How do we deal with the inequalities due to falling home ownership rates?

We have a serious and growing problem that a large group of Generation Rent will not be able to ever get on the housing ladder.

This has serious implications. Ownership of one's home has generally led to lower housing costs and increased wealth. While long-term renting is expensive and uncertain.



ESRI chapter on Intergenerational Inequality

The lack of home ownership by itself isn't directly the problem. Look to multiple continental countries for longer term renters living in decent accommodation, with security of tenure, and generally affordable costs for examples. There does need to be a mix of high quality accommodation on both sides, for renters and owners. And especially with apartments, we need to improve the quality and also the rules around ejecting bad tenants.

This discussion paper from the UCD Geary Institute titled “Varieties of home ownership: Ireland’s transition from a socialised to a marketised policy regime” traces home ownership since Ireland ceded from the UK.

“Introduction

For most of the 20th Century home ownership rates in the Republic of Ireland rose steadily and were among the highest in the developed world. In 1971, 70.8 per cent of Irish households were home owners, compared to 50 and 35 per cent of their counterparts in the United Kingdom and Sweden respectively (Kemeny, 1981; Central Statistics Office, various years a). By 1991 Irish home ownership rates had risen to 80 per cent, compared to 65 in the UK and 39 per cent in Sweden (Bokovert, 2006; Central Statistics Office, various years)”


It is an interesting read. If you don’t want to read it all, the paper concluded:


“As the Irish case demonstrates when government supports are rolled back, home ownership declines, particularly among low income earners and average levels of associated debt increase.

Thus properly ‘neo liberal’, in the sense of entirely marketised housing systems are not characterised by very high (80 per cent plus) levels of home ownership but by home ownership among a small majority of the population accompanied by higher than average levels of (unsubsidised and unregulated) private renting1, and small, highly targeted social housing sectors.”

1: the paper was written in 2013 and so does not take account of legislative change in the private rental sector since then. However, the rest of the content is still relevant.

The original question was to the effect of 'how do we deal with the inequality' and not 'how do we avoid the inequality'.

While improvements to housing supply are to be welcomed, the premise of the original question was that there is an inequality arising and we must deal with that inequality.

I suggest that in fact, this inequality is not new despite the interesting chart in the first post. The chart shows people born in the 1960s having 60% home ownership by age 30. I suggest that this is very misleading, what we in fact see is that of those born in the 60s who still lived in Ireland 60% owned their own home.

In the 1980s (when those born in the 60s turned 20) there were no jobs. People emigrated. We didn't have a housing crisis (though mortgages were hard to get and expensive) because so many had emigrated.

Today well paying jobs are easy to get but housing is very difficult. The housing crisis is a problem of success. The fastest way to solve the housing crisis would be to nationalise a few MNCs, employment would collapse and a 5 bed detached in Ballsbridge would be affordable for a teacher. be careful what you wish for.

As was said above there is no 'just do it' solution rather ongoing efforts on easing finance, labour, materials, planning and other constraints. And doing something to assist those who will find themselves loosing out anyway.

Folks

I started the thread to focus on the inequality issue. It just became another thread on "how to build more houses"

I have locked the other thread and copied the more directly relevant posts to this thread.

Please don't go off topic. Even if you make an aside which is off topic, others will respond, so the whole post will be deleted.

Brendan

An interesting ESRI report here


In recent years, Ireland has experienced a notable decline in homeownership and a rise in the proportion of households in private rental accommodation. Concurrently, the cost of both rents and house prices have risen markedly and affordability challenges in terms of meeting housing costs have been well documented. While these challenges are immediate in terms of the housing costs burden, a longer-term issue arises as to how renting households will manage the financial adjustment to retirement with ongoing rent payments. This transition historically in Ireland has been smoothed by high homeownership rates and mortgage amortisation which lowered the cost of housing payments and increased financial assets. Indeed, existing international evidence suggests that being a homeowner can provide a ‘double dividend’ of lowering housing costs and increasing assets in retirement. This can help manage changes to income in retirement and allow households to maintain their standard of living. The continued requirement to cover housing costs for renters in retirement can be seen as an additional vulnerability in terms of retirement income adequacy in Ireland, over and above the general concern of sufficient pension income. While considerable research to date has documented this well-known challenge of providing a sufficient standard of living in retirement for many households in Ireland, the drop in the homeownership rate layers an additional complication in terms of the policy challenge.

To address these related issues, this report explores indicative future paths for homeownership rates in Ireland and explores the impact in terms of income poverty in retirement. Using data from the Survey on Income and Living Conditions (SILC) and the Irish Longitudinal Study on Ageing (TILDA), we consider a number of scenarios to assess the possibility of renting households becoming homeowners, and then test the impact on income poverty rates if households were to continue to have rental costs into retirement.

People who reach retirement age and are dependant on the state pension are unlikely to be able to afford rent. The pension is likely to decline in value given the increasing proportion of pensioners in the population


and rents are unlikely to decline, for many reasons.

It comes down to supporting people in poverty. Should the government build more housing ? Well we have discussed the issues there ! Should the government provide funding for renters, well that will drive up the costs of rent further.

How can the inequality be addressed, the challenges in building housing are the root cause of the issue, so to say the government should provide housing is to avoid the question.

