McWilliams: "Nepo-babies" are creating a two-tier housing system

[arbitron]

David McWilliams: Ireland’s ‘nepo-baby buyers’ are creating a two-tier housing system​

He makes the argument that those lucky enough to be born into wealthy families (middle class now, not talking multi-millionaires) get a huge boost that multiplies their future wealth, begetting more inequality down the line:

This assistance often involves down payments or the cosigning of mortgages, enabling the children to overcome financial barriers. According to data from the Banking and Payments Federation (BPFI), 42 per cent of new home purchasers used a parental gift toward their deposit.

No matter which way you look at it, the NBBs now constitute about half of the market for 25-34s. The housing market has been constructed, by way of various tax incentives, to be the way most Irish people accumulate wealth.

The implication for the 60 per cent of young people who do not have wealthy parents is obvious. They are shut out of the one asset that, rightly or wrongly, Irish people believe gives a stake in society and a wealth base to build upon. We can argue the rights and wrongs of this, but it is an essential financial fact in Ireland.

What’s more, the impact of inheritance on the prospects of young Irish citizens is becoming more pronounced. It’s a vicious cycle. Higher house prices beget more wealth, which in turn shut out more people but enrich those who can turn to Daddy and Mummy.

And this is even affecting renters:

For those left trailing behind, renting becomes the only option, driving up rents. But that’s not all – even in the rental sector, 41 per cent of renters rely on parental support to afford their rent (Daft.ie, 2023). Rich parents are not just distorting the buyer’s market, but the rental market as well.

 

[Towger]

Nothing new from McWilliams. On the other end we have those who got a 'free' (below market rate) house from the system. This gives them greater disposable income than those who have to pay for everything. This house can also be passed down to younger generations and/or bought from the system at a greatly reduced price. The 'squeezed middle' will be Mackers next article in a few weeks time.

We all know the solution is to build more housing and have less government messing with the market.

It will be interesting to see that happenings when all the Build to Rent apartments in RTZ become unprofitable due to inflation + interest rates increases, long term maintenance costs, and not being able to increase rents etc. I suppose the government will 'relax' the RTZ rules, just like they did the new build apartment standard requirements.

 

[Leper]

@Towger probably wrote much better than I could have written. In an age where many couples (some of them professional) will never have a mortgage made available to them or at best lucky to be able to scrounge a "starter" home where they'll eventually payout much more dearly than anybody.. Consequently, the two tier system is confined to the people @Towger speaks about and David McWilliams' nepo-babies. The people outside of these tiers are in the largely no-tier system.

 

[arbitron]

Nothing new from McWilliams.

Just because it's from McWilliams doesn't mean it's right or wrong surely?

On the other end we have those who got a 'free' (below market rate) house from the system. This gives them greater disposable income than those who have to pay for everything. This house can also be passed down to younger generations and/or bought from the system at a greatly reduced price. The 'squeezed middle' will be Mackers next article in a few weeks time.

Yes, so there are some people who get cheap/free social housing and some people who get a tax-free handout from parents by luck of birth. I don't see anyone denying these groups co-exist. Then there is a 3rd (middle) group who do not enjoy these benefits.

We all know the solution is to build more housing and have less government messing with the marker.

Surely allowing wealthy parents to give six-figure tax-free lump sums to their children is also the government interfering with the market?

In an age where many couples (some of them professional) will never have a mortgage made available to them or at best lucky to be able to scrounge a "starter" home where they'll eventually payout much more dearly than anybody..

Exactly.

 

[Brendan Burgess]

Yes, so there are some people who get cheap/free social housing and some people who get a tax-free handout from parents by luck of birth. I don't see anyone denying these groups co-exist. Then there is a 3rd (middle) group who do not enjoy these benefits.

They are not three independent groups.

The state is buying up and renting a lot of privately built houses for social housing. OK, you say - that is fine. But it's not. It pushes up the price and reduces the supply for the nurse married to the teacher who can no longer afford to buy a house because the state has made it impossible for them.

At the other end, the children of the well off are bidding up the prices.

As a society, we need to prioritise the teachers married to the nurses and make sure that they can afford to buy houses within a reasonable distance of where they work.

