Up and down the property ladder
A generation of people now have very different views from their parents about property. In recent years they have chosen – or been forced – to rent for longer. It is usually a more expensive choice
THIS WEEK the Economic and Social Research Institute found that nearly half of us who rent accommodation could afford to buy somewhere to live. On that evidence, renting, once viewed as the preserve of students and those seeking stopgap accommodation, is now a proactive choice for people who are cautious about buying given uncertain job prospects and the potential for negative equity.
But in the UK this week Barclays calculated that owning a property is £200,000 cheaper than a lifetime – 50 years – of renting, on average.
So how does the reality of renting live up to the image, and is it better to buy?
Angela Keegan, the managing director of MyHome.ie, is seeing a shift in behaviour. “Over the last few years we’ve seen people renting for longer. The other thing we’ve noticed is people making a lifestyle choice to rent. Lots of young professionals would have seen older siblings get burned at the top end of the market, so they’re renting property instead.”
For Keegan the whole notion of the property ladder has changed. “A few years ago we were talking about the rush to get on to the property ladder. Right now that doesn’t necessarily mean owning a house. It means living in an area where they want to live in, living a lifestyle they want.”
Ronan Lyons, an economist at Daft.ie, has a calculator on his website for working out the cost of renting a property versus buying it. Using an average house price, an average rent, an average mortgage interest rate and normal fluctuations in the rental market, he calculates that renting a property in Ireland over 30 years would at present cost an average of €90,000 more than buying it would.
“Let’s take an average house price of €160,000,” he says. “The rent on that is probably going to be about €800 a month. If you’re talking about someone who had a 10 per cent deposit and we go for a 30-year mortgage, I’m expecting the average interest rate of a mortgage to be 6 per cent, so the mortgage repayment is going to be €865 a month.”
As rent and house prices typically rise by 2 per cent each year – outside of bubbles and busts – 12 annual mortgage repayments over 30 years will cost €300,000 on a €160,000 property, and the property might then be worth about €290,000.
Paying €800 in rent 12 times a year on that property for 30 years, allowing for 2 per cent rent inflation, would mean the renter would have paid €390,000.
“If you were going further up the scale, looking at south Co Dublin, something that was €800,000 and the rent €2,000 a month, you’d find the mortgage repayment was €4,000 a month and the rent was €2,000 a month,” Lyons says.
“It that case it makes more sense to rent than to buy. But for the average house there’s only a small gap between paying rent and paying a mortgage.
Lyons says that in order to make smart decisions, buyers need to pay attention not to house prices but to rents. “The fire sales that Allsop do in the Shelbourne, they’ll look at the rent ratio,” he says. “So if something’s getting €10,000 a year in rent, then they’d say, ‘I’ll give you a €100,000 for it.’ Trying to get first-time buyers to think on the same terms is important, because then they’re much less likely to make mistakes buying.”
Keegan says a new group of renters, particularly young professionals, are making lifestyle decisions based on location and services over owning property. “There has certainly been a change in one pattern, which was buying and commuting. People are appreciating amenities and local communities, and the affordability of renting property in cities has brought people back in.”
From Clontarf. Rents an apartment in Dublin 1 with a flatmate
“I’ve been renting for just under a year; before that I was at home. Buying would appeal to me, but it’s not something I would consider for the next few years. It’s not even in the distant future.
“Looking at friends of mine who are the same age as me – 25 – maybe one or two would be considering buying, but that might be out of a group of 30 who all graduated at the same time.
“All of those people are not living at home; they’re all renting. They’ll be renting for the foreseeable future, and it could turn into a permanent thing. I think things are changing.
“It would be lovely to own a house, but I don’t even own a car.”
From Kildare. Rents a house in Dublin 7
“I’ve been renting for the past 10 years. I’m not thinking about buying at the moment; I can’t afford it.
“Me and some friends discussed buying a house together a couple of years ago. I look back on that and think, Thank God I didn’t.
“The idea of owning my own house and having a garden, closing the door and knowing it’s mine – that’s appealing.
“People say rent is money down the drain, but on the Continent everyone rents. It’s pretty much the same cost as a mortgage.
Sure, with a mortgage in 35 years you’re going to own your house, but will you still want it in 35 years? It’s a massive commitment for what is essentially a pile of bricks.”
From Westmeath. Rents in Dublin 8
“I’ve rented in Dublin for two and a half years. Before that I was moving around Europe renting, and prior to that I owned a house in Bristol. I don’t think buying is something I’d like to immediately do again. I like the flexibility and freedom of renting. When you live in other countries you realise property ownership isn’t a be-all-and-end-all goal.
“Most of the people I know are renting, and they’re all in their 20s, 30s, 40s. I think owning a property is wrapped up in national identity, progression, acquiring status, whereas perhaps in more socialist countries you see a more collective approach to living. People here think that’s a bit hippyish, but it’s not: it’s commonplace elsewhere.”
From Drogheda. Rents a house in the town with a friend
“I’ve been here over two years. Before that I lived with my parents. I would intend to buy eventually. I’m 24, and I’ve a friend who’s 23 who bought a house last week, so I suppose now really is the time considering how cheap they are.
“I think people are holding off a bit. It’s hard to put all your eggs in one basket. People feel they have to emigrate as well, be it to Australia or Canada. I know a lot of people working over in the mines in Australia with a view to coming back and buying a house and not having a mortgage over your head. I’ve two friends who bought houses who’d be under 24. The rest would be renting.”