Reaching for the first rung
Why is it so difficult to get on the property ladder now compared to 20 years ago? After all, interest rates are lower and house prices are still below where they were in 2007. Architect Mel Reynolds runs through the figures.
Let’s take a look at what it takes for first time buyers to purchase a house today compared to 20 years ago. In 2017, the Central Statistics Office published a report titled ‘Historical Earnings 1938-2015’. The CSO merged various accurate data sets to show how earnings have evolved from before the Second World War up to the present day.
Since 1998, average earnings have grown by a little over 1% every year. The corresponding increase in housing costs is a multiple of this. The last quarter century is of particular interest — from the mid-nineties through the boom years and the recession up to our more recent recovery.
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In 1998, if you were a construction professional qualified for more than five years, you could expect to earn up to £35,000 (IRL, or €45,000). With a 10% deposit a new four-bed home in Bray at £135,000 (€170,000) could be purchased by a single person — the price was 3.5 times salary. Repayments were similar to average rents. If you bought a home like this 20 years ago, by now your mortgage would be paid off.
The bust in 2008 was followed by widespread job losses in construction, and by 2014 unemployment in some professions was running at 60%. But the market has recovered strongly, and now a construction professional with more than five years post-qualification experience could expect a salary of up to €55,000 per year.
A second-hand four-bed semi-d in Bray will sell for €440,000, eight times this salary. Rents are twice as expensive than 20 years ago at more than €1,500 per month. A very different prospect to two decades previously, and considerably more difficult to get started.
In the past 20 years, wages have increased by 22% while house prices in the commuter belt have more than doubled. This exercise can be done for various locations and occupations, the results are broadly the same. House prices are increasing at seven times the rate of wage increases.
Housing is a necessary expenditure and housing costs impact all sectors in society. Affordability, the ability of an average household to own or rent a home, is a critical driver of wage inflation. The average full-time wage is €47,000 while the median first-time buyer house price is €370,000, eight times salary. Due to higher rents it’s taking longer to save for deposits. It simply isn’t possible to start on the property ladder until buyers are older, and then two full-time salaries or significant equity from parents is required.
The future for new families isn’t bright. Two people must work and more than likely commute longer distances to do so. Kids will be in childcare and two cars will be on the road. Not a very sustainable future in many respects.
House prices are increasing at seven times the rate of wage increases.
Currently there is only one affordable housing project nationwide, with less than forty homes about to commence. O’Cualann Housing Alliance, in partnership with Dublin City Council, are starting a new scheme in Ballymun with three-bed homes starting at €219,000. Amongst other eligibility criteria, prospective single purchasers must earn below €59,000 and families below €79,000 to qualify. Hardly low incomes.
It would appear that the Department of Housing isn’t interested in looking beyond the traditional speculative developer model to other forms of procurement, such as co-ops, to provide affordable homes on cheap state land. These models are well established elsewhere and have been proven to deliver real affordability.
There are two ways to tackle housing affordability: either reduce costs or significantly increase wages. Until the penny drops with the Department of Housing, expect more industrial unrest.