home, aren’t you.

And when your children, or more likely, when the partners your children are shacked up with - it's often the in-laws where this stuff all goes wrong - moan how could you not help them? How in their year of full adulthood they’ve never let you down? Refer them to this post.

The unintended consequence of this further state intervention in the voluntary transactions of free individuals to protect first time buyers - at least, those few this doesn’t keep out of the market for good - shifts risk to that group whom couldn’t afford to recover from losing their home: last home purchasers about to retire, or whom are retired.

Sheer lunacy.

And talking about sheer lunacy: Labour MP Andrew Little who ‘knows not what he does’. Next time, despite I’m seriously running out of time, and I have Clifford Bay and Tyler Cowan’s great stagnation thesis as it applies to New Zealand farming lined up also …