While the vast majority of Irish people still want to own their home, a significant proportion are likely to become “forever renters”, as a combination of rising rents and house prices conspire to make getting on the property ladder particularly difficult.
According to Aviva’s 2018 Family Finances Report, access to the housing market remains problematic. While more than 90 per cent of respondents would prefer to own their own home rather than rent, a growing number are now so disillusioned by the difficulties in getting on the property ladder that they believe they will never make the leap.
According to the survey, while half of those who don’t own their home are planning to buy in the next five years, 40 per cent of the remainder do not expect to be in a position to buy until 2028 “at the earliest” – and over a quarter believe they will never be able to afford to own their home.
The survey is based on research conducted online by Red C in mid-May, based on a nationally representative sample of 1,292 adults.
“For half of those who have yet to buy, home ownership has become a dearly held but distant aspiration rather than a plan. This could be the beginnings of a long-term change in the pattern of home ownership in Ireland,” says Ann O’Keeffe, head of personal pensions and investments with Aviva.
The main reason for this is either because people aren’t able to save a deposit, or because they believe that they wouldn’t be able to afford the mortgage.
Gen Xers are still struggling
Despite a recovering economy and stronger jobs market, the survey finds that 29 per cent of respondents, which Aviva says is representative of over one million adults across Ireland, are still struggling.
This difficult financial situation is most prevalent among the younger Generation Xers, or 35-44 year olds, of whom 39 per cent say they are financially stressed and struggling to make ends meet. That figure is up by a hefty 11 points since May 2017.
And why are they stressed? Mainly because of the housing situation. While this age group are more likely to have children – 69 per cent do compared with 41 per cent overall – a lower proportion owns their own home, with 42 per cent of this age group renting compared to 31 per cent overall.
Indeed the number of people in this age group who rent, rather than own their own home, has increased by three percentage points on the last survey. This means a greater proportion of families are subject to rapidly rising rents, which will crunch their incomes.
And of those who do own their own home, many will have purchased during the boom, and will be facing difficulties trading up – due either to still being in negative equity, or not having the requisite 20 per cent deposit under Central Bank rules.
Their disposable income is also constrained, with just 29 per cent saying that they expect this to increase.
On the jobs front however, this cohort is upbeat, with more than one in two asserting that the jobs market and their ability to get work is “getting better”.
Millennials are getting by
While Generation X is struggling on the housing front, Millennials are more sanguine. Yes rapidly rising rents and house prices, combined with slow earnings growth, can make life difficult for those aged between 25-34. However, almost one in two say they are “getting by”, with a further 23 per cent saying they are doing better than that, and are “comfortable”.
Fifty-six per cent say their employment prospects are getting better and 58 per cent expect their disposable income to grow
Just 26 per cent of this age group say they are struggling, despite the fact that most renters (64 per cent) are aged between 24-44.
Generation Y is thriving
While their older Millennial counterparts may largely be just “getting by”, Generation Y – or those aged between 18 and 24 – emerge as the most optimistic about their near term financial prospects.
Fifty-six per cent say their employment prospects are getting better and 58 per cent expect their disposable income to grow. The latter is probably down to the position of those who are leaving college or further education and entering the employment market for the first time.
Coinciding with this, 42 per cent of this age group say they are “comfortable” financially. That’s a 13 percentage point improvement on the position last year.
Of course, many of this group may still be living at home, drawing down from the bank of mum and dad, and are, as yet, “unencumbered by children or accommodation costs: the two great expenses of adulthood”.
Baby boomers are more comfortable
At the other end of the scale, baby boomers are enjoying their retirement. As perhaps the last generation to fully enjoy the benefits of defined benefit pension schemes, which give a guaranteed income in the “third age”, almost one in two of those in the 65+ category say they are “comfortable”, up by five points over the last year.
Women who will often have less pension provision in place, and can struggle to get a full State pension due to their disjointed working lives, are less likely than men to say they are comfortable.
Unsurprisingly, most of this age cohort are out of the rental market, with just 6 per cent renting their own home. And of those who own their own home, most are likely to be mortgage free at this age, just adding to their sense of financial stability.
A private pension for everyone?
The survey also gives an insight into what people think about plans to introduce auto-enrolment in Ireland. This is relevant as figures from the Central Statistics Office show that about one in two workers will be relying only on the State pension to fund their retirement.
While the detail has yet to be finalised on the Irish proposition, it has been suggested that workers should contribute 6 per cent of their wages
Under Government plans, from 2022 everyone will automatically be enrolled into a private pension, with their employer obliged to make contributions. However, the details of the scheme remain unclear, particularly with regards to just how much employers will have to cough up.
In the UK, for example, employers were initially forced to contribute just 0.8 per cent of salary, but this rose to 2.4 per cent this year, and will rise again, to 4 per cent, next year. In Australia, employers’ contributions currently stand at a significant 9.5 per cent.
While the detail has yet to be finalised on the Irish proposition, it has been suggested that workers should contribute 6 per cent of their wages; employers another 6 per cent, and the government will add a further 2 per cent.
If achieved, this would substantially enhance the retirement prospects of a significant proportion of the workforce. Unsurprisingly then, proposals for auto-enrolment, as they stand, received “overwhelming and almost universal support with no real dissenting group” in the survey.
While the survey showed strong support across all age groups, the highest level of support for the scheme came from those over 65, perhaps based on their own experiences of reaching retirement with less funds in their pot than they had expected. Just 1 per cent of this age cohort disapprove of the proposal with 86 per cent thinking it is a good idea.
Nationally, three-quarters support the reforms with just 7 per cent against. Support for the proposal is high across all regions but highest in Dublin. There is also strong support among those who say they are struggling to make ends meet.
While the proposals do give the option to those who think they cannot afford to make the contributions to opt out, by a ratio of 3:1, respondents said they would remain enrolled. Support for remaining in the scheme is high across all age groups, except for the 55 – 64 cohort who may feel it is too late for them. Support is also high across three categories of financial circumstances, including those in the struggling category.
Aviva itself also comes out strongly in favour of auto-enrolment. As a pension provider, it should benefit from growing the reach of private occupational pensions. In the survey, Aviva says that issues surrounding mooted plans to reduce tax relief on pensions, as well as a reluctance on the part of employers to contribute enough to make the new plans worthwhile, should not derail the plans.
“There is still a long way to go with the reforms. Substantial issues remain to be sorted out, including the capacity of SMEs to contribute, the element of tax relief, and how the scheme interacts with existing incentives,” says O’Keeffe. “However, the response to our survey is encouraging.”
Elsewhere, pensions are clearly on peoples’ minds, with the survey showing that while personal pension contributions fell off significantly during the recession, people are now making an effort to increase these contributions once more. The survey shows that close to one in four respondents have done just that over the last five years.