Crash wiped €230bn off net worth of households

Sat, Feb 4, 2012, 00:00

THE ECONOMIC crash has wiped more than €230 billion off the net worth of Irish households, equivalent to €51,500 for every man, woman and child in the State, according to Central Bank figures.

Households have borne the brunt of the crash, accounting for almost half of the total wealth lost across all sectors in the economy, the bank says. This is largely due to massive falls in the value of housing, where values have dropped to less than half the levels seen at the height of the boom.

A bank study also reveals the extent to which the “squeezed middle” in society – those on middle income earning above the limits for social welfare support – has been hit hard by the downturn.

The study cites CSO research which shows that although people on higher incomes lost more because their houses depreciated more, lower-income families are more likely to be in arrears with their mortgages or rent. This is because they are likely to have less access to money at times of financial stress. Arrears rates among lower-income groups are running at twice the overall average.

According to the Central Bank, households were the first sector in society to experience a reduction in net wealth, once house prices began to fall from 2007. Housing accounts for two-thirds of the wealth of the average household.

A second factor that adversely affected individual wealth was the decline in the value of financial assets caused by volatility in international stock markets.

The total net worth of households fell to €413 billion by the middle of last year, or €92,149 per capita. This represents a 36 per cent fall from the peak of €641 billion in late 2006. The impoverishment of households is continuing as house prices continue to fall. Overall liabilities stood at €192.4 billion in mid-2011, or almost €43,000 a head.

The bank says examining the fall in net wealth is important for a number of reasons. Declining wealth can affect the consumption and investment decisions by institutions. In addition, the impact of the changing economic environment on households can have repercussions for other sectors.

Yesterday Taoiseach Enda Kenny defended the Government’s austerity measures, including planned increases in college registration fees.

Asked whether the burden was being evenly spread, Mr Kenny, speaking in Ballincollig, Co Cork, said: “Clearly the decisions made by Government in the budget for 2012 are focused on the protection of income and on choices being available to people and focused on opportunities and opportunities for job creation.”