A baby-boomers' liquidation sale?

Opinion: Bernard Hickey wonders what happens when New Zealand's baby-boomers want to liquidate their assets to fund their retirements. Your view?

28th Aug 11, 1:05am by Bernard Hickey

Will the Baby-boomers sell their suburban houses to fund their retirements? Or will they pass them on in inheritances?

By Bernard Hickey

What happens when the baby-boomers start to sell their assets to fund their retirements?

This is a question some are starting to ask as they wonder why so much cash is being hoarded in bonds and why consumers seem so reluctant to spend.

The San Francisco Federal Reserve has just released a study showing the link between the ageing population and share prices. The results are unsettling.

It essentially says that the rally in stock markets through the late 1980s and early 1990s was closely connected to a surge of investing by baby-boomers as they moved into the 'stock investing' ages of 35-50. (See charts below)

As they enter retirement over the next 15 years these baby-boomers are expected to follow the 'life cycle' investing theory and start selling stocks and buying less volatile (but more cash producing) assets such as bonds.

The study forecast that that stock valuations in price to earnings multiples are likely to almost halve between 2010 and 2025, before recovering somewhat by 2030.

This explains why US stock prices peaked in the early 2000s and have been trending lower and become much more volatile since 2000.

It also explains why prices of US Treasury bonds, seen as the safest type of asset most appropriate for those near or at retirement, have been rising for most of the last decade. When bond prices rise, yields drop. This demand for safety and regular income is one reason why US 10 year Treasury yields dropped in astonishing fashion to below 2% last week. At the beginning of the 2000s these 'safe' assets were yielding more than 7%.

This is all very interesting for global markets, but what does this mean for New Zealand?

Most New Zealand baby-boomers sunk their 'growth' savings into housing through the 1990s and 2000s, or into their own businesses, rather than stocks. Firstly, they lacked faith in stocks after the dramas of the late 1980s. Secondly, investors lacked choice on the stock market as many of New Zealand's largest companies were sold into foreign ownership and new companies found other ways to find capital.

This focus on property was turbo-charged through the mid 2000s as baby boomer investors leveraged up the equity in their own homes to buy rental properties in the hope of making tax free capital gains and then a solid income from rental returns in retirement. House values almost tripled to NZ$600 billion between 2000 and 2010. Household debt more than doubled to NZ$184 billion. Household investment in stocks both here and abroad rose just 29% to NZ$53 billion.

So what happens now? Will baby-boomers sell their rental properties to boost incomes in retirement? Will they downsize from their suburban homes to empty nest apartments and put the difference into bonds or term deposits? Will they sell their own businesses and houses to younger generations?

Some people worry that a mass exodus from property by baby-boomers may suppress prices. I think this is unlikely.

MOTU economist Andrew Coleman has done some research into what might happen. His modelling suggests that without a change in NZ Superannuation, our property-favouring tax system or our publicly funded healthcare system, the baby-boomers will simply hold on to their suburban homes and their rental properties. See more on that research in our May 2010 article here.

Rather than sell and realise a loss, they will just stay as a landlord and eventually pass on any wealth directly to their children upon death.

That presents a few problems for the young. Property prices of suburban homes in the big cities will remain out of their reach unless they take on massive and crushing debt. Many will choose or be forced to rent from the baby-boomers.

They will have to wait for their parents to gift it to them or for an inheritance. Any young entrepreneurs hoping for capital to fund growth will have to find very friendly and trusting friends and family to invest.

The one saving grace for the coming generation of borrowers is that the drive by investors for safety in bonds and away from stocks is that interest rates stay low.

This trend towards hoarding and away from investing in companies for growth will however suppress economic growth, employment growth and, ultimately, wealth.

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75 Comments

by LAJ | 28th Aug 11, 8:35am 1314477344

I am wondering what Bernard's motivation is trying to stir up intergenerational hatred. It will come to no good ranting on about the babyboomers and how hard done by the next generations will be.

What I think will happen is if they can't sell at a good price they will live off the returns of their assets (thank them for relieving pressure from the welfare state by providing for their own future). Then when they die the assets will pass to their children and grandchildren in the poor old X, Y generations who will suddenly realise they aren't so badly off and who will probably live in them or use the income to supplement their own incomes.

by Wolly | 28th Aug 11, 8:43am 1314477785

Nah...seldom works like that LAJ..the old farts end up moving to the death camps where the wealth is extracted until the govt takes over the costs...which is round about when they cark it...to be replaced by the next sucker. QED the family get zip.

