Government policy needs to be based on evidence. It is a simple concept, but is all too often ignored in practice. In this context, the latest report from the Economic and Social Research Institute on affordability in the housing market is a welcome addition to work in this area, outlining how the experience in Ireland compares with 14 other European countries. The results give some useful policy pointers.
The average cost of housing in Ireland, measured by the proportion of household disposable incomes which goes on mortgage payments and rents, is not high by European standards. One caveat here is that housing costs have risen in many developed economies, so the average is not necessarily a good place to aim.
Nor is the average a good pointer to the problem areas of the Irish market. There is high home ownership among older age groups, most with their mortgages paid off. At the opposite end of the spectrum, mortgage costs are higher for younger age groups, though Central Bank lending rules have averted risks of another bubble.
A group who took out mortgages in the run-up to the 2008 crash are among those exposed to higher interest rates. With borrowing costs here rising strongly now and much higher than they were in 2019, the year the report’s data refers to, stress will be growing among some in this group.
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The report shows that lower income households are increasingly protected in terms of housing costs by State payments, which have increased since 2015. The serious deprivation problems many of these households face are based more on their low income than the cost of housing, the report concludes. And of course lack of rental housing supply is also a big problem.
Meanwhile, high rents are hitting those in middle-earning groups hard. Most exposed appear to be younger people who earn too much to qualify for State supports, but not enough to comfortably pay high rental levels. The low rate of household formation among those under the age of 40 shows that many also cannot afford to buy.
There are some policy implications. Lower income renters need support – otherwise rents would be unaffordable. Providing new social homes, rather than subsidising people to compete in the private rental market, would clearly be better.
There is also a problem for middle-income earners in the rental market which can best be addressed by more cost rental accommodation. This is part of Government policy, but progress is slow.
And finally, shortage of supply remains a chronic problem in many areas of the market, not only to meet new demand, but also to provide opportunities for the many under-40s currently stuck in the family home and unable to either rent or buy a home.