Home truths mean many will never be able to afford their own homes

In the city of Dublin, house prices rose 15.5% in October, adding a whopping € 73,000 to an average house price of € 489,000. Income of € 125,000 is required to obtain a mortgage for this, as well as a deposit of € 50,000. House prices in the South East rose 19%, adding € 41,000 to the average house price of € 223,000 in Waterford, Wexford and Kilkenny.

Prices rose 15% in the South West, with average prices of € 340,000 in South Cork and € 278,000 in North Cork. Overall, house prices are up 110% from their 2013 lows. A house sold for € 200,000 in 2013 would now cost € 420,000.

The majority of homes purchased are existing homes, and these are experiencing sharp price increases.

Lack of supply is a key factor, but so is the high proportion of newly built homes purchased by investor funds to rent them out.

In 2020, non-residential buyers bought 40% of new home purchases nationwide, the largest of any type of buyer.

Homebuyers are pressured into competing to buy the limited existing properties, leading to bidding wars, facilitated by realtors. The pressure is obvious. A 60m² house in Cabra recently had an asking price of € 365,000, but was sold for € 407,000.

Rents now on average € 1,397 per month nationally. You would have to receive € 75,000 per year (the richest 10%) for this rent to be considered affordable (that is, when the rent is less than a third of your net income).

For 90% of employees, the average rent in Ireland is now unaffordable. In Dublin, it is even more severe. You need to earn € 115,000 per year (5% of top income) for the average rent of € 1,916 per month to be affordable.

New data from CSOs shows that rising rents have pushed more tenants into poverty. The deprivation rate among homeowners has declined since 2018, but deprivation among tenants has fallen from 27% in 2018 to 35% in 2020.

The deprivation rate among tenants is now five times that of owners, down from just under three times in 2018.

The disproportionate impact of housing costs on low-income households is illustrated by the fact that 50% of single-parent families are at risk of poverty if housing costs are included.

This is three times the level of the risk of poverty in households with two adults and children.

High rents and lack of security mean people cannot save for a bond and are desperate to leave the private rental sector. They are prepared to take on unbearable debt and pay ridiculous housing prices to get out of the private rental sector and own their own homes.

Many would rent if there were real security and affordable rents, but instead they are forced to return to their parents, emigrate, surf the couch, or become homeless.

ESRI’s winter economic commentary points out that the government’s policy of expanding loans in the absence of supply increases house price inflation. He is concerned that the purchase assistance program “is poorly targeted in relation to its stated objectives and likely to fuel growth in house prices”.

We have to ask ourselves who is really benefiting from rising house prices and rents. Rising prices mean more mortgages and higher profits for banks.

While economic orthodoxy views rising house prices as a good thing, adding to household wealth and GDP, there are economic downsides such as economic instability as well as reduced household disposable income, competitiveness and recruitment.

ESRI has identified the persistence of high inflation rates, of which housing costs are a key element, as a risk to the economy. Many workers cannot afford to live in Ireland, especially Dublin.

Employers cannot recruit workers for vital sectors of the economy in IT, financial services, nurses, teachers, doctors, retail staff, etc. – partly because the rents are prohibitive and there is little chance of buying a family home.

Rising housing costs are slowing consumption throughout the economy, as households have to spend a large portion of their income on housing. Rising rents and prices are also exacerbating inequalities between landlords and the underprivileged, as already wealthy and international shareholders of institutional real estate funds accumulate wealth through Generation Rent.

I am surprised that there is not more pressure from industry sectors for more government intervention on housing.

With the huge inflation in rents, it is understandable why the Irish Congress of Trade Unions has recommended its private sector unions to demand wage increases of up to 4.5%.

There is a major split in the Irish economy, between housing and the productive economy at large. Housing has become completely disconnected from the real economy. It is a speculative and predatory financialized investment site.

The housing crisis is now a fundamental risk for the economy as a whole.

The supply of affordable housing is totally insufficient for the needs. Housing for All says 33,000 new homes per year are needed, but ESRI estimates that only 21,000 new units will be built this year and 26,000 next year. This does not include the supply deficit accumulated over the past six years without meeting the government’s housing targets, of around 30,000 units.

I have repeatedly called for effective government intervention to end the escalation in house prices and rent increases.

Yet political intervention is inconsistent and piecemeal.

The policy is geared towards stimulating the market to induce the real estate industry, developers, banks and investor lobbyists.

ESRI points out, for example, that the Zoned Property Tax (ZLT), which has the potential to increase the supply of housing by encouraging landlords to develop or dispose of sites zoned for residential use, has potential loopholes that will reduce its effectiveness.

They note that zoned land not connected to public infrastructure will be exempt from the tax, which “has the potential to create an incentive for owners of zoned residential land to defer the search for connection of their sites to public infrastructure in order to avoid the ZLT ”, while property owners can also avoid the tax by using a site as a temporary parking lot, subdivision or playground.

Why is there such reluctance to issue an effective tax on vacant housing and sites?

The perceived political wisdom in Ireland is that rising house prices are a vote winner. But a radical change is underway in Irish attitudes towards housing. Homeowners are realizing that rising house prices and rents are causing their children in their 20s, 30s and 40s to still live at home, unable to buy or rent their own homes.

The public wants affordable and decent standard housing for their children, not increased house prices.

Rory Hearne is Assistant Professor of Social Policy, Department of Applied Social Studies, Maynooth University.