Watch as the oldies move to bump themselves off, picks up steam and the camp owning management start to scream "unfair"..they don't come here.

by Carpetbagger | 28th Aug 11, 9:26am 1314480379

Becasue of course we're all going to inherent a mass of houses from our parents? Actually, I'm supporting my parents mortgage repayments at the moment, and I'm not the only one in this boat. Just remember LAJ, we don't all have rich mummy and daddies to cushion us from the world. Most of the X and Y's have to make it on their own two feet, not withstanding the Grammer boys and girls of course.

by Rich PI Troll | 28th Aug 11, 9:43am 1314481434

For the last two and a half weeks I've been working with a real estate mob and I don't think I saw them dealing with even one client who was younger than 50. Most were quite a bit older. Of course, none were first home buyers. Apparently there aren't many FHB about these days.

by steven | 28th Aug 11, 9:52am 1314481969

BH is raising a valid point. The BBs have in effect stripped the planet of cheap materials to build a lifestyle their children will only look back on in disbelief (at the waste).

BBs will double the OAP numbers/%...that will be a huge issue, the problem is those assets eg houses will be worth considerably less than they are now but the bills will be considerable, then there are reverse mortgages...so your assumption on being handed value is questionable.......plus the costs to support the BBs in terms of pensions and healthcare will place a considerable burden on the PAYE workers to meet.

regards

by printer8 | 28th Aug 11, 11:25am 1314487523

Draw your curtains and look out at all the infrastructure around you. That is what previous generations and the current BBs have created and what you have (and future generation will) inherit; appreciate it as it will far out weigh any contribution that you need to make in way of OAPs.

by skudiv | 28th Aug 11, 11:41am 1314488462

They could'v made some better roads. Not cheap and nasty needing constant repairs.

by steven | 28th Aug 11, 3:09pm 1314500951

The infrastructure is under huge pressure and has a finite life....much of it like the huge new roads is obsolete...so yes sure they created some thing thats carry over, by the same token they inherited infrastructure. OAPs, Im pretty sure you are wrong....lets see some stats/data pls.

regards

by Bernard Hickey | 29th Aug 11, 3:19pm 1314587961

Infrastructure building was scaled back sharply in the 1990s and early 2000s by -- you guessed it -- the politicians in charge at the time who came from the Baby boomer generation.

They chose to spend the future.

cheers

Bernard

by Bernard Hickey | 29th Aug 11, 2:48pm 1314586129

LAJ

Who will buy these assets at good prices? How will they finance them?

Unfortunately, there's a few problems with your theory about the baby boomers using their own wealth to fund their retirements. That's not what they are doing. They are voting to keep the retirement age at 65 and to keep NZ Super universal. They are voting to keep a taxpayer funded healthcare system.

They are not passing on their houses. They're staying in them. And because they're living longer, they can't pass on (so to speak) the assets until their kids are themselves in their 60s and 70s. That is way too late to do anything useful with.

People in their 20s and 30s either need lower house prices, big chunks of equity or obscene amounts of debt.

And they need the baby-boomers to pay for more of their pension and health care costs.

cheers

Bernard

by LAJ | 29th Aug 11, 4:06pm 1314590776

As I said below, it appears that there was no more people born in the boomer years than are being born each year now. The boom was in the birthrate per woman, not the number of births. So about 64k people were born in the biggest boom year in the early 60s, and about 62k were born in recent years according to dept stats.So this huge wave of people coming through is a myth. As mortality rates have improved over time the number reaching retirement who were born in the boomer years is not going to be any more than in later years.

I agree that over time it is sensible to gradually increase the retirement age but only because life expectancy is increasing, not because huge waves of old people are about to overwhelm us.

As for all these resources they are supposed to have used up, I think that later generations could be accused of being more wasteful of resouces- older people are more likely to make do and don't usually buy all the latest gadgets that the 30 somethings and younger do. That has been their problem- they haven't saved and made do like their parents did. They spent everything they earnt in their 20s and 30s on consumer goods, travel etc had kids late and now they can't afford a house. Some willl likely luck out and inherit from their parents but others have blown it and now they're bitter. Well they only have themselves to blame.

by Wolly | 28th Aug 11, 9:04am 1314479040

The factor BH leaves out...immigration!

Count on a govt opening the doors to hundreds of thousands in the next twenty years...I say "a govt" because both sides of the fence will resort to this age old rort which boosts popularity while the happy numbers flow....it's the govt equal to Bollard's ocr cuts.

Look at it this way...how many millions of wealthy families across europe and the uk would want to have a safe place to run to down here...it stands to reason there must be a million of them...imagine a million wealthy from the piigs and another million from the States plus the Chinese who have rorted Beijing...all heading here...

Now do you know why OllyN is rubbing his hands in glee...he knows dam well this is on the cards.

No more retirement village stuff....it'll be millionaire holiday towns...fly in..stay a few months...then off to another safe spot.

by mandalay | 28th Aug 11, 9:38am 1314481108

Exactly what I've been saying Wolly, but I also included our so-called State Assets, being foreign owned too. But I suppose as long is it's being sold at a "price they can't refuse"...

