"Let's demolish the four great myths of housing"- Conor Skehan

[Brendan Burgess]

A thought-provoking article here

Think you can handle the truth? Let’s demolish the four great myths of housing

Many myths and unrealistic expectations have arisen around housing and accommodation that need to be examined because these are the real drivers of affordability.

www.independent.ie

1) The First Time Buyer
The First-Time Buyer’ is a myth that needs to be put into perspective as the ultimate tiny tail that is wagging a very big dog. There are about two million houses and apartments in Ireland. Out of about 24,000 annual house purchases, only around 6,000 are first-time buyers.

This means that national policy is driven by the needs of one third of one percent of all homeowners, and one quarter of annual sales.

2) Generation Rent
‘Generation Rent’ is a myth-making trope that is used to persuade people that they are victims. Through boom and bust, for over 50 years Irish people have been increasingly choosing to rent rather than to buy. Today 30pc of us rent — a sign that Ireland is maturing to align with the European norm in advanced economies.

3) Rent is Dead Money
"
Dead Money’ is another phrase that is used to create a myth of victimhood among renters. It implies that rent money only serves immediate needs, unlike a mortgage repayment that is a form or saving or investment.

This is the equivalent of saying that food money is a waste because you’ll be hungry again tomorrow — so buy a cow, a chicken, an orchard instead.

4) The Housing Crisis
‘The Housing Crisis’ is the greatest myth of all. Readers are invited to google the words ‘Housing Crisis’ followed by a country of their choice. For starters, try Australia, Canada, New Zealand, Israel, Norway, France and the Netherlands.

Your research will tell you that there is hardly a country in the world that does not have headlines about rising rents and house prices, lack of supply, affordability, homelessness, price inflation — to name but a few ills.
...
We have more than 200,000 vacant homes across Ireland. When we encourage or allow the Government to support new-build housing instead of refurbishing then we are choosing to move away from availability and affordability.

 

[Brendan Burgess]

And he must have been reading Purple's posts:

As a nation we have to accept that a big driver of housing cost has been the much-needed and absolutely justifiable regulatory issues around safety, energy and sustainability. This happened in the car industry too, but that sector managed to continually produce better cars for increasingly less cost by ‘value engineering’ and by using increasingly sophisticated production techniques.

By contrast, the housing sector still largely uses late 19th century ‘hand-made’ techniques. The sector needs to choose to move onto a next generation of increasingly ‘factory-finished’ large building components, to drive down the costs of elements like kitchens, bathrooms, stairs, as well as electrical and plumbing cores.

 

[Brendan Burgess]

What we need is affordable housing. Whether it is affordable rent or affordable purchases with affordable mortgages.

If we had affordable rents but unaffordable purchases, it wouldn't be that serious.

But we seem to have both unaffordable rents and unaffordable purchases.

So it is a housing crisis.

The fact that most cities have them doesn't mean that they are not crises.

Brendan

 

[Thirsty]

Rent is Dead Money
"
Dead Money’ is another phrase that is used to create a myth of victimhood among renters. It implies that rent money only serves immediate needs, unlike a mortgage repayment that is a form or saving or investment.

This is the equivalent of saying that food money is a waste because you’ll be hungry again tomorrow — so buy a cow, a chicken, an orchard instead.

This is a silly analogy; we purchase food because the opportunity cost of subsistence farming is far higher than buying it from a supermarket.

The issue, to my mind, of renting vs. purchase is much simpler.

a. Rent will most likely remain a fixed percentage of your income.

If you are paying 30% of your monthly income in rent today, in 10 years time, you will still be paying 30% of your monthly income; whereas a mortgage, as a % of your income will be less in 10 years.

b. With the exception of social housing, you have no real security of tenure when renting; whereas no one can put you out of your home.

 

[Brendan Burgess]

The "rent is dead money" is the one I most agree with Conor Skehan on.

It is the most stupid phrase in the whole housing debate.

I am a great believer in home ownership.

But if someone chooses to rent a property instead of renting money, that is a perfectly valid choice.

There is nothing to stop someone renting their home and instead of repaying the capital on their mortgage, they invest it in equities.

It is hard to explain this to people. Maybe renting a car vs. buying one would be a better analogy?

