Why does Ireland have Europe’s most expensive housing market?

Ireland has the highest housing costs in the European Union on the back of some of the fastest growing rents across the bloc, while the number of people owning their own home continues to decline, a new report from Eurostat on housing trends across the EU has found.

What might be a surprise, however, is that while Ireland is very expensive when it comes to housing costs, it’s not unaffordable, with the report also finding they are not unduly overburdening the population.

Here’s how Ireland compares with other European countries.

It’s no shock perhaps to learn that Irish rents soared by 68 per cent between 2010 and 2021; what might be surprising is how much faster this rate of growth has been when compared with other European countries.

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Irish rents increased at the third fastest rate across the EU-27 in that period, behind only Estonia (+154 per cent) and Lithuania (+110 per cent). By contrast, rents rose by just 16 per cent across the EU as a whole in the same period, and actually fell in two countries – Greece (-25 per cent) and Cyprus (-3 per cent).

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In Germany, rent prices grew by 16 per cent between 2010 and 2021, and by 8 per cent in France.

When it comes to house prices, growth in the Irish market was only marginally ahead of the EU average.

Across the EU, there was an increase of 37 per cent between 2010 and 2021, with 23 of the 27 EU countries reporting price increases. The data shows a steady upwards trend since 2013, with particularly large increases between 2015 and 2021.

In Ireland, price growth took off in 2013, from a much lower base than the EU average, given how far prices had fallen during the financial crisis. Overall, prices here grew by 38 per cent during the period.

Three countries actually reported a fall in house prices over the period: Italy (-13 per cent), Cyprus (-8 per cent) and Spain (-2 per cent) – data was not available for Greece.

The most significant price increases were observed in Estonia (+139 per cent), Hungary (+122 per cent), Luxembourg (+115 per cent), Latvia (+101 per cent) and Austria (+100 per cent).

In Germany, prices rose by 84 per cent, while in France, prices rose by 24 per cent.

Housing costs

Despite house price growth being in line with EU averages, the report found the highest housing costs across the EU in Ireland, which, in 2021, stood at a staggering 94 per cent above the EU average.

“Housing costs” as measured by Eurostat are largely driven by rents. However, the figure does also incorporate property maintenance costs, refuse collection and the cost of water, electricity, gas and other fuels.

This puts Ireland at the top of the table, followed by other high-cost economies such as Luxembourg, where costs are 87 per cent above the EU average, Denmark (78 per cent) and Finland (37 per cent).

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But those costs have risen much more dramatically in Ireland than elsewhere. Back in 2010, housing costs here were a much more modest 17 per cent above the EU average and the State was ranked as the sixth most expensive on this measure – well behind Luxembourg and Denmark, lagging Finland, the Netherlands and France, and only fractionally ahead of Germany.

Having jumped more than twice as dramatically as any other country, by 2021 Ireland was clearly the most expensive state in the EU for housing costs, 94 per cent above the EU average. That contrasts with Bulgaria (64 per cent below the EU average) and Poland (62 per cent below) at the other extreme.

While the cost of housing in Ireland is far above EU norms, the burden it places on residents is not as high as might be expected.

Across the EU, about one in 10 of the population living in cities spent more than 40 per cent of their disposable income on housing, with the comparable figure for rural areas being 6.2 per cent.

Typically, it is recommended that households should spend no more than about 30 per cent of their net income on housing costs, so spending more than 40 per cent may be a sign of significant financial stress.

When looking at cities, Greece has the highest “overburden” rate – the percentage of the city population paying more than that 40 per cent benchmark – with almost one in three (32.4 per cent) Greek city dwellers paying more than that level.

The next highest overburden rates were found in Denmark (21.9 per cent) and the Netherlands (15.3 per cent).

Despite the very high level of rents in Ireland as well as hefty house prices, which means that Ireland has the highest housing costs across the bloc, the State has a low overburden rate. The report found Ireland’s overburden rate to be just 4.6 per cent in cities, and 1.6 per cent in rural areas – the seventh lowest rate for city dwellers in the EU and second lowest for those living in rural areas.

Another way of looking at it is to see how much of a household’s disposable income goes on housing costs.

On average in the EU in 2021, for example, 18.9 per cent of disposable income was dedicated to housing costs. Ireland was below this, with an average of 14.4 per cent. The highest shares were found in Greece (34.2 per cent), Denmark (26.3 per cent) and the Netherlands (23.9 per cent). The lowest was found in Malta, at just 9 per cent.

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What the report does not identify, however, is who are the 14.4 per cent facing such high costs in Ireland – and given the rental market, it’s likely to be a younger cohort who are new to renting.

The Eurostat figures also look at the number of people living with arrears on either their mortgage, rent or their utility bills.

Across the EU, the average has fallen from 12.4 per cent of households to 9.1 per cent. The figure is down in Ireland too – 13.6 per cent in 2021 compared to 16.7 in 2010. However, Ireland is ranked as the fifth highest in terms of the share of the population in arrears compared to in 2010 when it was ranked 10th, a stark number that suggests households are having to live beyond their means.

Our homes

Ireland is bang on with the EU average when it comes to how many of people own their own home, with a home ownership rate of 70 per cent. This means that almost one in three, or 30 per cent, rent their home, either privately or through social housing.

Irish home ownership rates have declined in recent years with the figure in 2010 recorded as 73.3 per cent. Back in 2004, the country had what you would think was one of the highest home ownership rates in the EU, as it was then constructed, with a rate of 81.8 per cent.

It does, however, put Ireland towards the bottom of the table of EU states, ahead of countries where a lower home ownership rate is expected – such as Germany, Austria and France for example – but behind countries that Ireland may have once been on a par with, such as Italy, Portugal and Spain.

It will not be a surprise to those looking for an apartment to buy in Ireland, or Europeans perplexed at the relative lack of apartment living in Ireland, that the country has the highest share of the population living in a house – at a staggering 90 per cent.

This is far above the EU average (53 per cent), and is also ahead of house loving countries like the Netherlands (80 per cent), Belgium and Croatia (both 77 per cent).

In contrast, the highest shares for flats were observed in Spain (66 per cent), Latvia (65 per cent), Estonia (61 per cent), Lithuania (59 per cent) and Greece and Malta (both 57 per cent).

There is also a breakdown depending on the urban/rural divide, with 71 per cent of EU city residents living in a flat. Meanwhile, 41 per cent of those living in towns and suburbs live in a flat and just 15 per cent of rural dwellers live in a flat.

Empty nesters

A further insight into the shortage of accommodation in Ireland can be found from statistics detailing the number of people living in an over- or under-occupied home. A home is considered to be overcrowded if it doesn’t have one room for each single person aged 18 or more/one room per pair of children under 12 years of age, and thus under-occupied, if it has in excess of this.

“The classic cause of under-occupation is older individuals or couples remaining in their home after their children have grown up and left,” the report says.

This would appear to be a significant issue in Ireland, as it has the third highest share of under-occupied homes in the EU at 69.1 per cent, behind only Malta and Cyprus. In contrast, the EU average is 33.6 per cent. Meanwhile in Greece, the figure is just 11.8 per cent and 7.2 per cent in Romania.

Other figures in the Eurostat report show that, with an average of 2.1 rooms per person, Irish people have bigger homes than those in other countries. Ireland ranks second alongside Belgium and the Dutch, and behind only the Maltese, who have an average of 2.3 rooms per person. The EU average on this measure is a more compact 1.6 rooms.

This means that there is a lot of living space potentially available in homes across the State, with many families living in properties that may be too big for their needs.