Lets see if the same vitriol is flung at you ....

by Wolly | 28th Aug 11, 10:00am 1314482454

Vitriol...what's that...some yanky oil name...hey don't get so upset about the govt flogging the 49% mandalay...foreigners aint going to want to buy shite that a future bunch off socialists are likely to destroy the value of the same way Clark and Cullen murdered aia share values.

The vast % of them shares will sit in Kiwi porfolios and the govt will ensure the divs are no more than govt bonds returns...and if the value starts to climb, expect the govt to issue new shares...always keeping 51%...

Put your dosh on immigration punts....ask yourself where will the flood head to...they want southern summer warmth and they will want to be where others of their ilk hang out. Qtown for sure...maybe bay of Island better areas...hell some might even head to west of Nelson.

So that means picking up a plot or batch at knock down recession level prices in those areas but going for quality. Mate..... you can't lose!

by Rich PI Troll | 28th Aug 11, 9:45am 1314481554

That sounds like a last pipe dream of desperate PIs and developers.

by steven | 28th Aug 11, 9:53am 1314482034

How many of those will be the likes of lawyers and frankly useless?

regards

by Wolly | 28th Aug 11, 10:03am 1314482595

Jeez steven they still gotta eat...lamb beef shellfish and drink the plonk...and splurge on Possum coats...useless is good steven!

by Optimist | 28th Aug 11, 10:02am 1314482575

I agree Wolly. We a are small country, and it is a huge world out there. I have met many foreigners in NZ who have moved here with large amounts of money bought with them from overseas. They have moved here for the futures of their children, NZ is a fantastic place for children to grow up, with our forests and beachs and coastal areas (these popele have the money to enjoy the best this country has to offer). The parents are not so concerned about making big money here, and many are still able to have input in their companies overseas via the internet, or alreday have enough cash to keep them going. These poeple are in the top 5% of wealth in this country. There will easily be a milliion of these poeple world wide who would love to settle in the great NZ playground, and for these poeple NZ is still relatively cheap. Wealthy immigration cold dramatically change NZ. If this occurs there would not be a drop in property prices. Our whole economy coould change dramatically in a couple of years if this type of immigration occurs. These families also tend to intelligent and highly motivated and their children who grow up in NZ will likely do very well in NZ.

by Wolly | 28th Aug 11, 10:07am 1314482832

Just one minor point CM....if it's a socialist govt that opens the gates, you know what to expect.

by Kunst | 28th Aug 11, 10:15am 1314483332

Again Wolly, why not participate in a positive exchange with Chris ? Why just trash Chris’s contribution and not pick up some points ?

by Wolly | 28th Aug 11, 10:21am 1314483710

Thing is Walter...other people may not want to dance to your tune. I didn't trash CJ...you interpreted it that way...I suspect your concept of a "positive exchange" means agreeing with you.

by Kunst | 28th Aug 11, 10:38am 1314484709

Wolly – see again wrong conclusion. You don’t have to agree – but you make a contribution, so it can lead into a debate with pros and contras.

by Eagle | 28th Aug 11, 11:23am 1314487383

Yes ChrisM but there are also the others.

There are also a growing number of immigrants that are dissillusioned and leaving, as they have been caught out by the rising cost of living and realisation that their savings are not quiet what they thought they would be. Add to this the earth quakes that have rattled more than their savings, in the case of Christchurch. Ive lost count at the numbers ive met who have decided to sell up and go. What they are going back to makes one wonder ! when you look at the world stage right now.

by Nicholas Arrand | 28th Aug 11, 10:12am 1314483123

Two things: (1) people are progressively 'retiring' earlier and earlier. 55 is not unusual these days ( the banks, for instance, are moving their 'eldery' on if they wish, to create efficiency and room for younger blood), hence 'saved-assets' are needed to be freed earlier than the generally anticipated in past modelling and (2) Migration works both ways! Have you seen the prices of property in Spain, Portugal and Greece, with the Euro where it is! Not to mention Britain and The States with the value of the kiwi . (a) Why will 'the rich' foreigners come here - the back end of nowhere, when you don't have family here or need a job and (b) why won't our rich (?) go there for better priced property?

by Wolly | 28th Aug 11, 10:27am 1314484056

I don't disagree there NA...it's a numbers game IMO....enough would come here to make a huge difference...whether it's positive or not...hard to say...good for some nor for all...guess it depends on which govt is in power at the time as well.

I suspect the wealthy in Europe are planning such moves now to escape the decades of tax grabbing they will face over there.