Brendan

 

[arbitron]

It pushes up the price and reduces the supply for the nurse married to the teacher who can no longer afford to buy a house because the state has made it impossible for them.

At the other end, the children of the well off are bidding up the prices.

As a society, we need to prioritise the teachers married to the nurses and make sure that they can afford to buy houses within a reasonable distance of where they work.

Couldn't agree more. Getting something for nothing, even if it is a gift from parents, is perverse and makes a mockery of the idea of social mobility and succeeding through hard work.

 

[Brendan Burgess]

Couldn't agree more. Getting something for nothing, even if it is a gift from parents, is perverse and makes a mockery of the idea of social mobility and succeeding through hard work.

You are not agreeing with me?

I am not opposed to inheritances or gifts from parents whatever the children use them for. ( I do believe that they should be taxed more heavily though.)

I am opposed to the state buying and renting private housing in high demand areas and pushing workers out to the sticks.

Brendan

 

[arbitron]

The state is buying up and renting a lot of privately built houses for social housing. OK, you say - that is fine. But it's not. It pushes up the price and reduces the supply for the nurse married to the teacher who can no longer afford to buy a house because the state has made it impossible for them.

Agree with this - the state is drawing from the same well as the average buyer.

At the other end, the children of the well off are bidding up the prices.

Agree with this also - people getting 5 or 6 figure gifts from parents are leapfrogging over others who have to earn more and save longer to be in with a chance.

As a society, we need to prioritise the teachers married to the nurses and make sure that they can afford to buy houses within a reasonable distance of where they work.

Agree with this also. These people are affected by both of the above state policies of A) buying up homes for social housing and B) giving huge tax breaks to wealthier families.

I am not opposed to inheritances or gifts from parents whatever the children use them for. ( I do believe that they should be taxed more heavily though.)

Agreed, gift money to whomever you like but they should all pay the same tax on it. Gaining wealth by accident of birth is a bizarre blind spot of free market economies.

 

[arbitron]

It's similar in health where you have a big group with medical cards and GP cards (social welfare and OAPs) and another big group with private insurance. And often these overlap where you have many OAPs with both a medical card and VHI.

Then you have a smaller but significant group in between who have to pay for GP visit and prescriptions and must rely on the HSE for hospital care. Many of these are the same people caught in the centre of the housing squeeze.

It may or may not be deliberate policy but the effect is a divide and conquer approach that softens the pressure on the government of the day.

 

[The Horseman]

It's similar in health where you have a big group with medical cards and GP cards (social welfare and OAPs) and another big group with private insurance. And often these overlap where you have many OAPs with both a medical card and VHI.

Then you have a smaller but significant group in between who have to pay for GP visit and prescriptions and must rely on the HSE for hospital care. Many of these are the same people caught in the centre of the housing squeeze.

It may or may not be deliberate policy but the effect is a divide and conquer approach that softens the pressure on the government of the day.

I still contend our welfare system is too generous which leads onto a way of thinking the State will look after people.

This is having a direct impact on housing. Social housing rent should be based on location and not on differential rent. If you want to purchase a property its value is based on its amenities etc. So why shouldn't rent for social housing be the same. Rent should reflect its cost and should be reinvested in more social housing.

There is no reason why council estates could not be built. Anti social issues have nothing to do with council properties it has to do with the tenants. The State can if it wants to deal with these issues.

If the State set up a strategic partnership with a developer for 5/10 years and guaranteed work to that developer for that period I would expect a developer would jump at that chance of guaranteed income for 5/10 years.

The above would remove the State from the private sector and allow people to purchase property while earning modest wages.

 

[skrooge]

The state is buying up and renting a lot of privately built houses for social housing. OK, you say - that is fine. But it's not. It pushes up the price and reduces the supply for the nurse married to the teacher who can no longer afford to buy a house because the state has made it impossible for them.

To plays devil's advocate its not the fact the government is crowding out the market that is the real the problem - the chronic shortage of supply would likely have priced your nurse & teacher out of the market regardless - rather it's the fact it's not acknowledging or dealing with the side effects of its actions.

