priced up the wall
Last week a report was released by the AIB, one of Ireland’s major banks, on the property market here. While noting that the prices would increase by about 20% over this year and next, the salaries earned by people would not increase by half that.
The official inflation rate here is about 2%: this figure is used by the government in calculating its obligations to the European Union, and by employers when calculating salaries. This figure obviously does not include any consideration of house prices.
To put some perspective on the situation: the benchmark I’m familiar with is the multiple of your salary that you should expect to pay for a house. When I first investigated mortgages, years ago in South Africa, the general advice I received was that a mortgage should be no more than 3-4 times your salary; similar advice was used here, I read today, and banks used to limit mortgages to 3-4 times salary. Even today, an Irish online mortgage broker gave me several estimates, all around 4x my salary, yet this does not correspond with the incredible increase in mortgage amounts, and lengthening of mortage terms (up to 40 years!), in effect today.
In 1998 the average house price was 7x individual salary: in 2006 the figure is 11x. As a single person, My requirements are below-average, and once I factor in the deposit (from savings), home ownership was a possibility in 1998, the year before I arrived here. It’s not even remotely within reach today. My chances of owning a home in the Dublin area, already slim, are not going to improve.
I have serious objections with the concept of a property ladder – once I figured out what people meant by that, I was properly horrified. It assumes that it is natural to want bigger and bigger homes, as one gets older, which is not unreasonable; but it also assumes that the value of your current house will increase, by itself, and continue to do so. If there is ever a time when this ceases to be true, there will be a rush to get out of the housing market, further depression of prices.
The same AIB report talks, eupmemistically, about “reduced likelihood of a soft landing” for housing investors; in other words, there is the possibility of a crash. I would welcome this, both for my own sake, and as a salutary lesson for anyone silly enough to buy in to a bubble, which is what this is today. However, there are huge amounts of money floating around, with the maturity of government-backed savings schemes (SSIAs), I don’t see this to be likely. There is still a general perception of property as most reliable investment available, better than pension schemes; in my view it is short-sighted to invest all your equity in a single market.
With that, I should now spend some time on my current rented residence: it’s Spring, so we shall have Cleaning, starting now. I probably won’t finish today; why should I rush or exert myself unduly? I’m on holiday for the next two weeks.