We only need one in every thousand millionaire families to make the move!

by Nicholas Arrand | 28th Aug 11, 10:37am 1314484632

After a year, Wolly, you ask yourself "Now, remind me, why am I in New Zealand?", and head back off again. You know Queenstown well enough to see that every day. A town filled with the bored wealthy, looking for somehting to do; not finding it, and trying to sell to the next plane load of arrivals ( or just shuttering the place up); a town too expensive for most kiwi workers to live in. I doubt we are far away from a 'rotation' of the rich stage, looking at where Queenstwon, a mirror of wider New Zealand , is now.

by Wolly | 28th Aug 11, 10:41am 1314484860

It's not cheap NA but then I do the place in me camper and that is cheap!...I think you have them wrong...the wealthy who bought in down there are still the owners...most didn't build crap boxes...most spend heaps when they turn up for the snow or the summer or both.

by KW John | 28th Aug 11, 12:05pm 1314489906

You seem to be describing NZ future as being a large Marina...Might work, but then I would expect that this has been ongoing - what gives the big push (I tend to St Nick's view)?

Or Wally, are you just describing the way our country has worked for the last thirty years - a 'revolving door' policy, with a little taken as a toll on the way through...

by steven | 28th Aug 11, 6:13pm 1314511995

Except the so called wealthy will have their paper wealth destroyed....2008 was only a fore-taste...Ditto energy will be Govn rationed I cant see any other way for it to work....otherwise some will have none as a few others will have it all....(or as much as they want).

regards

by OMG | 28th Aug 11, 12:12pm 1314490353

For 20 years I taught ESOL - English for speakers of other languages - to adult Asian (mostly) migrants and refugee children. They have almost all of them left NZ. The refugees, many of them Vietnamese and Cambodian went to OZ while the rich bored Taiwanese went back home. In total I taught about 2,000 people. I think we have an inflated view of our own attractiveness as a destination - we are too far away, too heavily taxed, for Asians anyway. You can't live on scenery. My wife and I also had a rental property which we leased annually to Japanese academics. They were always excited to be able to have a lawn and garden to look after - lasted a month at best and then it was over to me. Until you have lived in a highrise apartment block and had the convenience of supermarkets and malls, entertainment and mass transit right below you you won't see the short comings of migration to Godzone.

by steven | 28th Aug 11, 6:06pm 1314511586

Still here 16 years later...

regards

by skudiv | 28th Aug 11, 11:47am 1314488877

Low interest rates sounds like a great return in the exchange. Most business in NZ are small business, and they employ more people then big business. The stock market doesn't do jack for small and medium business. So where is the problem with the lack of investing in the stock market.

Any young entrepreneurs hoping for capital to fund growth will have to find very friendly and trusting friends and family to invest . It has always been thus.

by skudiv | 28th Aug 11, 11:57am 1314489459

Name some of these young entreprenuers who have used the stock market to grow their business. The stock market is where you go to sell your business. Whats the cost of having an IPO? You need a large business with pleanty of cash to sell shares for money in the stock market.

by amalgam | 28th Aug 11, 1:54pm 1314496441

Entrepreneurs in Grown Up countries have been able to look to Venture Capitalists for startup funds and other assistance. Not so NZ, unless you're in (or want to get into) agriculture.

by skudiv | 28th Aug 11, 4:24pm 1314505481

Those types of funds require "Qualified Investors" not a stock market. Angel Investors don't specificaly look at agriculture, and there are other startup funds some govt backed for qualified investors again. Mind you, when I spoke to them their succesful examples were biofuel and sexed semen for cattle so maybe that is agriculture.

by Larcus Mush | 28th Aug 11, 2:44pm 1314499456

The TradeMe float story made me remember a flatmate I used to have who back in the early to mid 1990s tried unsuccessfully to get his online auction business started. He was a genuine poor boy with no family, and no rich friends (including me!), so it was all a struggle.

My then gf asked around because she worked at a finance outfit that "assisted" small businesses, but that really amounted to worming their way in with claims of "mentoring" and then grabbing a major piece of the action when things hotted up (or bailing out scott free if things turned to custard). Anyway, they passed because they weren't sure what the whole Internet thing was and couldn't believe it was anything other than a flash-in-the-pan fad.

So I was having a clean out a few days ago and found a copy of my old flattie's business proposal and really it was nothing less than TradeMe. The guy could have been a rich lister if someone had helped him on his way. Now he's a bitter network support engineer in Adelaide.

by skudiv | 28th Aug 11, 4:39pm 1314506351

That story reminds me of Nikola Tesla who invented cool stuff like AC power, wireless flourescent lightbulbs and wireless communication, but never made any money because his banker JP Morgan took away his finance. His rival Thomas Eddison who gave us the standard high energy lightbulb and less efficient DC power went on to create The General Electric company. Tesla died poor and bitter.

by OMG | 29th Aug 11, 12:54am 1314536073

I had a similar experience. Around the same time as your friend came up with his scheme pre trademe - I had developed one of my own. I took it to a patent attorney and he was very excited about it. Problem was I had no money to launch it and the attorney told me it was unprotectable and would be instantly copied by others. He still has it on file and to this day no one has come up with the model I created. Another lawyer connected to the then INL, offerred to introduce me to senior management, but he told me before I left the room they would be implimenting my scheme.

