The 2023 Housing Crisis of Ireland: Fact or Fiction?
It seems like the housing crisis in Ireland has become common enough to seem like a permanent feature of living in Irish society. What exactly is the housing crisis, are we still in one in 2022, and how does it affect prospective renters and buyers? Read on and find out.
What is the Housing Crisis in Ireland?
A housing crisis occurs when the cost of housing, be it renting or buying, becomes higher than the income reasonably deemed adequate to meet it. In short, affordable housing has become a rarity.
How Can Housing Prices Become Higher Than the Average Income?
Like any product on the market, prices are set by an equilibrium between supply and demand. If there is more supply than demand, the tendency is for prices to be lower. The theory is that producers will offer a lower price than their competitors to attract the few consumers asking for their product.
On the other hand, if there is more demand for a product than the supply, then prices tend to be on the rise. This is because the consumers are the ones competing against one another in a desperate attempt to obtain the goods. In short, it’s the reverse effect, where it is the consumers rather than the producers who are willing to pay more for a service or good to beat other consumers wanting the same product.
Unfortunately, this economic law of supply and demand does not pay a great deal of attention to the average worker's income. It pays more attention to the maximum amount that can be obtained.
What Affects House Prices in Ireland?
There are many factors that affect the price in a housing market besides supply and demand. Many other factors that are unrelated to general market conditions will change the way that house price behave in the housing market:
- Income
Income for individuals and households has a big impact on house prices. As people have higher income, they will be more likely to invest in second homes and holiday properties, and will also be able to afford higher mortgages. - Population
Population has also been a driver of prices due to the higher demand. If there aren’t enough houses for a larger and larger population, this will bring the price up even more. - Interest Rates
Interest rates are another factor that determine housing prices. When interest rates are lower, the costs of borrowing are also lower and mortgages become less expensive. However, as interest rates go up, and mortgages become more expensive, then there will be less demand for them and this will drive down property prices. - Social and Cultural Factors
House prices can also be affected by social or cultural trends. For example, a housing market can experience a shift from buying towards renting if it’s more fashionable. Marriage rates and birth rates can also have an impact on the price.
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Is There a Current Housing Crisis in Ireland?
To determine if there is currently a housing crisis in the country, we just need to have a quick look at the numbers. Since the definition of a housing crisis is having the cost of buying or renting a home higher than the average income, we look at what these current numbers are below.
- The most recent numbers from the Central Statistics Office (CSO) place the average weekly earning at €871.62. That is €3,486 a month which becomes €2,737 after taxes as the take-home average salary.
- The Housing Agency of Ireland recommends a maximum amount to pay towards rent or mortgage of 35% of your monthly disposable income. As the balance of the funds needs to be applied towards other necessities such as food, electricity and gas, transportation, etc.
- The average cost of renting in Ireland is now €1,447 a month.
- A recent report by the Irish Examiner places the average cost of a new home at €262,000 and the average mortgage rate at 2.76%.
- Using a mortgage calculator with the minimum 10% home value deposit payment and the maximum 30-year mortgage brings the average mortgage cost for any new home buyer to €963.88 (including interest payments).
We break down these numbers for each situation in the tables below.
| Is There a Housing Crisis for Rental Properties? | |
|---|---|
| Monthly income available for rent | €2,737 x 35% = €957.95 |
| Average Monthly Rental Cost | €1,447 a month |
| Is rental cost higher than monthly income? | Yes |
| Conclusion | There is a housing crisis in Ireland for Rental properties |
| Is There a Housing Crisis for Buying a Home? | |
|---|---|
| Monthly income available for mortgage | €2,737 x 35% = €957.95 |
| Average Monthly Mortgage Cost | €963.88 a month |
| Is rental cost higher than monthly income? | No |
| Conclusion | There isn’t a housing crisis in Ireland for purchased properties |
The above numbers paint a clear picture that the rental situation in Ireland is gloomy. The difference between what the average person can afford and the average cost is staggering. It is not surprising to hear so many stories about the increasing amounts of evictions in Ireland.
The housing market for buyers, although not technically a housing crisis by much, really isn’t much rosier. A decimal point change in the mortgage rate and all of a sudden, there is a housing crisis in the State for the buyers market as well.
So, this bolds the question, how did we get to such a state? We answer this question in detail below.
What Caused the Housing Crisis in Ireland?
Most experts agree that the housing problems in Ireland started in the latter years of the Celtic Tiger, at the start of 2007.
The economy was going so well at the time, that the State essentially stopped building social housing. On top of that, they turned the concept of buying a home into an investment venture, somewhere people could place their savings and make money from it.