I cannot even think of an impractical solution. We have to solve the housing supply problem, we will not be able to deal with the consequences if we don't.

If older generations have surplus savings and younger generations are ‘savings poor’, (a) increase the group B CAT threshold to that of the group A to encourage those with surplus savings to ‘skip a generation’ and gift this to grandchildren and lineal descendants. This will reduce ‘intergenerational inequality’ as beneficiaries of such transfers will typically be less better off than the disponer. Tax has already been paid on this money and transferring ownership of post-tax savings is market neutral in that it does not represent the purchase of goods or services. The beneficiaries can then use such cash transfers as deposits for / purchase of housing.
There are other reforms in this area that could be investigated to encourage transfer of savings.

Should there be some sort of tax relief for pensioners who are renters as they seem to be a particularly vulnerable group?

Is it not the case that the older generation who are home owners sacrificed a lot (pre home ownership) in terms of socialising, travel, entertainment, relationship building, delayed parenthood, in order to become home owners. It appeared to be the norm that once a couple became engaged they almost disappeared from life while making multiple sacrifices (evening and weekend jobs, overtime etc.,) to scrape together a deposit, build a home, etc before they married and moved in.

I recall friends of mine who took a walk together twice a week for three years and nothing else because they were committed to saving everything to build a home. Others would move back in with parents, etc.

I am not sure that many of the current generation would regard that as healthy behaviour so the consequence is it takes a lot longer to save and purchase a house. Rent, children, childcare, holidays, weddings etc all eat into saving opportunities so some may never become home owners.

The inequities between intergenerational home ownership may be as a result of changing priorities among potential home owners in the last 4 decades. Aside from acknowledging that fact, is it a “problem to be dealt with”? There are many changes to our lives in the past decades, should we just deal with the new problems that emerge rather than deciding it is unequal?

PMU said:

If older generations have surplus savings and younger generations are ‘savings poor’, (a) increase the group B CAT threshold to that of the group A to encourage those with surplus savings to ‘skip a generation’ and gift this to grandchildren and lineal descendants. This will reduce ‘intergenerational inequality’ as beneficiaries of such transfers will typically be less better off than the disponer. Tax has already been paid on this money and transferring ownership of post-tax savings is market neutral in that it does not represent the purchase of goods or services. The beneficiaries can then use such cash transfers as deposits for / purchase of housing.

Click to expand...

Reducing generational inequality but with the obvious downside of entrenching social inequality.


The CBI note that changing population dynamics mean that those lineal descendants are getting fewer (smaller families) concentrating the wealth even further. This, combined with existing wealth inequalities means that wealth transfers may exacerbate both inter-generational and intra-generational inequality.

Itchy said:

The CBI note that changing population dynamics mean that those lineal descendants are getting fewer (smaller families) concentrating the wealth even further. This, combined with existing wealth inequalities means that wealth transfers may exacerbate both inter-generational and intra-generational inequality.

Click to expand...

Actually it’s the other way around. I suggest most people reading this thread are better off than their parents; and much better off than their grand-parents, and it didn’t come through wealth transfers. I suggest it is from the introduction of free education; markets in the EU; national wage agreements, new technology and ways of working; FDI and the introduction of the euro. You can pick you own list, but all these provided opportunities for higher incomes, savings and wealth accumulation. That’s how we got wealthy; not through inheritances. And nobody has ever said we should leave the EU because the single market increases social inequality.

As I said in post #4, intergenerational transfers of savings, will reduce ‘intergenerational inequality’ as beneficiaries of such transfers will typically be less better off than the disponer.

Furthermore, such transfers are optimal in the sense that a rational householder should be indifferent to how his / her neighbours funded their (the neighbours) housing. A householder is not made better or worse off if the neighbour funds the purchase of his / her house through savings; inheritance; intergenerational transfer of funds; proceeds of the sale of another property; lotto winnings or through illegal activities. You are not worse off if your neighbour gets his / her mortgage deposit or the purchase price from his grandad. And society is better off as accumulated savings are being spread around.

I am not a fan of socialism.
I do support people making their own way in life.
Reading more about planned increases in taxation of capital.
I can tell you this..people I mix with are well wise to this.
Capital is mobile, and most people with a bit of wedge will be making plans already.

Inequalities certainly exist but in my humble opinion over analysis and lazy articles/reporting create problems.
Dublin for instance has developed hugely over the last decades.
In any European capital it is very difficult to purchase anywhere near city centers.
Let me comment on two totally different areas that I own property in currently.
Palmerstown six miles from the city center. Today there are 30 properties listed for sale starting at approx 260k and moving on up to just over the 500k mark.
Gorey Wexford 172 properties listed starting from approx. 170k.
I listen to young people all the time complain how difficult it is and has been over the past few years to purchase a property. I agree with the young people but it has always been difficult to get on the property ladder.
It has never been as easy to find work.
Yes you may never be able to purchase where exactly you would like (at least in the short term) but has that not been always the case.
Sounding old but are todays potential buyers willing to put in the sacrifices mammy and daddy did? I worked in Toronto in the eighties and in order to secure a lease for an apartment you had to drop the manager a months rent cash ( called key money) or you simply would not get the property for rent. Totally wrong but thats the way it was.
I would argue that while not every ones cup of tea a young couple both working in Lidl could purchase in the two sample areas as a starting point.
Or they could hang on for social housing.