THE MYTHS OF IRISH HOME OWNERSHIP
Jul 6th, 2011 by Conor McCabe
[Charlie Weston has an article today in the Irish Independent where he talks about the myth of home ownership in Ireland. It is based on part of the housing chapter in Sins of the Father.
Here is an article I wrote for Look Left last year, Summer 2010, which deals with this issue in more detail.]
There are those who will tell you that Ireland has a unique love-affair with property, that home-ownership is part of our DNA - a kind of Celtic mortgage double-helix which drives us to buy houses regardless of cost, need or availability.
It is not just the usual suspects of estate agents, mortgage brokers and rent-a-quote economists who make this assumption - it is one that cuts across the political spectrum. In his latest book, Ship of Fools, Fintan O’Toole tells us that Irish home ownership currently stands at 87% - the highest in Europe.
As with almost everything which relates to housing in the Republic, though, the facts tell a different tale.
According to the 2006 census, Irish home ownership stood at 76%.
In EU terms, this puts Ireland at 16th in home-ownership levels, out of the 27 nations listed by Eurostat. Indeed, home-ownership in Europe is such that even if Fintan O’Toole’s figure of 87% was correct, it would place Ireland not at the top, but joint 9th with Iceland.
This figure of 76% is a drop for Ireland.
In 1991 it stood at 81%, the highest level of home-ownership in the history of the State.
From 1991 to 2002 Irish home ownership fell by 2%. This was followed by a further 3% drop from 2002 to 2006.
Whereas in the rest of Europe home-ownership levels have risen since 1991, in Ireland they have fallen by 5%.
The reason why Irish home-ownership peaked in 1991 is the same reason why home ownership in Eastern Europe is currently at such a high level.
It has to do with the privatization of social housing in urban areas, where those who were once tenants of local authority or state housing were able to become owner-occupiers with the state’s financial assistance. Ireland started this process on a large scale in the late 1960s.
According to Tony Fahey in his 1999 publication, Social Housing in Ireland, about one in every four owner-occupied homes in Ireland is a privatized local authority home, and this is a major reason why owner-occupation is so relatively high in Ireland.
Had Ireland not privatized its local authority housing stock, home ownership would be around 60% - higher than Germany, but still placing Ireland near the bottom of the ownership league.
Irish people want to own their own home, but that doesn’t make us any different from the rest of Europe – if anything, it makes us about average.
Our current level of home-ownership (76%) is directly related to the privatization of local authority housing – a process which began in the 1930s, but reached its peak in the 1980s – and the fact that the vast majority of public housing has already been privatized is one of the reasons why Irish home ownership levels have been falling since 1991.
The bump in ownership contained in those bricks and mortars has finally worked its way through the system. There is no Irish property-owning double-helix – just estate agents with a handy myth and a house to sell.
Supply and Demand
Irish housing statistics are notoriously vague. There is no accounting system for new housing units - rather, the Central Statistics Office (CSO) has to rely on figures from the ESB with regard to new connections, and from that it deduces the amount of new units.
The CSO’s figures for the amount of mortgages sold are also somewhat oblique, as the figures for new mortgages contain ‘an unquantified element of refinancing of existing mortgages (e.g. involving the redemption of an existing mortgage and its replacement with a mortgage from a different lender).’ In other words, not every new mortgage listed by the CSO is used to buy a house – people frequently change their mortgage provider but keep the same house.
Estate agents do not have to provide figures to the government as to the amount of houses bought and sold.
Again, there are reasons for this.
On 3 April 2001, Maev-Ann Wren wrote a piece for the Irish Times which is worth quoting:
In the mid-1980s a colleague and I “torpedoed the property market”, or so we were told. As financial reporters, we had examined the drop in house prices over the preceding 18 months. We documented falling prices on individual streets, even published photos of the houses. Our efforts distressed property interests.
One interested party invited us for a drink (we went Dutch) and sorrowfully informed us that this sort of honesty was not good for “some of us who are trying to keep a market going.”
This was a frank admission that the emperor wore no clothes, that the level of house prices owes as much to belief as demand for houses. If people expect prices to rise, they hasten to buy. If they expect them to fall, they wait for a better bargain. Falling prices is a buyers’ market.”
Fortunately, we do not have to rely on estate agents in order to find out what is happening in the Irish housing market.
We know from the census the amount of new households in the state, and we can use this as our base figure to see how the actual number of new houses built, and of mortgages issued to buy new houses, relates to the physical rise in households in the state.
According to the 2006 census there were 216,533 empty housing units in the state that year. This does not include the number of holiday homes, which stood at 49,798.
The website Life After NAMA states that the vacant housing figure currently stands at 302,625, and again this is exclusive of holiday homes.
It is important to note that this oversupply is not the result of the so-called ‘Bad Tiger’ of 2002-2008, but is linked to changes in national housing policy in the late 1960s and early 1970s – changes which saw market-based solutions as the preferred solution proffered by various FF/FG/LAB governments.
