Rising rents and surging prices trigger ‘collapse’ in home ownership

Rising rents and surging house prices have triggered a “collapse” in home ownership rates among adults of prime working age (25-54) in the Republic, according to a new report by the Parliamentary Budget Office.

The report said house prices were now six to seven times average salaries, making housing “severely unaffordable” for many workers.

The office is an independent unit within the Oireachtas that scrutinises the State’s finances for TDs and senators. Its report noted that, after the 2008 financial crisis, earnings declined and became stagnant for several years and have not kept pace with house prices or rents.

As a result, home ownership declined by 10 percentage points to 67.6 per cent between 2007 and 2016, while the number of households renting rose from 21 per cent to 28 per cent, it said.

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“High prices relative to income are pushing potential buyers out of the market and into rental accommodation, social housing or emigration,” it concluded.

From the property price trough in 2012 to 2020, house prices increased by 77 per cent, dwarfing nominal wage growth of 23 per cent over the same time period, the report indicated.

“For some, the widening gap between average house prices and earnings is making home ownership unachievable,” it said.

The affordability gap was most obvious in Dublin. From 2010 to 2020, Dublin properties were, on average, 1.55 times more expensive than house prices across the State. the Parliamentary Budget Office said.

These high prices are pushing buyers out of the city and into commuter counties, which is reflected in the 13.2 per cent growth in prices outside Dublin in the last year to September, it said.

It noted that about 36 per cent of new market property transactions took place in the Dublin commuter region during the first half of 2021, compared with 25 per cent in 2011.

Covid restrictions

More recently, the closure of businesses due of Covid-19 restrictions has resulted in a shift from consumer spending to savings, with the report noting Irish savings reached a record high of €135 billion, up €13 billion year on year, in September.

“The high level of savings may mean buyers can bid more on homes, without breaking the Central Bank’s macroprudential policy, thus pushing up prices,” it said.

The total value of mortgage approvals was €11.1 billion in the first 10 months of 2021, it said, compared with €8 billion during the same period in 2020 and €9.7 billion in the full year of 2019.

The report found that housing affordability has also deteriorated for renters, noting that rents are now 40 per cent higher than their pre-crisis levels in Dublin, where rents have doubled in the past decade, and are 20 per cent higher in the rest of the State.

“The high cost of housing can lead to deprivation, exclusion and poverty at the household level and to lower levels of consumption and economic growth at the national level,” the report concluded.