David McWilliams: Why 2018 was such a strong year for the Irish economy
It wasn't perfect, but the past 12 months saw incomes exceed their pre-crash peak
The average property nationwide was worth almost €257,000 in the third quarter of 2018, up from a low of €165,000 in early 2013. There is now almost €450 billion of housing wealth in Ireland. Photograph: Frank Miller
This year was an exceptionally strong one for the Irish economy. In fact, 10 years after a monumental crash which destroyed the balance sheet of many hundreds of thousands of Irish people, the position a decade later is quite remarkable.
At the depth of the crisis, most of us wouldn’t have predicted that incomes would be back above their 2008 peak by 2018.
Despite obvious problems in the housing market, overall performance has been pretty good and pretty good is well, pretty good.
We humans have a tendency to undervalue the significance of pretty good. It is always easier to point out what is wrong, rather than appreciating what is right. We tend to allow some notion of “the perfect” to bully “the good”, as if good is the enemy of perfect; it is not.
Good is an essential milestone on the road to better. Everyone can source anecdotal evidence that things are going to hell, but only hard data offers us an accurate picture of what is really going on . And what is happening – economically, at least – is pretty good. Taking the latest data published this week by the Central Statistics Office (CSO), 2018 has been a year of steady progress across a number of economic indicators.
Slice and dice
First off let’s look at what economists call “median equivalised real disposable income”. In English, this reveals what the person in the middle is taking home after they’ve settled up their taxes and benefits with the State and adjusting for inflation.
No matter what way you slice and dice the numbers, incomes in Ireland of those in the middle are rising. In 2018, incomes rose for men (+2 per cent) and women (+3.8 per cent) alike.
When we break it down between those in work, on the dole or on disability, we see clear positive trends. Incomes for those in work rose by +3.3 per cent, for the unemployed and for those unable to work due to disability, incomes were up by +4.3 per cent.
For those who are studying, incomes were up +4.1 per cent and those tending to the home saw their incomes rise by +2.5 per cent.
This positive story is also true across the educational attainment spectrum, with the median income of all groups, ranging from those with only a primary school education to those with PhDs, going up.
While the median income of urbanites fell slightly last year (-0.9 per cent), if we look over the past two years, there has been a significant increase for both urban (+5.5 per cent) and rural dwellers (+7.6 per cent) alike.
The two main groups that experienced a material drop in the median income last year serve to illustrate the looming threats to the economy, namely the elderly and, of course, renters.
Indeed, retirees saw a 3.8 per cent decline in median equivalised real disposable income, while those renting at the market rate witnessed a sizable 6.6 per cent drop.
These are the areas Ireland needs to fix.
Interestingly, up to now there has been a tendency to argue that the recovery is a localised Dublin phenomenon.
It’s easy to dismiss the upswing as a multinational-driven, Grand Canal Dock, avocado-and-sourdough thing, but there has been an impressive catch-up between urban and rural incomes in recent years. In 10 years, the gap between rural and urban incomes has been reduced from 20 per cent to just 4 per cent.
This progress has been achieved without any dramatic increase in income inequality. That said, as argued here and in documentaries like Ireland’s Great Wealth Divide, wealth inequality not so much income inequality is where the problem lies in Ireland.
Let’s see what is happening at the other end of the scale.
There is also cause for optimism as the latest figures on deprivation published by the CSO suggest that things are improving slowly for those at the bottom – and not just in the middle.
The CSO’s deprivation index considers households that can’t afford certain staples – such as a warm waterproof overcoat, heating for their home or presents for family or friends at least once a year. The latest Survey on Income and Living Conditions data revealed a statistically significant decline in the share of the population experiencing enforced deprivation, from 21 per cent to 18.8 per cent.
Meanwhile the deprivation rate for those at risk of poverty also fell significantly from 50.4 per cent to 42.8 per cent last year.
The consistent poverty rate has fallen from 8.2 per cent to 6.7 per cent. The Children’s Rights Alliance was keen to note that the latest data from the CSO revealed the biggest decline in child poverty in recent years, with the share of 0-17-year-olds living in consistent poverty falling from 10.9 per cent in 2016 to 8.8 per cent last year. This means that an estimated 24,000 children were lifted from poverty last year.
Now let’s examine personal wealth. Last week Daft.ie issued a report on housing wealth and because housing accounts for the lion’s share of personal wealth – and is a good yardstick for Irish balance sheets.
The average property nationwide was worth almost €257,000 in the third quarter of 2018, up from a low of €165,000 in early 2013. There is now almost €450 billion of housing wealth in Ireland.
To give you a sense of how significant housing is in Ireland as a form of wealth, this €450 billion figure is over twice the combined market capitalisation of the 50 or so firms listed on the Irish stock exchange and bigger than Irish GDP, estimated to be just under €300 billion in 2017.
Over 5,000 Irish people are in possession of a house worth €1 million or more.
And in this Irish housing wealth game, the big gainers over the past five years are not the well-heeled burghers of the traditional residential hot-spots, but residents of previously unfashionable areas in the greater Dublin area: Dublin 1, Dublin 8 and Dublin 10 now rank nine, eight and 17 places higher in the list of 54 markets around the country, compared with five years ago.
Westmeath and Louth – both in Dublin’s commuter belt – rank nine and seven places higher.
So as we look back on 2018, the economic performance across a range of indicators has been pretty good. It’s not perfect by any stretch of the imagination – and the housing crisis remains a major worry – but when compared with the problems in many of our neighbouring countries, pretty good is well, pretty good.
Happy New Year!