Are younger people getting screwed in Ireland? The short answer is yes. The long answer is yes as well, though as with most things there are twists and turns in the story. If you have the right qualifications, for example, Ireland is now a great place to be looking for a job. But rising rents and property prices are a double whammy for younger age groups and there is a real danger that this is going to get a good deal worse before it starts to get better.
Is this all just part of the normal financial lifecycle? Didn't we all struggle to buy our houses? There was a furore last year when an Australian commentator, Bernard Salt, suggested that if young people stopped going to hip coffee shops and buying expensive breakfasts – he famously instanced smashed avocado with crumbled feta on five-grain toasted bread at $22 – then they could afford to save for houses.
A London estate agent, Strutt & Parker, got in on the act this week, saying that if only millennials would give up things like coffee, takeaways, nights out, mobile upgrades and gym membership, a couple could save the required £33,000 deposit to buy a London property. The predictable social media storm resulted.
So what are the facts here ? Do the millennials just need to hunker down and get on with it, or are we looking at something more serious?
Houses here are in short supply and are increasingly expensive. We are not back to where we were before the crash. A study by Economic and Social Research Institute researcher Kieran McQuinn published earlier this week found that, on average, house prices now are not out of line with economic fundamentals, incomes or international norms.
However, we know the supply of new houses is way too low. And we also know that affordability is becoming an issue in Dublin in particular. Add in McQuinn’s estimate that house prices could rise by 20 per cent over the next three years, and home ownership will quickly move out of the reach of thousands more.
Other evidence supports the conclusion that we are on the edge of affordability for many. An index by economic consultants DKM has shown affordability becoming stretched in Dublin, and property out of reach in the capital for many single buyers. Figures from the National Competitiveness Council show that in 2016 only two cities out of a group studied – London and Amsterdam – had worse affordability than Dublin.
Meanwhile, a study for the National Economic Research Institute by economist Dara Turnbull, estimated that by 2015/2016 the average young couple were already unable to afford the average first-time home in Dublin. In the meantime, needless to say, it will only have got worse.
Already one group of homeowners has been caught. Those who bought at the peak of the previous bubble, 2006 and 2007 in particular, shelled out when house prices were completely out of line. This has left many struggling to make repayment or in arrears and often stuck where they are and unable to move.
Those who bought after the crash in 2012-2014 did a lot better, but now the squeeze is starting again. It is not yet a credit-driven bubble as it was in 2007, but the risk is that with banks starting to push up lending again, greater mortgage availability will give another push to prices. We are somewhere now like we were in 2002/2003 – and the risk is of heading back to 2007.
And a few other things are really turning the screw on younger people. First there is the rental crisis, with costs now above Celtic Tiger highs and continuing to rise in double digits. Again, the data shows this is pushing affordability to the limit – and beyond for some – and making it very difficult to save a house deposit.
The squeeze is made squeezier by the high general price level in Ireland. Figures from Eurostat, the EU statistical agency, show that Ireland is the fifth most expensive for a basket of goods and services among 37 European countries and – remarkably – the most expensive in the euro zone. In too many sectors in Ireland, we remain in the grip of what economists call market inefficiency and the rest of us recognise as good old-fashioned gouging. And, of course, a crunch issue is the cost of childcare, one of most expensive in Europe.
Part of all this is the way things have panned out in recent years. But part of it, too, is down to political decisions, priorities and the way the economy runs. The banks were given a free run and mortgage rates here are still twice the EU norm. Rising house prices have helped their loan books look healthier, too. Big US vulture funds invested badly needed funds here, but are now cashing in via the rental market. In all of this, the younger population has suffered.
Crucially, no one has yet got to grips with the complex task of doing what is needed to boost housing supply, the kind of long-term, multifaceted problem we find hard to deal with in our political and administrative system.
The younger section of the population has been left caught in the backwash of the collapse and recovery. The significant plus is that there are now jobs for many and incomes are rising. But the risk is that, even with this jobs boost, more and more will be priced out of the housing and even the rental market, or if they are “in” they will struggle to live normally.
The warning signs are now everywhere. Where will a few more years of double-digit house price and rental growth leave us? And will we just wait for another housing crash to solve it?