If we're going to have a centrally run State landlord who's role is to look after the collective welfare of its population then it could consider moving key personnel into some of its properties. Be they teachers, nurses, Garda's or street cleaners their importance could be reflected in the social housing waiting list.

While I appreciate there are ideological reasons why some won't like this level of social engineering, the direction of travel the State is on is for more not less involvement in the housing market. If it's going to be bigger let it also be better (for society).

 

[Gordon Gekko]

“Parents helping their children”…shocking.

I’d love to know how that could be stopped in any event.

Even if we abolished the €335,000 ‘Parent/Child’ threshold, someone could still give their child €100,000, it’d just cost them €133,000.

The main issue is supply, supply, supply, supply.

Gifts aren’t taxed at all in the UK.

But this crisis needs a bogeyman. And seemingly wealthy parents helping their kids constitute just that. In fact, the profile of person helping their children is quite broad. My sister’s father-in-law, for example, was a regular public servant and gave them €50k. The point being, it’s not Michael O’Leary types.

Why does this need to happen?

1) Supply

2) A large gap has opened-up in terms of what certain people and industries are paid…the €50k/€100k/whatever is plugging the gap between what the teacher is paid versus the person in the multinational.

 

[Dermot]

So there are quite a number of people complaining about parents giving their children a helping hand to purchase a property. The alternative to this is " should the parents leave it to the state to provide housing for them". This would put more pressure on the state.
The state would have to raise more taxes by a substantial amount to do this. If the state does this we could end up with an exodus of businesses and talented people in all walks of life.
There are no easy solutions and throwaway solutions by economically illiterate parties are not going to solve the problem.

 

[Brendan Burgess]

To plays devil's advocate its not the fact the government is crowding out the market that is the real the problem - the chronic shortage of supply would likely have priced your nurse & teacher out of the market regardless - rather it's the fact it's not acknowledging or dealing with the side effects of its actions.

The main problem is the fact that the government is buying and renting privately built housing.

It would not be solved overnight by the government stepping out of the market.

But the number of houses available for first time buyers would increase so it would lessen the problem.

At the same time, the government should build social housing estates outside the most high demand areas where prices would be a lot lower.

Brendan

 

[arbitron]

But this crisis needs a bogeyman. And seemingly wealthy parents helping their kids constitute just that.

Pointing out distortions in the market and criticising a tax policy that exacerbates inequality is not creating a bogeyman. There are many contributing factors to our housing problems and it's perfectly reasonable to examine them, including parents helping their kids. There is rarely any pushback to the regular and generalised comments that many of us make about HAP, social welfare, etc. The middle class can't be barred from scrutiny.

So there are quite a number of people complaining about parents giving their children a helping hand to purchase a property. The alternative to this is " should the parents leave it to the state to provide housing for them". This would put more pressure on the state.

Is state-provided housing the only alternative to a leg-up from parents? Could those who get a gift not do what others have and save?

There are no easy solutions and throwaway solutions by economically illiterate parties are not going to solve the problem.

I would love to see a list of the economically literate parties.

 

[skrooge]

The main problem is the fact that the government is buying and renting privately built housing.

The problem is a lack of housing. It's a chronic problem at this stage and as it gets worse it becomes less about the ability to own and more about having a roof over your head. While it would be better for society if we all could own a balance needs to be struck between fostering that environment and the basics of just having more properties.

It would not be solved overnight by the government stepping out of the market.

But the number of houses available for first time buyers would increase so it would lessen the problem.

Right now the State is effectively underwriting future housing supply. In the short term if you take the state out of the equation the beneficiaries are all those people looking to buy those newly completed properties now.

But the question is what happens to future supply? If the State is pricing people out then their withdrawal will lower prices. Lower price means lower supply in the future. So short term gain for this years teacher but what about future teachers. Either way they can't afford to buy. A worse outcome is if the house or apartment that is needed for the teacher won't get built in a a world without state involvement.

At the same time, the government should build social housing estates outside the most high demand areas where prices would be a lot lower.

Wasn't this approach tried in thr past with negative side effects. The likes of Ballymun and Crumlin were designed to house the former occupants of the inner city tenements. While it achieved that it was also associated with a build up of antisocial behaviour.

I believe this is the reason the planning process requires a proportion of new housing developments to be social housing.

