Ireland’s housing crisis

Housing Crisis is happening all over Ireland. Indeed, All across the world. But for this article I am going to concentrate Dublin and the greater Dublin area. Dublin is a great example to use because it a microcosm as the economic situation across the cities of Ireland and the rest of the world. Ireland is an open economy depending on trade from across the world.

For this example, So, what happens in say, New York like for example Subprime mortgage crisis is going to trickle down to the Irish economy.

Now the two main factors for the housing crisis are shortages of housing and low wages.

Now for view of these examples I will use American statistics as they are easier to find and it still explains what’s happening in Ireland.

Wages in real terms have been falling since the 1960s, despite an increase in productivity across the world. You may be thinking, but I am getting paid more than my parents were 20 years ago.

Real wages this mean income expressed in terms of purchasing power as opposed to actual money received. So basically, what you actually buy with your money. Their various reasons for this, but one of the biggest factors that get shout around is companies simply have not been increase wages in line with inflation e.g. increase wages in real terms for example “From 1973 to 2013, hourly compensation of a typical worker rose just 9 percent while productivity increased 74 percent.”

Give you an example to explain real wages in real terms

Married couple 1960s in the USA now firstly the wife is homemaker so does not work. The husband earns 2-dollar hour. Doesn’t sound like a lot right. He makes 80 dollars week as he works 40 hours a week and he earns 3840 a year. However, house prices are 2000 dollars in his area. So, the house is only a little over half year’s wages.

Were married couple today, both earn 50,000 each a year, which is 100,000. So that same house now cost 450,000 now you’re thinking, well, that’s fine, they have two incomes and their wages are higher than a measly 3840 a year. The same house cost 4.5 years of their yearly wages compared to half year’s wage in the 1960s. In real terms house cost 4 times the amount than 1960s, despite the growth in wages. And top off that this couple will have college debt. While married man 1960s got the job without a college education, therefore didn’t have any debt. It’s worth pointing if we were comparing couples on the exact same factors, e.g. where only one-person work in the married. The couple from 2019 would only salary of 50,000 with means the house would cost nine times their yearly salary. In real terms house cost 8.5 times more in real terms compared to the 1960s

So next time you hear elderly relative say, well, I only got paid 2 dollars an hour. Just think of this example were before you one think, oh two dollars one barely but me soda. Now you know it’s not about the amount of money is about what your money gets you.

Now I am going to talk about first time buyers age 23 to 38 also known as Generation Y.

I will mostly use term Generation Y as I dislike term Millennial as so like term used for children. You may be thinking, but Millennial are children to me. Yes, this is true, however, as the years go by the Millennial generation will be oldest generation. As time goes even further there will be plenty of Millennial over 100. How’s that for breaking your reality.

Generation Y are increasingly concerned with their development; they want to see their careers progressing. This frustrates employers because they’re thinking why are people in such a rush for progress their job and also the fact that they seem switch jobs a lot more than previous generations. As employers or managers, one be working field for years. However, the reason Generation Y does this is purely economical. As I will talk about in the financial section in more detail.

The short reason is Generation Y Economic prospects for had greatly declined largely due to the Great Recession in the late 2000s. Therefore, many are playing catch up. Generation Y have benefited the least from the economic recovery following the Great Recession, as average incomes for this generation have fallen at twice the rate of general adult population’s total drop and are likely to be on a path toward lower incomes for at least another decade. In a Bloomberg L.P. article wrote that “Three and a half years after the worst recession since the Great Depression, the earnings and employment gap between those in the under-35 population and their parents and grandparents threatens to unravel the American dream of each generation doing better than the last. The nation’s younger workers have benefited least from an economic recovery that has been the most uneven in recent history”. Millennials poorer than previous generations. Hence why for practical reasons many people of this Generation have to be so worried about job.

The reason this generation will be poor rising cost of housing — both buying and renting — in the years since the recession and also in real terms their wages are worth less.

