Retirement and the Housing Market

My wife and I realized that the passage of time bought the prospect of retirement right into the cross hairs! About 15 years ago we got serious and set out some savings goals to give us a comfortable but modest lifestyle when retirement came.

A figure was identified as a goal to achieve that would give us an ongoing income on which to live. At that time interest rates were between eight and ten percent. No more, at 3% our expected income will be about a third of what we had planned for!

I learnt about the supply demand graph on day one of stage one economics! I know that the housing issue is based on too little supply and too much demand! Why is there too much demand because people like me now have to look at the housing market to get the type of return we planned for when we started saving for retirement. We can achieve seven to eight percent and a capital gain.

If we were serious about the housing problem we would address demand. We need to get the Cash rate back to seven percent so that there is an alternative to investing in property. Banks could offer decent rates on term deposits. Higher mortgage rates would also cut demand for houses. It solves two problems; one it gets the investor like me who really doesn’t want be there out of the market and two makes it difficult for those to leverage mortgages from their new found equity to play in the housing investment market.

I feel a bit conned I have been exhorted for years to save for my retirement and now the savings I have won’t earn enough interest to give me the life style I planned for.

The housing problem is a supply and demand problem but unless you address the drivers of demand then you may as well throw money at the wall for all the good it will do!

It can’t that hard surely?