The other issue here is we're an economy at full employment, where are all the additional builders going to come from for these social housing projects.

The extra demand for builders will lead to higher wages. Whether the State directly inflates prices by buying property or pushes up the input prices, the net effect for potential purchasers are the same.

 

[The Horseman]

Pointing out distortions in the market and criticising a tax policy that exacerbates inequality is not creating a bogeyman. There are many contributing factors to our housing problems and it's perfectly reasonable to examine them, including parents helping their kids. There is rarely any pushback to the regular and generalised comments that many of us make about HAP, social welfare, etc. The middle class can't be barred from scrutiny.


Is state-provided housing the only alternative to a leg-up from parents? Could those who get a gift not do what others have and save?


I would love to see a list of the economically literate parties.

Do you not see the irony in the current model. You have the working middle class who earn to much to avail of state housing but not enough to purchase without some family support.

To add insult to injury these are the very people competing with the State for the limited supply of new housing. Remember the Govt great part 5 condition to grant planning permission.

We had properties worth hundreds of thousands in very expensive areas given over to the State. Logic would have suggested take the value of the part 5 allocation and use the money to purchase more lower cost housing with the result of more properties available to the State resulting in more people housed by the State.

We are an open economy and we need to attract multinationals and a problem we have is our cost base. This cost base extends to everything from our income tax levels to our costs of business. We have an "entitlement" culture from the State were people want their "forever home" a comment that really bugs me.

 

[Dermot]

I would love to see a list of the economically literate parties.

They are quite obvious if you want to see and hear them spouting off on radio/ tv/papers

 

[arbitron]

Do you not see the irony in the current model. You have the working middle class who earn to much to avail of state housing but not enough to purchase without some family support.

To add insult to injury these are the very people competing with the State for the limited supply of new housing. Remember the Govt great part 5 condition to grant planning permission.

We had properties worth hundreds of thousands in very expensive areas given over to the State. Logic would have suggested take the value of the part 5 allocation and use the money to purchase more lower cost housing with the result of more properties available to the State resulting in more people housed by the State.

We are an open economy and we need to attract multinationals and a problem we have is our cost base. This cost base extends to everything from our income tax levels to our costs of business. We have an "entitlement" culture from the State were people want their "forever home" a comment that really bugs me.

Yes, the working middle class are undermined by the government competing to buy private homes. I don't see anyone disagreeing with that statement.

But those people are further penalised by wealthier middle class families being allowed to give thousands of euro in tax-free gifts to their kids.

Imagine the following scenario:

Mary is a guard and her husband John is a cleaner who is studying to become a teacher. They have saved €50k for a house in Dublin. Their families have no money so they are getting no gift/inheritance. They have the 10% deposit and will get a nice 3-bed with a hefty mortgage. They feel lucky.

Their neighbour Jill is a dog whisperer and her husband Jack is a TikTok influencer. They have saved €2k for a house but they will probably spend that on a trip to Ibiza. Their families have a bit of cash so they get €300k from each side and buy a house outright with no mortgage.

Of course this is exaggerated but the fact that the above nonsense is 100% possible should set anyone's teeth on edge. This is not equitable and it is poor public policy. We should not have a system that rewards the transfer of wealth with no productivity.

We can and should tackle the government's mess when it comes to social housing but that doesn't stop us addressing the anomalies that some middle class families can take advantage of.

There may well be an entitlement culture for people at one end of the spectrum but there is a similar one at the other end.

They are quite obvious if you want to see and hear them spouting off on radio/ tv/papers

?

 

[Gordon Gekko]

Pointing out distortions in the market and criticising a tax policy that exacerbates inequality is not creating a bogeyman. There are many contributing factors to our housing problems and it's perfectly reasonable to examine them, including parents helping their kids. There is rarely any pushback to the regular and generalised comments that many of us make about HAP, social welfare, etc. The middle class can't be barred from scrutiny.


Is state-provided housing the only alternative to a leg-up from parents? Could those who get a gift not do what others have and save?


I would love to see a list of the economically literate parties.

But what tax policy exacerbates inequality?

Ireland’s inheritance tax regime is harsh by international standards.

And you can’t stop parents helping their kids anyway.