“Many millennials likely don’t want to switch jobs, but their companies are not giving them compelling reasons to stay,” Gallup reports. “When they see what appears to be a better opportunity, they have every incentive to take it.” They also see from recession by loyal to employer won’t save you as they see older relatives or people, they knew who were loyal to company give their best years. Yet, as soon as recession came these relatives were made redundant.

Were for previous generation who depending on when they were born could raise family working in a retail job. For example, here in Ireland raise a family here in Ireland in an unskilled job without wife working you would normally get a house that’s affordable to your wage. You didn’t have to leave job as you were well paid and secured

Were for previous generation raise family working unskilled job such as working in retail without wife working were able to buy an affordable house on one income wage and raise a family. Which one be unthinkable for the average person today.

Now I am going Dublin, Ireland as an example because it’s a microcosm as the economic situation across the cities of the world. Ireland is an open economy depending on trade from across the world

Now Dublin there good few reasons why houses are so expensive to buy and rent in Dublin no new houses were built during the recession, no social housing being built in significant numbers and poor government planning. Which has led to Urban sprawl and a lack of decentralisation which means people from Mayo, Cork and Kerry have to come Dublin for work which makes the housing situation worse.

To show how bad it is looking at this statistic Greater Dublin Area in mid-2017, representing over 42% of the total number of people employed in Ireland. This is way out of whack for normal country. For example, our nearest neighbours the UK only 15% of total population work in their capital London. This is staggering 27% less. If there was more decentralisation only 20% of the workforce work in Dublin rent and house prices would be a lot cheaper in the Dublin area long term.

You may be thinking can the average person in Dublin afford a house? In short no. as the UN said housing in Ireland are unaffordable. But for the long answer I am going to do numbers I estimate that less than 10% if not less of first-time buyers without any help from parents or inheritance could afford to buy a house in Dublin.

The average person or couple looking to buy a house in would have to make 100,000. Now 100,000 may not sound a lot to you if you come from a country with high paying wages, however, only 5% of the tax-paying population are on salaries of €100,000 or greater and these wages are taxed heavily.  Or 50,000 for a couple which is still very unlikely that both people one earns over this amount. Plus, the fact when people start having children with one parent is going to have start working less which will cut their wages. Revenue is the Irish Government agency responsible for taxation and related matters in Ireland. Revenue individualised income data which shows that 75% of all income earners are on less than €40,000. Assuming that the distribution is similar to 2014 when 64% of workers earned less than the mean average, we can estimate that the typical worker in Ireland probably earned around €29,740 in 2017.

100,000 is because mortgage lending rules in Ireland mean you can only mortgage for 3.5 times income. With the median house price in the capital now stands at €380,000. This example one give mortgage of 350,000. So even on high wage they one struggle to find a house. Of course, you made be thinking can they not rent. Dublin has one of the highest rent costs in the world at this current time of course this can change. The Average Dubliner Spends 55% Of Their Wages on Rent New figures have shown that Dublin city renters are now spending more than half of their wages to pay their rent.

The findings from Sherry Fitzgerald.

Median earnings were estimated at €29,740 last year for all those at work this from 2017.

The Average Dubliner Spends 55% Of Their Wages on Rent New figures have shown that Dublin city renters are now spending more than half of their wages to pay their rent.

The findings from Sherry Fitzgerald.

The average citizen in Dublin is paying astronomical rent. Which means not only are people paying rent so high they have no chance of buying houses. This means the average Irish citizen will have to be given higher wages to afford the luxury of paying rent and nothing else. Which will mean it will make us less attractive for foreign investment this means less jobs, for indigenous business this means they are less profitable because of such high wages so they higher less people which means less jobs. You better believe this will affect small and medium business, as some of these businesses will not be financially viable due to the cost. Overall, this will create a vicious cycle that will affect the whole economy that will drive the country into a recession that could be much worse than Ireland has ever had before.

