Ireland’s housing crisis has a negative impact on the lives of many across the country, from families stranded in emergency accommodation to young adults unable to embark on an independent life. Overcrowding, punitive rents and exhausting commutes are also part of the picture.
But possibly the most enduring and pernicious long-term effect of the crisis may prove to be on social mobility. The implicit contract which was on offer for several decades depended on the ability of those on average incomes to access a mortgage and purchase a home which they would own outright by the time they retired. That simple equation underpinned the expectations of millions.
But with property prices rising at a much faster rate than wage growth, that contract is fraying. It has become increasingly difficult for those buying a home to do so without financial support from family members, the so-called Bank of Mam and Dad.
This is not just an Irish phenomenon. The same factors are at play elsewhere. A recent UK survey suggested that just one in 10 potential first-time buyers can afford to get on the property ladder without relying on their family for financial help, creating new class divisions.
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The most recent data for Ireland showed that in 2021 house purchasers received about ¤420 million in gifts. That figure is now estimated to be at well over half a billion euro annually.
These gifts are further fuelling property price inflation. In turn this puts the possibility of purchasing a home out of reach for those who do not receive similar support.
From the point of view of those involved, the gifts make sense. With € 155 billion currently on deposit in Ireland and 680,000 homes owned without a mortgage, many parents are in possession of substantial assets. Why not transfer some of those to adult children who need them now rather than wait for them to be passed on by way of inheritance?
But the figures suggest gifts are having a significant impact not just on property prices but on deposits. The average loan to value on a first-time buyer loan in the first quarter of last year was less than 80 per cent, indicating a typical 20 per cent deposit. For a rival purchaser without a gift and paying high rent, such large deposits may be unattainable.
If the process of inter-generational wealth transfer and soaring property prices continues, the divide between homeowners and renters seems certain to become more entrenched. Those unable to purchase homes now are unlikely to be in a position to help their children to do so in the future. With overall home ownership in Ireland falling and renting on the rise, a new and damaging social fracture is a real and present danger.