That's life and there's no point in regrets.

by kiwipete | 6th Sep 11, 4:44pm 1315284273

it's hard to get a new idea or concept off the ground... there is an element of luck involved, as well as a whole bunch of factors like skill, timing, finance and knowign the right people. I take my hat off to anyone that does.

by steven | 28th Aug 11, 6:21pm 1314512472

I agree....in fact Ive come round to the opinion that large businesses can and do damage small businesses (Telecom is a classic example)....It doesnt matter how in-efficient, top heavy and wasteful they are, they leverage thier size and financial and political clout to exploit other entities......

regards

by Bernard Hickey | 29th Aug 11, 3:12pm 1314587565

It has usually been the case in New Zealand.

This isn't the case in economies with more developed capital markets.

Including Australia and the United States.

cheers

Bernard

by skudiv | 28th Aug 11, 12:10pm 1314490249

BH I don't understand all this spin about investing in the stock market providing jobs and a great economic picture for the world. Show me please the correlation between putting money in the stock market and job creation, I think the link is thin at best.

If I were to bet on Feltcher Building with $1m do you think that would create more jobs? The way I see it, there is a small chance that when FB issues some new shares which is not that often they may use some of the money to grow or hire new staff but thats not guaranteed.

Low interest rates on the other hand provide the same opportunity for growth and employment.

by steven | 28th Aug 11, 6:10pm 1314511807

The idea of investing in businesses via the share market which in turn allowed businesses to expand and employ more labour is old hat (but a good one IMHO. Now the share market has nothing to do with job creation at teh very least....shareholders and private equity firms simply pillage IMHO....they remove value and probably destroy jobs....its become perverse...Olly is correct (him amongst others) it full of sharks....takers not builders....somehow that needs to be turned around.

regards

by Bernard Hickey | 29th Aug 11, 3:14pm 1314587689

Xero is the best example in recent times. Google is another in the United States.

At some point large companies need to access capital markets. It would be nice if they are public.

cheers

Bernard

by Patricia | 28th Aug 11, 7:43pm 1314517431

"MOTU economist Andrew Coleman has done some research into what might happen. His modelling suggests that without a change in NZ Superannuation, our property-favouring tax system or our publicly funded healthcare system, the baby-boomers will simply hold on to their suburban homes and their rental properties"

All I can say, Dear God. This is such a good example of how useless and how lazy modeling is.

The facts are. Once you are over 60 you not only look older you are older. The memory isn't as good; the body doesn't work as well, you can't climb ladders any more - the balance isn't as good. There are hip and knee replacements, there is incontinence, those wonderful tradesman who help you have moved away. WE don't WANT those big houses and gardens. We can't look after those rental properties. We WILL sell

So all I can tell you who want to inherit either look after your baby boomer parents or take them in because if you don't the Rymans of this world certainly will take their money.

by LAJ | 29th Aug 11, 11:08am 1314572939

Some people are worn out and unfit at 60, others 80, some are even pretty able at 85. That is a 25 year span. Baby boomers were born over roughly a 20 year period (1946-64). So the great sell off presumably started 5 years ago and could carry on until the last boomer becomes decrepid in 2049 so is hardly likely to happen all at once.

During the baby boom the number of births per women peaked and the highest number of births registered in a December year was 65,390 in 1961. At that time the birth rate was 4.3 births per woman. However when you look at the number of births per year over recent decades There were 62,362 births in the September year 2007; that is the highest number of births since 1972 (64,090) according to http://population.govt.nz/myth-busters/myth-12.aspx

So it seems the number of people born in the baby boom years is not much more than now. Presumably as many people will be available to buy the houses as are selling them then.

by Bernard Hickey | 29th Aug 11, 3:20pm 1314588053

Patricia,

But unfortunately the evidence is they are not selling.

cheers

Bernard

by David B | 29th Aug 11, 11:35pm 1314617745

Jesus, Bernard, give them a chance. The BB has only just begun to turn 65. Most BBs are still at work and paying their taxes, probably more than you do! What on earth would justify them selling their homes now while they are still young, in work, healthy and supporting their I DESERVE IT NOW kids?

by iconoclast | 30th Aug 11, 12:24am 1314620668

David B: It's a subliminal socialist line being run by interest.co.nz. They're paid to run it.

by Kunst | 30th Aug 11, 8:51am 1314651101

Yeah – I think a mob – it could be potentially even worse “HickGoofy’s red bike squad” – “THE TEN HICKGOOFINIES” roaming and smashing streets on Sunday's in Wellington and other upmarket districts up and down the country.

