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

[DazedInPontoon]

The general context I've heard people using the phrase dead money is paying rent equivalent or in excess of what mortgage payments would be and considering that after x years they would have had the same outflow of cash, but no equity to show for it. Maybe using 'dead money' for this is a bad term, but I understand the idea they are trying to convey.

 

[WolfeTone]

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

If u pay someone €3,000 to fix your roof while there is an option to pay only €2,500. €500 is dead money. Certainly in my book anyway. But if you and CS want to argue otherwise, knock yourselves out.

 

[Gordon Gekko]

Whilst it’s not “dead money”, I can see the logic behind the term.

It really stems from the obvious fact that a mortgage repayment on a property tends to be similar to the monthly rent for the same property.

 

[nest egg]

The general context I've heard people using the phrase dead money is paying rent equivalent or in excess of what mortgage payments would be and considering that after x years they would have had the same outflow of cash, but no equity to show for it. Maybe using 'dead money' for this is a bad term, but I understand the idea they are trying to convey.

I agree that's the thinking. In the same breath though they tend to forget / be unaware that to come up with a mortgage figure equivalent to the rent they're paying, they'd have to put down a 10-20% deposit on the property, and then cover all the other outlays such as stamp duty, solicitor's fees, furniture / decoration, LPT, home insurance etc etc, and that's assuming there's nothing wrong with the place that needs to be put right.

 

[Brendan Burgess]

If u pay someone €3,000 to fix your roof while there is an option to pay only €2,500. €500 is dead money.

Now, you are beginning to get there.

If you rent a property for €3,000 a month when the lease says €2,500 then €500 could be classified as dead money.

But to describe the €3,000 rent as dead money is just ridiculous. I agree that it's a widely used term, but that does not make it any less ridiculous.

Brendan

 

[DazedInPontoon]

I agree that's the thinking. In the same breath though they tend to forget / be unaware that to come up with a mortgage figure equivalent to the rent they're paying, they'd have to put down a 10-20% deposit on the property, and then cover all the other outlays such as stamp duty, solicitor's fees, furniture / decoration, LPT, home insurance etc etc, and that's assuming there's nothing wrong with the place that needs to be put right.

Absolutely, comparing renting to buying is complex both in terms of considering all of the various costs and risks apart from the mortgage/rent that you must consider, and all of the various non-financial aspects that differ between being a tenant and being an owner in terms of freedoms and responsibilities, and this has always been true.

I think in terms of the housing crisis you're seeing new aspects though, have we historically had rents so proportionately high? are we building new supply at a slower rate in comparison to the rate of population increase? are people competing with institutional investors more than historically? I don't have the numbers so I don't know for sure, but anecdotally things seems different now for sure.

 

[Brendan Burgess]

that's assuming there's nothing wrong with the place that needs to be put right.

And assuming that house prices don't fall 50% after you buy the place and you find yourself in negative equity for years afterwards.

 

[Thirsty]

And assuming that house prices don't fall 50% after you buy the place and you find yourself in negative equity for years afterwards.

The same thing could happen with equities or pension funds.

But you still have a roof over your head.

 

[joe sod]

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.

But if you look at the housing that was built in the 70s and 80s when we were building lots of houses, they were much more basic and were easier to build . They had a stove , a fridge , one basic bathroom and a few sticks of furniture that was it. Also the safety standards for workers were non existent, there were no portaloos, builders used basic tools, a few ladders and a cement mixer, if a builder got injured there was no compo culture. Its no wonder we were able to build cheaply back then. Now with covid and social distancing , safety officers, there are alot more people employed on building sites that are not actually building. All of this adds alot to the cost.

 

[Purple]

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?

It is true to say that renting is far more uncertain and probably more costly in the medium to long term than home ownership but rent is not dead money. The problem with bad analogies and metaphors is that they lead to us asking the wrong questions, have the wrong discussions and fix the wrong problems.