It is in the 1970s that the full resources of the state are given over not to the provision of housing, but to the provision of mortgages. By the end of the decade the state is spending hundreds of millions of pounds in mortgage incentives in order to make housing, in the words of the Irish Times, ‘a safe and profitable outlet for funds’.
Government incentives on mortgages, which were put forward as aids to price and affordability, ended up simply adding to the cost of mortgages, making it harder for young couples starting out in life to settle down and buy a house.
In 1982 the ESRI published a report which concluded that ‘government subsidies to private housing merely raised the price of new houses and had little impact on increasing the supply of new houses.’ (Irish Times, 19 November 1982)
After almost 15 years of incentivising owner-occupancy, the state’s policies had benefited the builders, banks, building societies and estate agents, leaving the public to pay the price of this ’safe and profitable outlet for funds.’
The system was left untouched, despite the criticisms and counter-effects, and by the end of the 1980s the pattern of public subsidies for private mortgages was well-established. It had become the norm.
Speculation was firmly in control of residential construction and mortgage prices, not demand, and certainly not planning.
Demographics
One of the more persistent myths surrounding Ireland’s property bubble relates to demographics.
It is often stated that Ireland had a baby boom from 1965 onwards, when in fact Ireland’s birth rate remained at the relatively constant rate of 21.5 per one thousand from the 1940s up to the 1980s.
Whereas parts of Western Europe saw a ‘baby boom’ in the 1960s, Ireland experienced nothing of the sort, simply because its birth-rate was already high by Western European standards. It drops in the 1980s, and remained at around 15.5 per thousand until 2007, when it increased to 16.5.
Ireland did become a beneficiary of net migration, however, in 1996.
From that year to 2008, an estimated 403,700 people emigrated, while 861,300 migrated here. This leaves an estimated 457,600 more people in the State through migration.
Yet, over half of that figure is based on the years 2005-08, during the height of the construction bubble. The years 1996 to 1999 account for 14% of the figures for the period. Net migration, from at least 2000 onwards, was being fed by the boom in commercial and residential property construction, not the other way around.
So, how did the oversupply of housing, a falling birth-rate, modest increases in migration, and significant state subsidies to the mortgage market and construction industry, affect the price of houses?
Taking the average industrial wage as the base wage, we get the following results:
Best practise has house prices at 2.5 to 4 times the average industrial wage. Once this ratio is broken, it’s reckoned that a bubble has formed.
And a bubble, as the online journal Truthout puts it, ‘occurs not when people pay for real estate [housing] with money they don’t yet have—as always happens, given the availability of credit—but when they pay with money they will never have, out of wages they will never receive—out of wages no one will ever receive.’
A bubble is dangerous not because it is based on credit, but because it is based on credit at such a level that can never be repaid.
That is why mortgages have to be based on actual earnings, and not the sleigh-of-hand fictions so beloved of mortgage brokers who are on a commission.
In 1979, on the cusp of Ireland’s last major recession, the house affordability ratio breached 5.0. In 1997, house prices once again breached 5.0, and just kept on climbing.
In 2007, house prices were over 11 times the average industrial wage.
House construction and mortgage provision are multi-billion euro industries. Since the 1970s, builders, estate agents, banks and mortgage brokers have used half-truths and pure fiction about supply and demand in order to squeeze more money out of people.
So next time you hear demographics, supply and demand, or how ‘now is a good time to buy’, please remember their history of lying to us, and how they are doing it again.
Wow, hopefully that’s the start of some cross-over into the mainstream media from LookLeft, or from DublinOpinion and Irish Left Review. We live in hope.
BTW, got your book this morning as a birthday present from my wife, she picked it up in Eason’s in Navan yesterday, so great to see it’s hitting the mainstream shelves across the country. It should resonate well in the commuter belt hopefully. The book had sold out in Connolly Books last Thursday at the launch so I missed the chance to pick it up then. Scott Millar will be after you for another copy, he left his down in the shop and it was sold on for a second time!
I see you were doing a talk in Celbridge was it. How did that go, were there many at it? If you were on for it perhaps we could organise something in Navan. Unfortunately the independent bookshop closed up earlier this year but there’s an Easons which might be up for hosting it?
HI LATC. The talk is tonight out in Celbridge. 8pm. Heading out with Brendan Young. I must get a copy to Scott all right! Cheers.
Charlie Weston’s a Raheny man, isn’t he? Pretty sure he was in my class in Assams. Him and his brother found some newts in a pond and showed the teacher but kept the location real secret cos newts are very scarce. Don’t think the newts had a mortgage.
No Joe, Charlie’s from Lusk, North County Dublin.
BTW, great to see some crossover. I wonder, though, will Charlie on board what I think is one of the implicit messages of the book: that almost all Irish [mainstream] economic policy makers and commentators have been, are and possibly always will be useless and a threat to economic progress here. I’m nearly finished the book and it hasn’t been good for my blood pressure!! The tragedy, pig ignorance of successive Irish governments and their ruthless dedication to the cattle, construction and finance nexus really is something to behold. A clear example, too, of economic determinism and structural rigidity. I’ve read O’Toole’s work on the crash and Ross’s and ‘Sins of the Father’ leaves both in the halpenny place. Hopefully, it’ll kickstart a real debate on how we get out of this mess and shut up those idiots who keep boasting about ‘our exports’! We’ll see.