.....yes - all financed by the Bebrehem's Church

by steven | 28th Aug 11, 8:09pm 1314518949

Again I think you lack logic, what you are doing here is attacking someones attempt to put some thought into the issue. I dont agree with you as in its useless on two grounds....there is a huge Q on just what the BBs will do or at least when they will do it and a lot of factors effecting that decision. I suggest looking at what the American BBs are up to might well be an indication. The BBs have always set thier own agenda/targets....As well as that, BBs are ageing more slowly than the previous generation, they are also better educated, and life experienced, they dont think their old....and I think a lot of "old age" is thinking your old and slowing down.....

So my opinion is I think at least until they turn 70 they wont be slowing down much.....so selling off is likely to be delayed....75, maybe 80 sure....

However, there is then the huge problem of who do they sell to, Gen X and Y are fewer and carry more debt, their ability to pay or even wish to pay will be less.......Will BBs accept such paper losses or carry on receiving rental income? the latter looks a good possibility...

On the opposite side then there is fear. Within 5 at most 10 years we will be facing tough choices on energy, very tough choices that will impact BBs retirement plans severly.....They may try and sell large McMansions due to their energy costs but will X and Y line up to buy? maybe not.....their rental properties might be un-saleable (or see huge paper losses) but have good incomes.

For instance some backing up with real world examples, talking to some ppl who bought properties near the top of the boom in 2006 and 2007....they had to move but faced neg equity/losses so they have rented out instead....interest rates are very low and they are new and expensive properties....they are not that un-happy as they are getting a good rent....they will hang on a while, at least until they can break even (they think)....if this behavior continues into their old years (they are BBs, Jones) you will be very wrong.

regards

by Storeman Norman | 28th Aug 11, 10:07pm 1314526041

For goodness sake, you talk about "Baby Boomers" like parasitic blood sucking mutants. The 'baby boom" was a demographic blip, that doesn't make the people born at that time any different to you. If you want to know what a BB is going to do, ask yourself what you would do in the same situation.

You are on thin ice if you think you are inherrently superior.

by steven | 29th Aug 11, 6:09am 1314554968

Hmm yes and no, the BBs have successfully indeed blood sucked the planet dry....maybe they are no worse than the the generation before and after. The effect is though that they have done incredible damage and seem determined not to take responsibility and not do anything about it....

I dont see any comments that non BBs are superior, however the entire political engine is controlled by the BBs, and they seem ubable or unwilling to change.

For instance as you say they are a blip, that blip should have and has to recognise they are a blip that cant be supported in they old age by other generations and partially self-fund...by the likes of the Cullen fund.

regards

by Plan B | 29th Aug 11, 10:55pm 1314615322

I think a 'demographic gang' would be a more accurate description. So maybe your idea works if you say "ask yourself what you would do if you were part of the biggest gang"

by Storeman Norman | 30th Aug 11, 7:46pm 1314690375

Demographic gang! Yep, the games up; we've been plotting the takeover all along. First we arranged to get born all in the same 20 year period... though I have forgotten now - did it start in '45 or '46? I'll have to look it up. Then, by weight of numbers we would get educated - free of course - (our parents must have been in on the act as well - they got their super at 60 and got free hips!). Then we would take over banks of all persuasions and lend ourselves cheap money so we can buy and sell each other more and more houses - pushing the price up and up and up, until no one outside our gang could afford one, hahahaha!.

Now what? I dunno, I'm bored. How about we crash the worlds financial system, just for kicks.

OK BBGang, are you ready, set..... hang on, we've got more to loose than them...

oops, too late.

Demographic gang... okay, you can join if you want. That is what you want isn't it?

by David B | 28th Aug 11, 10:47pm 1314528447

You are forgetting, Steven, that the population of New Zealand is expanding, it’s not contracting. There will be plenty of people for baby boomers to sell those houses to in 15-35 years time.

This whole article is silly. Bernard has taken an American piece of analysis written using American data about American investment and demographic imperatives, and tried to shove it into a New Zealand context to fit his preconceived world view. It fits about as well as a round peg fits into a square hole. The original study was about the US share market not the NZ real estate market! Has Bernard done the same mathematical analysis that the Fed did and applied it to the New Zealand Real Estate market to see if the correlation they have found between changing share values and the ratio of early middle aged Americans (40-49) to Americans aged 60-69 also holds? Does its conclusions also hold true for our house prices? I bet you he hasn’t. I also wasn’t aware that Americans had borrowed to buy their share market investments as New Zealanders had borrowed to buy rental properties in NZ, because people like Bernard has frightened them into believing that there will be no State support for them in old age. So what does that all mean for the future?

This article is all about ageist bigotry as far as I am concerned, and is frankly, not very informative.