There is a housing affordability crisis in this country, and just about every other country in the developed world. That's a result of a shift in wealth from labour to capital. The longer term solution is shifting that wealth back towards labour (a 50:50 split works). We can't do that in Ireland, we can only mitigate the symptoms through taxation policy. Using our existing housing stock better would, to me, be the best solution. Those 200,000 empty housing units are worth over €60 billion. If we could get 20% of them back into circulation that would be €12 billion worth and more homes than we can build in two good years.

How about grants for business owners to turn their empty upstairs rooms into flats and apartments and a guarantee that their rates will not be increased if they do the conversion?
How about real taxes on empty housing?
How about real taxes on vacant sites and a use it or lose it planning system?
How about the planning process being brought into the 21st century so that it doesn't take 6-8 years to develop a site? Failing that bring it into the 20th century.

How about a semi state company to which all non-building land which has been re-zoned for building must be sold? It could then sell the land to developers at a much lower cost, with the proviso that the prices of the housing units built will reflect that lower land cost?

How about the department of the environment getting its act together so that new regulations can be put in place quickly for new construction methods?

 

[Purple]

But if you look at the housing that was built in the 70s and 80s when we were building lots of houses, they were much more basic and were easier to build . They had a stove , a fridge , one basic bathroom and a few sticks of furniture that was it. Also the safety standards for workers were non existent, there were no portaloos, builders used basic tools, a few ladders and a cement mixer, if a builder got injured there was no compo culture. Its no wonder we were able to build cheaply back then. Now with covid and social distancing , safety officers, there are alot more people employed on building sites that are not actually building. All of this adds alot to the cost.

Are you seriously suggesting that in the last 50 years construction methods haven't improved sufficiently to reduce the labour input way beyond the cost/labour input of monitoring health and safety etc?

If shipping in Ireland was done like construction we'd still be using sailing ships.

 

[50andOut]

Id agree with his generation rent and rent is dead money points.

No one has mentioned the flexibility of renting - are many renters not short term due to personal choice? I expect that not everyone is looking to commit to 25+ years on the hook for repayments on a property that is a short term lifestyle choice/need.

In my 20's I rented in City Centre to be near the action, as I matured and had less need for the nightlife, I gradually moved further away in large because the price for living in the city centre was no longer worth it. Eventually once I was ready for a long term base I then looked to buy. Then traded up for the forever home once kids came along. Those early years were not dead money but a lifestyle choice, plus an education into budgeting.

Yes I have security owning the house, but its inflexible (unless you abscond from your partner and emigrate, but that's another thread) and it is also a money pit, the capital and interest payments are not the only elements to compare against renting. e.g. I need a new boiler put in, I need to pay, Renters - call the landlord and he needs to pay.

On retirement I will likely rent somewhere abroad instead of buying because A. Leper scared me off buying and B. it gives me the flexibility to stay as little or as long as required and change locations without the fees and upkeep headache.

50+O

 

[joe sod]

Are you seriously suggesting that in the last 50 years construction methods haven't improved sufficiently to reduce the labour input way beyond the cost/labour input of monitoring health and safety etc?

If shipping in Ireland was done like construction we'd still be using sailing ships.

Yes the heavy labour element has been taken out of it by machines, but there are still a lot of bodies on construction sites or connected to it that were not there in the 70s and 80s. Think of covid compliance officers etc etc, also those Labour saving machines are expensive, it all adds to a lot more cost, then you have the new curve ball of shortage and rising cost of construction materials.
You need cheap labour to build houses cheaply , we had that in 70s 80s, we had it to an extent during the boom with the huge bonus of skilled east European Labour , we no longer have that. Now the world is looking for this labour not just Ireland.

 

[Purple]

You need cheap labour to build houses cheaply

Germany and the USA are the most productive manufacturing economies in the world with the most productive workers because they don't have lots of cheap labour making things. Their businesses, especially their SME's, are far more capital intensive than ours. The efficient use of capital, more than the efficient use of labour, reduces costs.

