The Irish don’t have an obsession with property, the market just doesn’t work

One of the most half-baked notions to take hold in recent times is that the Irish have a peculiar obsession with property, one that sets us apart from other nationalities. That our dysfunctional housing market is somehow a manifestation of this warped psyche. That our drive to own is some sort of postcolonial scar tissue. And if only we could be more like the Germans: content to rent and live in city centre apartments, then we’d save ourselves all this bother.

It’s quaint to think that Ireland’s troubled history of land agitation and eviction could – on some unconscious level – be coursing through first-time buyers as they scrimp and save for a deposit. But really, what a load of rubbish.

Did these arguments have any currency before the boom and bust of the 2000s or before a whole generation were priced out of the market? Show me the academic papers in the 1970s and 1980s that talked about our rogue obsession with owning property. The only postcolonial theme here is self-blame. A more self-confident society would call it what it is: market failure. And there are hard data points – to do with supply, affordability and viability – that underpin this failure.

We're also not unique – property markets across the globe are failing young people. Ireland just happens to have a particularly aggressive variant.

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Three things have driven property markets to this point. The first is that the link between incomes and prices – which underpins the traditional housing model is broken. Prices are now driven by a cocktail of forces and have pirouetted away from incomes. The Central Bank's rule of thumb is that you should borrow no more that 3½ times your income to buy a house, but prices in Dublin are nine times the average full-time salary and rising. The average income of first-time buyers in Dublin not only needs to be but actually is €90,000, almost double the national average. That's according to Central Bank data from 2019.

The knock-on effect of this increasingly difficult financial equation is plummeting home ownership rates. As recently as 1990, Ireland had one of the highest rates of home ownership in Europe at almost 80 per cent. At the last census it was 67.6 per cent, lower than the EU average of 69.2 per cent. It's likely to have declined further since.

Rationale

The reasons for this decoupling of income and price is debated and may stem from multiple factors. A Bank of England study suggests the surge in house prices in the UK – they’ve quadrupled since the 1980s – has been driven not by a lack of supply but by low interest rates. The rationale is that housing is a highly financialised asset and low interest rates increase the value of future income flows. This incentivises banks to lend more, investors to invest more and people to borrow more, thus inflating housing values.

This, of course, is compounded by massive injections of cash into global financial system by central banks – in the post-2008 era and now as a result of the pandemic – which has anchored rates while sending investors further and further afield to find returns, creating asset price bubbles in several sectors, including property.

The second major dynamic is that governments for the past three decades have stopped building social housing and decommissioned a significant portion of the existing stock by transferring them into the owner-occupier sector.

But with prices and rents rising, more people are in need of subsidised housing. Governments have attempted to fill the gap with rent supports, which sees welfare recipients, who were formerly accommodated via social housing, in direct competition for tenancies with normal renters. The result is upward pressure on rents and a renewed focus on rent controls.

The third feature of global property markets has been the arrival of institutional investors or, in Ireland’s case, foreign funds.This has proved highly controversial. In May, the Government introduced a higher 10 per cent rate of stamp duty on the bulk buying of houses, seemingly in response to a single transaction – the purchase of a housing estate by UK property investor Round Hill Capital – such was the public outcry.

Struggling

Having funds buying up stock to rent has all sorts of consequences, not least the pension implications of having a whole generation facing high rents when they retire. The traditional model of buying a home and paying off the loan as you work towards retirement is under threat and it’s not obvious how this circle will be squared. Will governments provide more rent supports to financially struggling retirees down the line?

Either way, property has become one of the most polarising and divisive issues on the planet. Homelessness rates have risen in most industrialised countries. Low- and middle-income earners are priced out of urban markets in the UK, Canada, the US, Hong Kong and New Zealand. Even Germany, which used to have the most settled and stable property market, finds itself in the grip of a housing crisis. Inflation in Germany's "big seven" cities – Berlin, Hamburg, Düsseldorf, Cologne, Munich, Frankfurt and Stuttgart – averaged 123 .7 per cent between 2009 to 2019, according to Deutsche Bank.

Governments seem to be at a loss about what to do and are merely tinkering around the edges with policies that do little to change the dynamic despite the potential political consequences of alienating so many young voters.