For those interested, read the original Fed article yourself. It’s not very long.

by steven | 29th Aug 11, 7:11am 1314558666

Forgetting, no. How about some data? whats the growth iin expected population? Also its one of ratios....

Population and selling.....hmm well the reply to that is two fold, 1) "The plenty of people" need to be high earners to be able to afford to pay present prices...that seems highly unlikey in the number the BBs are...2) not only that but the burden on the state from pensions and healthcare will mean high taxes...oh and 3) We will be into a shrinking GDP scenario from lack of energy...a long depression....

Square peg round hole. again BH brings out some data and research and puts it out there for discusion.....in terms of applying it to real estate, no he's applying it to investment in "something" In the US BBs have caused this effect in shares and house prices....here BBs investments seem to be more housing.......So you raise some points that have to be considered in the "equation" fair enough.

Ageist bigotry, no I dont agree far from it.

It comes down to risk analysis and making the best decisions you can based on the data you have.....from that you can mitigate the impacts or outcomes..........

State support in old age, I think there is a huge issue around that not only in finding the money to support the present level of pensions and healthcare but meeting the doubling in numbers and that impact, and thats in a business as usual environment....which we wont have.

regards

by steven | 29th Aug 11, 7:15am 1314558907

There is lots more to reply to this,

Business as usual......the assumption you seem to be making is its business as usual

The business as usual can be shot down in so many ways

Need to get time to sort my thoughts...

regards

by steven | 29th Aug 11, 9:40am 1314567620

If you look at the heading it has a huge ?

BH is asking a question....what are the NZ BBs going to do?....will they do like the US and sell down? On top of that many Americans have saved via shares (401s?) so the share market is in affect in a blip situation its capital rich.....when that passes it will be more of a norm.....

So what will happen?

1) BBs live off the dividends and not sell shares ie no hit on thier capital......seems unlikely...

2) Live the "high" life and live off the dividends and some capital sell off per year.....

3) They get out of shares enmass and put it into conservative funds. Now for me the share market is ruled by fear and greed, BBs will be older and therefore I suggest a lot more fearful and conservative with their money...and its going to be highly volitile and turbulaent decades...I cant see them keeping shares myself.

So then you have to ask how NZ BBs will behave....

As I was just reminded this piece lays out the problem very clearly.

http://www.youtube.com/watch?v=fUJU1aLEQQA

regards

by Steptoe | 29th Aug 11, 8:18am 1314562730

This whole tthing ASS U ME that its the BBs are the ones who are the major movers investing in rental property.....not that a large proportion ar the younger mum and dad generation investing for the quick profit and many the long retirement income hule

Retired people have invested in rental property for generations, so that when they retire, there is no mortgague and live off the rents...this is nothing new...Also retired people and those going into retirement dont leverage themselves up to the hilt...

Since retired people are invested in unleveraged investments, and live off the income, it is not going to be selling up to live off the investment, but rather dieing and leaving that investment to the family.....Also note is these investment will be, as they where genrtations ago in trusts.

This Also ASS U MES that mosy BB have enough inverstments to live off...IF that is the case then what is the big worry about the younger generation supporting the retiring BBs? On one hand the worry is cant afford then on the other hand worried about what will happen when these non existantt retirement funding goes on the market.

Which is it?

by David George | 29th Aug 11, 9:10am 1314565858

"BB have enough inverstments to live off...IF that is the case then what is the big worry about the younger generation supporting the retiring BBs?"

Our system continues to perpetuate belief in this myth. Investments - bank deposits, equities, bonds and rental property do not generate real wealth, they merely transfer wealth from the productive to the Rentier. If there is an increase in the proportion of the economy going to rentiers it will be at the expense of those paying interest and rent. Little differant in effect than if the money was seized as tax and given to the pensioner - a burden on the working and productive sector.

by David George | 29th Aug 11, 8:38am 1314563893

Bernard; "the baby-boomers will simply hold on to their suburban homes and their rental properties"

They will tend to sell down IMHO, at least to some extent, and a small shift in the buyer/ seller balance can have a large effect on price. Priorities change as we age and our futures shorten.

In ten years time a retired seventy year old Boomer with a $400,000 freehold rental returning $20,000/year could sell up and achieve a similar return from bank deposit plus have the option of drawing down, say, $20,000/year of their capital - new car,world trip, health care or to help out familly when needed or their dwelling needs a new roof/kitchen/bathroom,floor coverings etc.Getting a loan for these things is unlikely to be an option at their age - no tenant and maintenance hassles and cash in the bank. That's what the elderly want, by and large.

Migration, at least as we have been experiencing, it is not improving the demographic balance, a lot of young, productive Kiwis leaving and a lot of the immigrants are themselves Boomers from counties with the same "Boomer Bulge".