A lot of people who bought at the top of market felt that their full mortgage payment , interest and capital, was dead money.

Brendan

 

[Thirsty]

renting a car vs. buying one

I'd still say the same; Hertz won't look for you to return the rented car because they want to sell it, or give it to their grand-child etc.

 

[WolfeTone]

1) This is silly. Because most people have a home (99.66%) then policy should not be concentrated on the 1/3 of 1% who are trying to get a home??
Who should housing policy be directed at? Me? I have a home.

2) This notion that we are 'maturing' is codology. If rental prices were to drop on average 50%, a lot more people would rent and we could surpass European averages in this area. Irish population's slow adoption of European averages is testament to the extortionate high levels of rent for substandard accommodation. People try to resist renting on a prolonged period because of how high rents are. Higher levels of immigration over the last two decade have also coincided with higher uptake of rents.

3) This is silly again. Paying rent provides a service of necessity in the form of accommodation. But if it is costing more in the long run than the cost of repaying a mortgage then it is dead money. If it is cheaper to obtain a mortgage and repay then that is the obviously more financially beneficial option. If, due to a persons circumstances it is not feasible to take out a mortgage than that is a different matter. Then is it obviously not 'dead' money as it provides a function of necessity not otherwise available.

The analogy to food is simply stupid.

4) The 'Housing Crisis' is the biggest myth of all, followed by advice to google 'housing crisis' and have it confirmed that many developed countries in the world are indeed experiencing a housing crisis!

Sorry, but Skehan is off his rocker.

 

[Ceist Beag]

1) The First Time Buyer
The First-Time Buyer’ is a myth that needs to be put into perspective as the ultimate tiny tail that is wagging a very big dog. There are about two million houses and apartments in Ireland. Out of about 24,000 annual house purchases, only around 6,000 are first-time buyers.

This means that national policy is driven by the needs of one third of one percent of all homeowners, and one quarter of annual sales.

With all due respect that's a pretty ridiculous argument. By his own numbers first time buyers are 25% of the relevant target group here. Not 0.33% - he's just trying to rearrange numbers to suit his own view. As WolfeTone said, the target group of the policy are those in need of housing.

2) Generation Rent
‘Generation Rent’ is a myth-making trope that is used to persuade people that they are victims. Through boom and bust, for over 50 years Irish people have been increasingly choosing to rent rather than to buy. Today 30pc of us rent — a sign that Ireland is maturing to align with the European norm in advanced economies.

I'm not sure what point he is trying to make here. Ultimately, if renters had the same certainty as those with mortgages, in that the rent only increases in line with the ECB rates for example, this would remove some of the uncertainty. The government RPZ were supposed to achieve that but judging by the DAFT annual reports they are a long way from doing so. Who is at fault there - are landlords simply ignoring the guidelines or are they not being enforced? Either way, renters are indeed the victims of this.

I would agree that the whole Rent is Dead Money argument is a false one but his analogy is silly.

 

[DazedInPontoon]

The "rent is dead money" is the one I most agree with Conor Skehan on.

It is the most stupid phrase in the whole housing debate.

I am a great believer in home ownership.

But if someone chooses to rent a property instead of renting money, that is a perfectly valid choice.

I would generally agree with you, but we have a medium term situation where monthly rent in many places is greatly exceeding the combined cost of mortgage principal payment + interest (maybe prices have risen to the extent that this is not true for recent purchases? - not sure).

There is nothing to stop someone renting their home and instead of repaying the capital on their mortgage, they invest it in equities.

Right, but instead the position Joe Renter finds himself in is: "I am paying 2000 a month to rent this house. My neighbour is paying 1300 in mortgage payments for a similar house" and it's the neighbour who has the spare cash at the end of the month to invest in equities, while also building equity in the house.

And you might say to Joe, well if it's so good for your neighbour, why don't you also buy and pay only 1300, and he'll say to you that he'd love to but he doesn't qualify for a mortgage.

 

[Brendan Burgess]

But if it is costing more in the long run than the cost of repaying a mortgage then it is dead money.

This just shows you how much work Conor Skehan has to do in challenging the myths.

How can you say that any expenditure is dead money? If you think that rent is dead money, so is almost all expenditure that is not investment.