The last thing an efficient construction sector needs is lots of cheap labour. Anyone using a hand saw or hammer on a building site should be sacked. There should be no need for block or brick laying above the groundworks level. There should be no first fix on site. There should be no door hanging on site. There should be no roof tiling on site. The way we build houses is Dickensian. The entire sector is not fit for purpose and, speaking as an Irish Tradesperson, Irish Tradespeople are not at the races when compared to the European competition. Eastern European tradespeople are generally smarter, much better trained and have a vastly superior work ethic.
Hopefully we'll eventually get to the stage where 80% of the construction of houses is done in factories, here or elsewhere, and 50% of the labour disappears.

 

[PGF2016]

Germany and the USA are the most productive manufacturing economies in the world with the most productive workers because they don't have lots of cheap labour making things. Their businesses, especially their SME's, are far more capital intensive than ours. The efficient use of capital, more than the efficient use of labour, reduces costs.

The last thing an efficient construction sector needs is lots of cheap labour. Anyone using a hand saw or hammer on a building site should be sacked. There should be no need for block or brick laying above the groundworks level. There should be no first fix on site. There should be no door hanging on site. There should be no roof tiling on site. The way we build houses is Dickensian. The entire sector is not fit for purpose and, speaking as an Irish Tradesperson, Irish Tradespeople are not at the races when compared to the European competition. Eastern European tradespeople are generally smarter, much better trained and have a vastly superior work ethic.
Hopefully we'll eventually get to the stage where 80% of the construction of houses is done in factories, here or elsewhere, and 50% of the labour disappears.

Why are we behind the times on this? And is it the same in the UK?

 

[Thirsty]

will likely rent somewhere abroad instead of buying

But you will still own a PPR?

 

[DublinHead54]

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

The issue is that for many people they don't have a choice and have to rent. I think this rhetoric of 'rent is dead money' always comes up when rents are higher than the equivalent mortgage, which I think is the case for a lot of places in Dublin. The minutiae of the issue also comes down to as housing needs change for an individual the options do not adapt.

For example, a 20-year-old wanting to rent an apartment close to the city centre has options (apartments, house shares etc), a 30 yr old married couple with a child may want / need a house but the rental options are far more limited.

 

[joe sod]

Why are we behind the times on this? And is it the same in the UK?

Exactly good question, are we that much different to UK, they are probably a lot better given that they are one of the most densely populated island on the planet ?
Surely we should be doing a deep analysis of all our costs relative to UK at least, how much does it cost for developers to connect to services, how many tradesmen hours per house at what cost?, are our houses bigger with less units per acre? How many safety officer hours and Labour not involved in actual construction do we have relative to UK? Maybe get the esri to do some deep analysis like that, maybe they might uncover things they not want to find out. God knows some of the stuff the esri do is not very useful information or stuff still child would know anyways

 

[WolfeTone]

How about grants for business owners to turn their empty upstairs rooms into flats and apartments and a guarantee that their rates will not be increased if they do the conversion?
How about real taxes on empty housing?
How about real taxes on vacant sites and a use it or lose it planning system?
How about the planning process being brought into the 21st century so that it doesn't take 6-8 years to develop a site? Failing that bring it into the 20th century.

How about a semi state company to which all non-building land which has been re-zoned for building must be sold? It could then sell the land to developers at a much lower cost, with the proviso that the prices of the housing units built will reflect that lower land cost?

How about the department of the environment getting its act together so that new regulations can be put in place quickly for new construction methods?

You are coming up with proposals to solve the housing crisis.

This topic is about the apparent 'myths' of housing by Conor Skehan.

I would say you have demolished that article from the Irish Independent in the OP.

 

[Purple]

Why are we behind the times on this? And is it the same in the UK?

We are in a closed market, not open to international competition. The UK is a larger closed market. On the mainland you can buy a house in one country and have it assembled in another. That means local construction prices have to be more competitive and of a good quality. Of course construction costs are only part of the overall price of delivering housing.