You may be thinking what can we as a country do about it. We need to start realising that houses are not a commodity, but that they are a vital part of the infrastructure that’s one of the major ways to make us competitive on a global scale. Government will need to put in place policies that make this so, such as in Switzerland they have laws in place that make it harder to buy second homes, which help to keep Switzerland houses affordable for the average citizen in fact this has worked so well Switzerland capital Zurich has cheaper rent than Dublin. Despite the fact the average Zurich citizen is getting paid more than twice as much as their Dublin counterparts on average.

We can also look to other small country’s like New Zealand who have banned most foreigners from buying homes to cool down their property market. The average Irish citizens are limited to 3.5 times of their current annual income for any banks loan as per central banks strict rules and this same limit or similar limit should apply to property developers. This will make an equal playing field that will help to cool down the market and stop big developers outbidding the average Irish citizen and this will also stop developers from overleveraging.

This could lead the way for the average citizen setting up a non-profit co-op where they could build their own homes, as they are no longer competing against the big boys in an unfair game. Along with putting on these restrictions it will make a social housing cheaper as there won’t be such big bidding wars that we currently have between overleverage developers who are putting the prices of lands up to astronomical prices. Also, I hope this article shows you and the government that leaving housing to developers (the free market) could be very dangerous for Ireland in the long term as for reasons stated above. Even looking back at our own history when Seán Lemass became Taoiseach his economic philosophy is summed up by this phrase: “A rising tide lifts all boats.” He did this in a number of ways, but most important, he focused on building Infrastructure, investment in social infrastructure by giving free secondary education and giving tax incentives to foreign manufacturing companies to set up in Ireland. Which is currently the main model we use today in Ireland having an economy that is attractive to foreign direct investment. By doing this it transformed Ireland from a backward nation to a modern European City. This current government will need to tackle housing problem, decentralising the Irish economy and build more social housing in order to make the economy stronger in the long term and make life better for the average citizen of Ireland.

Now the housing crisis not only has the economical factors, but also the human factors such as Ireland having a record breaking number of people homeless, it kills creativity as people can’t afford to start a business as there rent too high, the mental health costs for example  one in five adults in the UK suffer from mental health problems due to housing pressures. I would say this is pretty similar in Ireland as well.

However, on the Brightside Ireland can solve these problems and make better for the average citizen of Ireland.

Appendix

(“Assuming that the distribution is similar to 2014 when 64% of workers earned less than the mean average, we can estimate that the typical worker in Ireland probably earned around €29,740 in 2017.

Considering that the CSO acknowledge that relying on the mean average for salaries skews the figures, perhaps they should at least publish both the median and the mean average incomes each year”. Felim O’Rourke  economist

I am going to talk about Household income. What does household income really mean is a measure of the combined incomes of all people sharing a particular household or place of residence. So in real terms this could mean adult children living with parents that are working and people living with roommates and right up to normal situation of two parents working or one parents working situation are all classes as a household

  • The top 30% of households have a gross income of more than €70,000 per annum
  • The top 20% of households have a gross income of more than €80,000 per annum
  • 14% of household have a gross income above €100,000 per annum
  • 2% of households have gross incomes above €200,000 per annum

The Greater Dublin Area accounts for 40% of the population of the State.

Economic activity in the Greater Dublin Area accounts for over 53% of Ireland’s GDP, according to the most recent available data (2014).

> Greater Dublin Area in mid-2017, representing over 42% of the total number of people employed in the State.

> The Greater Dublin Area generates 59% of Ireland’s personal income tax revenue, while Dublin alone generates 51%.

> The Greater Dublin Area generates 67% of Ireland’s corporate tax revenue, while Dublin alone generates 63%.

*Median earnings were estimated at €28,500 last year for all those at work this from 2015

*In the three months to February 2017 there were 33.4 million people in the UK labour force. The total London workforce is just under 5.2 million people

References

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  • November 24, 2019 at 5:18 pm
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