Whether this was voluntary or not, this essentially shifted the responsibility of affordable housing over to the private market. Perhaps the thought was at the time that, in having a surplus of housing in the hands of the private sector, competition would force rental and housing prices down.
What the Government hadn’t planned for was the ensuing real estate market crash which started Ireland’s housing crisis.
What happened in 2008? The financial crash in 2008 had a lot to do with mortgages and mortgage delinquencies. Before 2008, mortgage lenders were lending very liberally to people (sometimes as 100% loan-to-value!) without properly checking their ability to pay back the loan.
In the end, the subprime mortgage crisis was caused by a surge in mortgage delinquencies and people failing to make their payments. This then triggered global financial prices and a housing market crash.
Since 2008, mortgage lenders have been very cautious about lending, and often require a very large deposit before you can take out a loan.
The CSO’s Housing Output Graph below shows a clear picture of the quantity of housing being built at its peak, 90,000 new homes in 2006. The following economic crash of 2007-13 put all of these new constructions practically to a halt. In 2014, only 11,000 new dwellings were built, much lower than the quantity of housing needed in the country.
This sudden stop in construction has essentially put Ireland with a 6-year backlog in new-builds which the Nation has never recovered from. Creating a massive shortage in homes rather than a surplus.
Although some experts have slight variations on the cause of the housing crisis in Ireland, critics tend to agree and blame the Government for failing to protect renters from the situation.
More on the causes and solutions to the Irish housing crisis. You can read more about the causes of the housing crisis in Ireland on Dr Rory Hearne’s blog page. Dr Hearne is a published Lecturer in Social Policy in the Department of Applied Social Studies at Maynooth University. He has researched and been a long time advocate for affordable housing and eradicating poverty.
Aggravating Factors in the Housing Crisis in Ireland
Irish renters and prospective homeowners now face the triple quandary of:
- Houses that are too expensive to buy.
- Stricter mortgage concession terms were generated by the previous financial crisis.
- Properties that are too expensive to rent.
The availability of rental property has been further exacerbated by holiday rental companies such as Airbnb.
Many landlords prefer to use properties for holiday rentals or short term lets due to the higher income the properties can then generate. Nearly 15 years after the housing bubble (which had caused another housing crisis) collapsed and prices fell and then rose again, there is still no proposed solution in sight for the current predicament.
Worryingly, the situation is not just being felt by prospective homeowners and renters, but also those dependent on social housing. An insufficient public housing system will detrimentally affect those who are homeless or at risk of being homeless.
In March 2022 the number of homeless people across Ireland was estimated at 9,825, a sobering statistic and nearly triple 2014 numbers. Research by Focus Ireland shows that the majority of homeless families previously depended on the private rental sector for housing.
To put these figures in perspective, a recent article by The Journal mentions in April 2022 there were only 80 homes available to people receiving the Housing Assistance Payment (HAP Scheme). That is a 92% drop in availability compared to June of 2021.
The Housing Crisis in 2022
The current Irish housing crisis is now being fed by an entirely different animal to the Celtic Tiger, the Russian Bear.
Now we can’t blame everything on the Ukrainian war. The global energy crisis was already in full swing long before Putin invaded Ukraine. However, the war has most certainly worsened the horrific situation the energy market was already in.
The cost of electricity and gas has been spinning out of control globally since the start of 2021 at the start of the post-COVID era. As the world was coming out of COVID, there was a sudden surge in demand for energy, unfortunately, there was not enough gas to go around. So, as we mentioned in our initial law of supply and demand, in this imbalanced situation, the price of gas rises.
The problem with having a shortage of gas and energy is that it has a trickle effect on just about every economic sector. Look at the food chain below as an example I am sure we have all noticed prices going up at the grocery store:
Higher cost of transport +
Higher cost of electricity in-store
= Higher cost of food.
The same applies to the housing market. Builders need raw materials to make the home such as pipes, bricks, and windows. The same is happening in this sector as is happening in our food stores.
Higher cost of transport +
Higher cost of electricity at the factory
= Higher cost of housing goods.
In 2022 however, the problem isn’t just about the higher costs of materials but the shortage of goods, as outlined in a recent article in the Irish Times.
Builders can’t even build new homes even if they wanted to! There is so much demand for the construction of new homes, that there is a shortage of materials as well as workers. As we have seen time and again in this article, what happens when there is a shortage of anything? That’s right, those material prices and wages go way up!
Rising Cost of Homes In Ireland, a new house is 15.5%, and an apartment is 14.3%, more expensive compared to 2021. This brings the next question of what can be done to help fight this Irish housing crisis.
How To Solve the Housing Crisis in Ireland?
To solve the housing crisis in Ireland, we refer once again to Dr Rory Hearne at the University of Maynooth who proposes the following seven actions to solve Ireland’s housing crisis.