Thanks CMK. I know you have first-hand experience of ‘our’ glorious export sector. I’m really chuffed the book resonates with that experience.
So Connolly Books sold the same book twice. 10/10 for capitalistic initiative. There is hope still.
Yeah, I was going to make a cheap comment to that effect, but thought the better of it. As was mentioned elsewhere, fair play to Connolly Books and the CPI for hosting the book launch.
Ok, Charlie’s from Lusk. But was he born and bred in Lusk. Or was he born and bred in Raheny and moved out to Lusk when he got married and bought an artificially overpriced house a long way from where he worked all caused by what Conor says in the book?
Conor, where abouts in Celbridge is the talk at 8pm
talking place or is it a members only event.
where is the talk talking place in Celbridge?
Joe, without revealing too much its reasonably safe to say Charlie’s a ‘born and bred’ Lusk man, and it doesn’t seem to have done him too much harm, unlike others.
Just finished reading ‘Sins of the Father’ and its kind of depressing to see marshalled so strongly the evidence that the banking sector, in particular, constitutes a de-facto parallel state here, but one without even a figleaf of accountability. Indeed it’s clear from the book that its ability to escape having to account for itself is the measure of its power. The ‘independent state without and independent economy’ theme particularly resonates now that we’ve essentially come full circle from 1922 to where we’re at now and that phrase is as applicable now as it was then. It’s cheering that an economics writer for the Independent could write what was a positive article based on the book; I think that’s significant, but I can’t articulate why.
Not only do I have experience of the hollowness of the Irish multi-national sector in the pharmachem industry, but I also have experience of the graziers as a one time agricultural labourer. One thing that strikes me now is the number of individuals and families that I’m aware of who have very large and extensive farms and interests in cattle, sheep and horses, who also made huge tens of millions through land speculation and re-zoning over the past twenty years. And all of them, to a man and woman, were supporters and possibly members of Fine Gael. And all were and still are in receipt of subsidy payments from the EU. The notion of Fine Gael as a party of probity is laughable.
Sorry, I was away from the net until now. The talk was a local ULA meeting and was held in a pub in Celbridge. I was asked along at the last minute so I didn’t have any details earlier on. sorry again.
Good post Conor - oddly mirrors a lot of what I’ve been saying. (Don’t worry, I’m freaked out too!)
Re your graph, any thoughts on obsolescence? I understand D/Env’t uses rates at the high-end of the European spectrum (based on the idea of rural cottages in the wesht falling into disrepair), although there are those who believe that it should effectively be zero, at least for the Celtic Tiger years.
I do remember looking into obsolescence at the time Ronan but I’m not too sure of the figures now. I know I came up with a rationale for leaving it out but I need to go back over it and work out why I thought that. Sorry for being so vague. Only back in from Dublin after a long day and fit for bed, but I’ll dig up the stuff I based the post on and reply again tomorrow. Cheers.
Ronan, I think my rationale was that I looked at housing and demand in terms of new household formation - that the amount of actual households was dwarfed by the supply of new housing. In the census a household can be a bedsit or a mansion, and when the growth in household over the years is put against the amount of new housing units built every year, the oversupply becomes apparent - that what we have is a speculative venture, spurred on by section 23 tax relief.
In many ways, housing in Ireland should be seen not in terms of supply and demand of accommodation, but in terms of supply and demand of tax relief measures. when that happens a more accurate picture emerges. Not sure if your supervisor would see it that way though, it’s more political economy than modelling.
This is a very useful article, but as someone who works in the property industry, I would like to clarify the point about estate agents not providing information to Government about sales levels. Firstly, not all sales are transacted via agents, although they are conveyed via solicitors so perhaps this would be a better source for information. In fact, I understand that this information is provided to the PRA by solicitors, but as usual in Ireland, red tape and bureaucracy between departments means that this information goes nowhere useful. Secondly, the property industry is only part self-regulated and that sector has been trying for years to get the Government to bring in a (real) House Price Register, not the anodyne one that’s proposed with just generalised areas and descriptions rather than actual addresses and results - what use will it be to anyone to know that a house in Dublin 14 sold for €250,000?. Thirdly, we have the daft situation where where our legislators chose to interpret house price data as being private information, in contrast to other EU states, and consequently, agents cannot disclose this information without explicit written permission from both parties. So while the public clamour for house price information which should be freely available, our experience is that both vendors and buyers are notoriously reticent to provide this permission. This will hardly come as a surprise!
Thanks Aine, and thanks for the clarification/correction. Much appreciated.
[…] it was something deeper. A cultural explanation for a uniquely Irish problem, much like our “unique love-affair with property”, which as it turns out isn’t that unique at […]