Brendan

 

[Thirsty]

rent is dead money, so is almost all expenditure that is not investment

it's a matter of making choices

Choose between the following:

living with your parents vs. sleeping in a tent

house share vs. living with your parents

house share vs renting own apartment/house

renting own apartment/house vs. paying mortgage on own apartment / house

By and large, most choices would be parents->house share->rent home -> buy home.

Paying rent give you a benefit in terms of a roof over your head - but over the long term paying a mortgage is better value.

Burning candles or cooking over a fire will also give you light & heat but purchasing gas/ esb is more cost-effective.

Out of curiosity - I wonder does the author of this article rent or pay a mortgage? and any other posters here cheerfully advocating the rental option - do you own your own home or do you rent it?

 

[seamus m]

My biggest issue with houses is in country towns not just Dublin our house sizes and standards particularly front and rear garden space have fallen ,dog kennels packed together and let rush through planning to help ease so called crises .

 

[WolfeTone]

How can you say that any expenditure is dead money? If you think that rent is dead money, so is almost all expenditure that is not investment.

The phrase is a metaphor. If you can acquire the same product, service, utility etc for a cheaper price, but instead opt to pay a higher price then the excess paid on the higher price is commonly referred to as 'dead money' ie money that you could have saved but will never see again.
It is mostly related to rent considering the long-term costs of rent over a lifetime.

 

[DazedInPontoon]

The argument is that the payment of a mortgage principle isn't an expenditure because it's building equity in a property. The interest on the other hand I would consider as much dead money as rent is.

 

[Thirsty]

The interest on the other hand I would consider as much dead money as rent is

but interest will decrease over time, whereas rent never will.

 

[Brendan Burgess]

The argument is that the payment of a mortgage principle isn't an expenditure because it's building equity in a property.

Correct.

The interest on the other hand I would consider as much dead money as rent is.

Incorrect.

Paying for use of something is not dead money.

It's a meaningless and entirely misleading phrase.

I will repeat : I am a big advocate of home ownership.

But renting should not be denigrated.

If I choose to pay €3,000 a month for an apartment in Dublin City Centre and you choose to pay €1,000 to rent in Leixlip and you commute for two hours a day while I walk to work. Is my extra €2,000 dead money? Of course it's not.

It's a choice I make.

Brendan

 

[DazedInPontoon]

I'm basically agreeing with you regarding the 'dead money' thing. Both interest and rent are paying for a service, so each is as much dead money as the other - in that you can consider that neither is dead money, but it is money that you have *spent*.

If I choose to pay €3,000 a month for an apartment in Dublin City Centre and you choose to pay €1,000 to rent in Leixlip and you commute for two hours a day while I walk to work. Is my extra €2,000 dead money? Of course it's not.

It's a choice I make.

Won't argue with that either. But is that example of much relevance to the housing crisis, I don't think people being left with no option but to commute 2 hours a day is very good for society.

 

[WolfeTone]

Paying for use of something is not dead money

True. But if to acquire the same use by other means (ie a mortgage) and the cost of repaying that mortgage is cheaper over the long term then the rent is dead money.
It depends how you define 'dead money'. I define it simply as the excess paid over what it would cost if availing of the alternative option (mortgage) to acquire the same utility.

 

[WolfeTone]

If I choose to pay €3,000 a month for an apartment in Dublin City Centre and you choose to pay €1,000 to rent in Leixlip and you commute for two hours a day while I walk to work.

The comparison is not valid because your are comparing rent cost with another rental cost. The 'dead money' term is typically a comparison between mortgage costs and rent.

All things remaining equal, a €3000 rent per month for the term of 25yrs is €900,000.
What is the value of the property and how much would a 25yr 100% mortgage cost?

 

[Brendan Burgess]

It depends how you define 'dead money'.

That is such a ridiculous approach.

If you define something as meaning something completely different from what the two words mean, then language and discussion is pointless.

If someone calls to the door to fix my roof and I pay them a deposit of €3,000 and never see them again, that is dead money. I get nothing for it. The money is gone.

If I pay someone €3,000 to fix my roof and they do a good job, that is not dead money.

If I pay a landlord for the use of a premises, I am getting value.

Brendan