Inflation, Housing and Home Keeper.

Grab a cup of tea and buckle up. This is a heavy one! I am personally not a fan of this ‘home keeper’ scheme and it doesn’t look like it has enough traction to be implemented but let’s talk about it anyway.

Home keeper is a play on the ‘job keeper’ and the emerging ‘help to buy’ scheme but it’s for existing home owners who are struggling to keep their home with the rising costs of living and interest rates. We’ll get into specifics in a minute, but we need to firstly understand the problem we face. For those of you who may not be up-to speed with the inflation crisis. Job keeper, along with other incentives, is a large part of why we are in this mess. Something I’ve been saying since the government announced they were just throwing money at people whether they needed it or not.

We control inflation with interest rates which has not been working as well as it used to. Theories as to why that is include:

1)        Retirees are now getting higher returns on their cash and are now spending after a long break during covid and low interest rates.

2)        Fixed Rates were keeping repayments low for many.

3)        Bank of Mum & Dad – we have seen a lot of assistance given from parents to help with school fees for their grandkids, mortgage repayments and even dropping off groceries.

4)        We needed to wait for the surplus funds of covid incentives to be exhausted as many people still had savings and redraw.

5)        We see people prefer to go into more debt rather than sacrifice their lifestyle.

Most of these factors will sort themselves out as they are not sustainable. Home keeper is another way to kick the can down the road while the housing issue deepens. Home keeper was just a proposal with no firm follow up. The idea was the government would take over someone’s loan repayments for a short period of time in exchange for a stake in the property. There would be a limit to how much with $25K being tossed around as an example. I have serious concerns with this. For one, if people still can’t afford their repayments after months and months of working through the banks hardship team, then there is a long term issue and they will need to sell sooner or later anyway. This just complicates the sale while the government benefits as an investor.

Secondly, the supply and demand problem in our housing sector is not being addressed. One of these (or a bit of both) needs to change. We need to increase supply which will take years or we need to manage the demand which for the most part is immigration. Immigration however is propping up the economy. If we were to take the immigration figures out of the equation, we would already be in a recession.  

Thirdly, I feel a little uneasy that the governments solutions lately seem to involve them taking part of our homes. It gives the government incentive for housing prices to continue to rise. Not to mention makes it easier for us to get ourselves into positions where we might be facing the prospect of retirement while indebted to banks as well as the government.

There is certainly a lot going on and we all have strong opinions on the solution. Sometimes our solution, which seems the most logical, will actually make the problem worse. Once again finishing with a quote, Albert Einstein said “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about the solution.” Although Albert Einstein wasn’t clouded by the need to please voters.