A very good presentation from Chris Martenson "Asssets and Demograhics"

http://www.youtube.com/watch?v=fUJU1aLEQQA

by steven | 29th Aug 11, 9:25am 1314566748

Chris Martenson - a great series...

regards

by Mark | 29th Aug 11, 11:19am 1314573549

This article is so unfair, boomers have worked BLOODY hard to achieve their wealth. Setting up LAQCs, setting up trusts, tax avoidance - the younger generation doesn't appreciate how much work goes into all of this.

by steven | 29th Aug 11, 11:29am 1314574144

hehehehe

regards

by LAJ | 29th Aug 11, 11:39am 1314574763

Read my comment above. There is no problem is there re peak of asset sales? The boom is the birthrate not the number of births per year. Unless I've missed something??

by LAJ | 29th Aug 11, 11:40am 1314574827

by Chairman Moa | 29th Aug 11, 1:24pm 1314581071

by OMG | 29 Aug 11, 12:54am

That's life and there's no point in regrets.

Having a rich parent helps as in the case of Trademe founder. So don't knock the BB too much, they worked hard, paid their taxes and occasionally will help out their offsprings.

by goNZ | 29th Aug 11, 4:09pm 1314590965

The problem with the rat race is that at the end of the day you’re still a rat

Suneil Connor

by iconoclast | 29th Aug 11, 11:43pm 1314618231

You should be gettin' worried about yourself there Bernie, youre showing signs of obsessive-compulsive disorder symptons. You're obsessed with attacking BB's and have a compulsion to write a weekly article with relentless religiosity. In 52 weeks you have written 50 articles laying into them and not one counter-balancing article. That's obsessive.

That is in spite of the fact a number of your contributors (you call them bloggers) have declared their status as GenXers and presented incontrovertible written evidence you are wrong. I've listed them in previous posts for you. Yet you persist.

by iconoclast | 30th Aug 11, 12:08am 1314619702

Bernard: You wait. You have two daughters in their teens. When my wife and I started a family we had two children and we used re-usable "cotton cloth nappies" for each of them. About $50 worth in total. My youngest son and his wife have 3 children a 3 yo, a 6 yo, and an 8 yo. For the duration of each of their baby years they spent $50 per week on disposable nappies. That's $2,500 pa or $5,000 for each child. In total they've spent $15,000 of tax-paid money on disposable nappies. How much of a deposit on a home does that represent. Don't get me started on how much the daughter-in-law spends running the two eldest to school in the SUV and picking them up after school.

by David B | 30th Aug 11, 12:21am 1314620464

It's 3.33% of a house worth $450,000.00. A third of a 10% deposit or 16.7% of a 20% deposit. Not a sum to be sneezed at if you're trying to save for a house. And yes you are right. Boomers walked or rode their bikes to school, and many took a packed lunch made by Mum.

by Wolly | 30th Aug 11, 7:06am 1314644782

You forgot the gst icono......

by Anne | 30th Aug 11, 7:04am 1314644682

Bernard, following your comments re your daughter-in-law's SQUANDERING OF THE PLANT'S RESOURCES (surely a worthy topic for a future article in light of the same charge laid above against the BBers who were solely responsible for this since the beginning of time)........

I hear this morning that Steven Joyce's resolve to recoup money owed to the NZ taxpayer (of ALL generations) has been most encouraging, with an incidence of door-knocking to one dishonourable borrower resulting in a cheque written on the spot for $60,000!

Interestingly this scheme shows up those who absconded the land that bred and paid for their upbringing, health and education earn money overseas and yet made little or NO repayment of their dues. So much for the moral superiority of this so-called highly educated generation.

Hyposcrisy rules.

by bozobit | 30th Aug 11, 5:17pm 1314681470

The core of this problem is demographic. We simply are not having enough babies. Since time eternal, we have relied on the young to finance the old. Over the past 40 years the West has simultaneously increased life span (a good thing), promised more social benefits, and voluntarily stopped creating assets (yes, children are assets) required to keee the system going. For example, when the US passed Social Security, there were 6 workers for every retiree. Now it's 3 and the promises are much bigger. Thus we have entirely predictable result of massive public debt and huge transfer of weath from a smaller group of younger people to a larger and more politically powerful generation of older ones. That is simply not sustainable. France, for example has a replacement rate of about 1.6 children per woman. To keep population steady, you need about 2.3. Europe and Russia are depopulating. We are not alone though. The Chinese screwed themselves with their one child policy and will now get old before they get rich. It doesn't matter how you finance it. Who's going to look after grandma?

I know this point of view will make some people apoplectic (wait for it!) but if you want more wealth, you simply need more people and more economic growth. Sure the Earth is finite, but it's larger than some people seem to think. IMHO, NZ could easily double it's population and be much better off for it. This place is empty!