Rory Hearne: Costly home truths mean many will never afford their own home
Homebuyers are being pushed into competing with each other to buy the limited existing properties, leading to bidding wars, facilitated by estate agents.
The housing market is a runaway train out of control. House prices rose by 13.5% nationally in October and rents grew by their highest rate since 2017.
House prices will reach Celtic Tiger levels next year, while rents in Dublin are 50% higher than Celtic Tiger highs. These rents and house prices are once again putting the Irish economy at risk, as homebuyers are forced into unsustainable levels of borrowing and renters are pushed into poverty.
In Dublin City, house prices grew 15.5% in October, adding a phenomenal €73,000 to an average-priced home of €489,000. An income of €125,000 is needed to get a mortgage for that, along with a €50,000 deposit. House prices in the South-East increased by 19%, adding a whopping €41,000 to the average-priced home of €223,000 in Waterford, Wexford, and Kilkenny.
Prices increased by 15% in the South West, with average prices of €340,000 in Cork’s southside, and €278,000 in the northside of Cork. Overall, house prices have increased by 110% from their 2013 trough. A house selling for €200,000 in 2013 would now cost €420,000.
The majority of homes being purchased are existing dwellings, and these are seeing the big price rises.
In 2020, non-household purchasers bought 40% of new dwelling purchases nationally, the largest of any buyer type.
Homebuyers are being pushed into competing with each other to buy the limited existing properties, leading to bidding wars, facilitated by estate agents. The pressure is evident. A 60 sq m home in Cabra recently had an asking price of €365,000, but went sale agreed for €407,000.
Rents now an average of €1,397 a month nationally. You would need to be earning €75,000 a year (the top 10% of earners) for this rent to be considered affordable (ie where the rent is less than a third of your net income).
For 90% of earners, the average rent in Ireland is now unaffordable. In Dublin, it is even more severe. You need to be earning €115,000 a year (top 5% of earners) for the average rent of €1,916 per month to be affordable.
New CSO data shows rising rents have pushed more tenants into poverty. The deprivation rate amongst homeowners has fallen since 2018, but deprivation amongst renters increased from 27% in 2018 to 35% in 2020.
The disproportionate impact of housing costs on lower-income households is shown 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 risk of poverty in households with two adults and children.
High rents and lack of security mean people cannot save for a deposit and are desperate to leave the private rental sector. They’re willing to take on unsustainable debt levels and pay ridiculous house prices to get out of the private rental sector and own their own home.
The ESRI Winter Economic Commentary highlights that Government policy expanding lending in the absence of supply adds to house price inflation. It is concerned that the Help to Buy scheme “is poorly targeted towards its stated aims and likely to fuel house price growth".
We must question who really benefits from rising house prices and rents. Increased prices mean higher mortgage lending, and higher profits for the banks.
While the economic orthodoxy considers rising house prices 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.
The ESRI identified the persistence in high inflation rates, of which housing costs are a key component, as a risk to the economy. Many workers cannot afford to live in Ireland, particularly Dublin.
Employers cannot get workers for vital parts of the economy in IT, financial services, nurses, teachers, doctors, retail staff etc — in part because rents are prohibitive and there’s little prospect of buying a family home.
Rising housing costs dampen consumption in the wider economy as households have to allocate a high proportion of their income to housing. Rising rents and prices also exacerbate inequality between the property have and have-nots, as the already wealthy and international shareholders of institutional property funds accumulate wealth off Generation Rent.
I’m surprised there isn’t more pressure from business sectors for greater Government intervention on housing.
With the huge inflation of rents, it is understandable why the Irish Congress of Trade Unions has recommended its private-sector unions seek pay increases of up to 4.5%.
There’s a major split in the Irish economy, between housing and the wider productive economy. Housing has become utterly disconnected from the real economy. It is a site of speculative and predatory financialised investment.
The supply of affordable housing is wholly inadequate for what is needed. Housing for All states that 33,000 new homes per year are needed, yet the ESRI estimates just 21,000 new units will be built this year, and 26,000 next year. This doesn’t include the supply deficit built up from the last six years of failure to meet Government housing targets, in the region of 30,000 homes.
I have repeatedly called for effective intervention by Government to stop runaway house price and rent increases.
Yet policy intervention is incoherent and piecemeal.
The ESRI highlights, for example, that the Zoned Land Tax (ZLT) which has the potential to increase housing supply by encouraging owners 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 residential zoned land to defer seeking connection of their sites to public infrastructure in order to avoid the ZLT”, while landowners can also avoid the tax by using a site as a temporary car park, allotment, or playing pitch.
Why is there such reluctance to issue an effective vacant homes and sites tax?
The perceived political wisdom in Ireland is that rising house prices is a vote winner. But a seismic shift is under way in Irish attitudes to housing. Homeowners are realising that rising house prices and rents are resulting in their children in their 20s, 30s, and 40s, still living at home, unable to buy or rent a home of their own.
The public want affordable and decent standard homes for their children, not rising property prices.