- New National Housing Plan
He estimates that 30,000 new affordable homes need to be built every year for the next 10 years to get out of this situation.
- Qualified Workforce
Put in place the necessary workforce with the skills to build to deliver such quantities of new homes.
- Change in Philosophy
Shift back the mentality of seeing a property to its initial use, like a home, not an investment.
- Protect Renters
To help renters, legislate the possibility of lifetime leases, freeze rents, and other enforcement mechanisms.
- End Homelessness
Other European countries have achieved this by providing support services and homes to the homeless without any preconditions to be met.
- Lower Vacant Sites
Implement a punitive vacant site tax to stop vulture fund investors from amassing properties.
- Go Green
Exceed climate targets set by the Paris Agreement. The new homes should have a net-zero carbon footprint and ensure all homes are energy-efficient by 2030.
It seems that the Government not only carries a large share of the responsibility for the current housing issues but also has the duty to solve the situation. Let’s have a look then at what policies the Government has put in place to address the affordable housing issue.
The Irish Government and the Housing Crisis
With such a big and complex problem, here are a few of the policies put in place by the Government to try and appease the housing crisis in the country:
- Set up the CCPC to protect consumer rights
- Set up various help-to-buy schemes to make housing affordable to all citizens.
- Present a mortgage interest relief plan
- Set up the Housing Assistance Payment Scheme (HAP) for renters
- Set up the rent-a-room programme for both renters and owners
- Presented the Housing for All plan to build 300,000 homes by 2030.
Furthermore, in a recent interview with Sky News, the Minister for Housing, Darragh O'Brien, said the Government is to introduce a vacant property tax to address the problem of too many homes being left empty.
Asked specifically when this policy would be introduced, the minister replied ‘as soon as possible’.
Once the data is collated, and that's something myself and the minister for finance are working on… it will be as soon as possible,
How to Survive the Housing Crisis?
While we wait for these new affordable homes to be built and vacant tax policies to be in place, the most important advice for renters is to check all the major rental websites frequently (Daft.ie, Rent.ie, MyHome.ie, Property.ie).
While many available properties will be listed on all sites, some won’t. On some of the websites, you can also register for an account and set up alerts to let you know when suitable properties have been added.
Prospective buyers will want to shop around for the best mortgage available and examine the various help-to-buy government schemes available.
Whether you are a property owner or renting a home, if your average income is under the recommended threshold of 35%, look to make savings or cutbacks in other monthly expenditures, such as:
- Compare the market and find the best energy provider for your home.
- Compare other utility bills like broadband and bin collection.
- Help the environment and use public transport instead of a private vehicle.
- Examine recent SEAI grants and see if you qualify for free energy-efficient upgrades to your home.
- Apply for other government subsidies like fuel allowance or the household benefits plan.
- Read up on Energia’s tips for saving on your grocery shopping.
Additional Hints and Tips for Renters
As the price of rent in Ireland continues to rise, we list here a few additional tips to help renters move into an affordable home during this housing crisis:
- Have a clear idea of what you want. Which areas would suit you for work or schools, what your budget is, how much of a deposit you can afford, furnished or unfurnished etc?
- Have any relevant paperwork such as copies of ID, payslips etc. prepared and ready to go in a folder that you can bring with you at all times. Alternatively, keep one set of papers at work and another at home so you can quickly go from either place to a viewing.
- Haggle but don’t be too insistent, and only if you feel the situation warrants it. Unfortunately for renters, at the moment it’s very much a landlord’s market.
- Don’t go into a transaction blind. Before heading to a viewing, whip out your smartphone and check average house prices for the area, news reports on the area, and nearby transport and facilities. Also, remember to ask about parking availability if you have a car.
- Hang around a bit after a viewing and ask prospective neighbours about the pros and cons of the area.
- Stay within budget. The general rule for housing is that you shouldn’t spend more than 30% of your monthly income on it. Due to escalating prices, you may have to budget for more, but establish limits. It makes no sense to get a nicer place if you can’t afford to eat or travel to work.
- Always visit a property and insist upon seeing inside it before agreeing to rent it. Pictures can be old or deceiving.
- Know your rights as a renter and read contracts carefully. If you leave a deposit, demand a receipt.
- Ask questions. Lots of questions. Don’t leave anything up to chance and be wary if the person who is showing you the house is reluctant to answer your questions or acts cagey.
- If you’re going to be sharing an apartment, it’s best to try and meet your new roommates beforehand. Also, make sure that you each have your own separate leases or you could be stuck with paying all the rent if anyone ups and leaves.
- Offer to take a longer lease. Even in such a competitive environment, landlords still don’t like the hassle of finding new tenants.
- If you’re paying extra for amenities, make sure you will use them.