NZ Herald 23 April 2011

A“Tragic” seems a bit strong. In many two-earner families, both partners work out of choice. Still, there are many other families in which one partner would prefer to work less.

The bit that I think is sad is that they could work less, if they settled for less in the way of goods and services.

You’ve already pointed out the huge change in holiday expectations in just one generation. And if a family holidays at their bach, it’s probably no longer a shack.

Our main homes, too, have grown considerably. The average new dwelling in 1974 was 109 square metres, according to Statistics NZ data. By 2010, it had almost doubled to 200 square metres — with the fastest growth being in the 1990s.

New houses nowadays tend to have a family room as well as a living room, and two or more bathrooms. And you don’t see two or three kids to a bedroom much these days. So even though family size has shrunk, the number of bedrooms may not have decreased. Beyond that, most rooms are presumably bigger.

What about what we put into our houses? Well, my first home didn’t have: a microwave oven, a dishwasher, a clothes drier, a computer, a video recorder, subscriber TV, or even an automatic washing machine — you had to put everything through the wringer after the wash, and again after the rinse. We had only one phone, one television set, and one car.

Furthermore, these days we expect to eat out or eat takeaways more often. And many of our pastimes — concerts, skiing, shopping — motor through the cash.

True, some things — such as electronic goods, cars, clothes and travel — are cheaper after adjusting for inflation. But given that inflation is simply a measure of price increases, that means other things must be more expensive after adjusting for inflation. Over all, people spend more on consumption.

I know, I know, I sound like an old grouch. It’s probably too much to expect people to go back to wringer washing machines.

I also acknowledge that there are two-earner families that indulge in no luxuries and struggle to feed their kids. But for many families, it’s a case of priorities. They could work less if they wanted less.

ASorry, but I don’t know a source of potential co-owners. And I must say I’m a bit wary of the whole idea. What happens when one of you wants to spend money on maintenance and the other doesn’t? Or one brings lots of friends around and the other wants peace? Or — most worryingly — one wants to sell the property and the other doesn’t?

You would at least want to buy with somebody you know well. And even then, you should do lots of talking first, and draw up a legal agreement about selling the place.

It might be better to buy on your own and have several flatmates or boarders. That might help affordability just as much, and one person would be running the show.

AMaybe not in Auckland, but we’re talking New Zealand-wide.

My source last week, Motu economist Andrew Coleman, isn’t the kind to muddle up dollars and pounds.

Says Coleman, “My data on house price levels comes from Land Transfer and Mortgage statistics. These were published by the Department of Statistics until 1986 and comprise the number of transfers and the total value of transfers. In 1965 there were 62656 transfers valued at 198,903,000 pounds. The average is therefore 3175 pounds.”

For the benefit of the young, you multiply that by two to get dollars. My $6500 was a round number, for ease of reading.

AOh, but off the top of the head is much more fun, don’t you reckon?

Smart Alecking aside, I don’t remember that quote, and the arithmetic is wrong. I prefer to think I said that 5 per cent on $10 million would give $500,000 a year on government bonds — or more for corporate bonds.

By the way, interest on short-term government bonds is considerably lower these days. But that’s not your point. You’re right to expect a bank to offer a better-than-standard deal for someone with many millions of dollars.

There’s a limit though. Banks cover their costs and make their profit on the difference between what they pay on term deposits and the interest they earn when they lend that money out as mortgages and other loans.

Given that mortgage interest rates are between 5.5 and 8 per cent, I don’t like anyone’s chances of getting 8 per cent from a bank — let alone a net 8 per cent. A finance company or similar might offer such a rate, but that’s only because they charge more on their loans, which are riskier. I wouldn’t recommend going down that track.

As for adjusting interest for inflation, I doubt a bank would take that risk. Who knows where inflation might go? And I’ve not heard of bank’s giving one depositor more security than others. Generally, our banks are pretty solid, so I doubt if that would be an issue — although I guess if I had many millions I might spread the money over a couple of banks.

Broadly, then, yes, someone with that much money would be in a good position to negotiate, and there’s nothing to stop them from asking for whatever they want from all the banks. But they probably wouldn’t get everything you suggest.

AYou must have read right past an earlier sentence, “And you can borrow to make a share investment — perhaps using a revolving credit mortgage.” With such a loan, the bank has no idea what you are using the money for, so it could easily be shares.

True, you have to have equity in a property as security for a revolving credit mortgage. Without that, you’re quite right. Banks are reluctant to lend for share investment because shares tend to be riskier than property — although sharebrokers can help you do it.

I wasn’t suggesting, last week, that anyone should borrow for share investing. I was merely pointing out how borrowing to invest changes the very nature of an investment — whether it be in property, shares or monkeys. Anyone comparing different investments needs to keep that in mind.