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Analysis: why do people find it so hard to afford to buy or rent homes?

Tue, Nov 14, 2017, 12:53
Updated: Tue, Nov 14, 2017, 13:11

Cliff Taylor

Affordability data suggests that single buyers in particular face a squeeze in Dublin, with mortgage repayments now often taking well over a third of an average disposable income. Photograph: Chris Ratcliffe/Bloomberg




The most important part of the title of the new ESRI paper entitled Irish house prices: Deja vu all over again? is the question mark at the end.

Property prices are again on the rise, inviting comparisons with the Celtic Tiger era, but the firm conclusion of the report is that we are not back in the 2006-7 territory of a credit-fuelled boom pushing prices here out of line with economic fundamentals. In turn this begs another question.

If this is the case, then why do people find it so hard to afford homes and why is the rental market in such a mess? We are clearly in a crisis – it is just another kind of one.

The paper, written by ESRI research professor Kieran McQuinn, points to the extraordinary long-term moves in Irish house prices, which had the largest house price gain among international countries between 1995 and 2007, then the biggest fall during the crash and subsequently the most significant recovery. The Irish housing market matches our economy in terms of its boom and bust volatility.

However, what matters is where we are now, and McQuinn concludes that house prices not are not out of line with economic fundamentals and could, in fact, be a bit higher on the basis of what is going on in the Irish economy.

This is in direct contrast to 2007, when a credit bubble pushed prices 30 to 40 per cent above the levels justified by economic fundamentals, driven by a boom in the provision of credit.

Soaring credit

  • ‘We watch reports of increasing house prices with horror’

  • House prices to rise 20% over the next three years, ESRI says

  • Cost of renting rises by more than 11%

Before the crisis, the key factor pushing up prices was soaring credit availability. Remember the 100 per cent mortgages. Now it is a shortage of supply in the market, mixed with a recovering economy, which has pushed up prices. In some cases, the problem for buyers is that they can’t afford a property– but in many cases it is that they simply can’t find one.

McQuinn says prices are set to rise by a further 20 per cent over the next three years and cautions that a key aim of policy is to monitor the supply of credit to ensure that another lending boom does not add yet more fuel to the fire.

These forecasts will be looked at askance by those who are struggling to buy and finding the sums challenging, or impossible.

While overall prices in Ireland may not be out of line with economic fundamentals, there are clearly affordability problems for a significant number of earners and the risk is of these quickly spreading.

When house prices are rising at 12-13 per cent at the same time as earnings are rising at 2 – 3 per cent, the dangers are pretty clear.

The growing affordability problem shows up in various ways. For new buyers, while the ESRI data covers the national average, there are circumstances causing problems for many, particularly those buying the big cities.


House prices are higher in Dublin, for example, and affordability data suggests that single buyers in particular face a squeeze in the capital, with mortgage repayments now often taking well over a third of an average disposable income.

Often the return of a second partner to work is hampered by childcare costs which are high by international standards – or if two partners are already working, this limits financial room for manoeuvre.

Meanwhile, another survey from Daft shows rents – already well past Celtic Tiger peaks – continue to rise in double digit percentages year on year, closing off an option for many who can’t afford or don’t want to buy.

High rents are also making it difficult for many already renting to save the deposit on a new home.

The solution is, of course, more housing supply for both buyers and renters.

Dr Ronan Lyons estimates in the Daft report that 50,000 additional properties a year are required.

The problem, of course, is that houses take time to plan and build and that the range of policies needed are complex and multi-faceted. We may not have a 2007-style bubble, but it is still a crisis.

European Commission ‘refuses’ to accept timeframes for its own investigations Brian Hayes says

Tue, Nov 14, 2017, 10:21

Fiona Reddan

he European Commission’s refusal to establish target timeframes for its antitrust investigations is a clear example of “double standards”, Brian Hayes MEP said on Tuesday, given its strict stance on a timeframe for the Apple state aid recovery. Photograph: CJ GUNTHER/EPA




The European Commission’s refusal to establish target timeframes for its antitrust investigations is a clear example of “double standards”, Brian Hayes MEP said on Tuesday, given its strict stance on a timeframe for the Apple state aid recovery.

Last month the Commisison referred Ireland to the European Court of Justice (ECJ) for failing to recover up to € 13 billion of illegal state aid from Apple, in a move which may ultimately lead to a fine. Ireland orginally had a deadline of four months to recover the amount, plus interest, in line with EU State Aid procedures, but had failed to meet the date of January 3rd 2017. It is now considered unlikely that the handover of the money will be completed before March of next year.

However, Mr Hayes argued that imposing a deadline on Ireland and referring it to the ECJ, when it won’t establish target timeframes for its own investigations, is a case of “grandstanding for political purposes”.

According to Mr Hayes, when the Commisison was asked to establish target timeframes for its antitrust investigations by the European Parliament, it “refused to accept that this would be a positive step forward for competition investigations”.

“This is a clear case of double standards when the Commission takes a tough stance on the Apple recovery timeline but is refusing to accept even target timeframes for its own investigations,” Mr Hayes said. “If the Commission is willing to take Ireland to court over recovery timelines, it should be able to adhere to the same standards and set target timeframes for the completion of antitrust investigations and state aid investigations.

Mr Hayes said that “so many”Commission investigations have dragged on for years, pointing to the ongoing Google investigation which has lasted almost eight years, the investigation into Gazprom has lasted over six years and the Apple case itself lasted over three years. Moreover, some countries have also taken time in recovery money. In the Belgian state aid case on excess profits for example, Commissioner Vestager said that the recovery has not been completed and this decision was announced eight months before the Apple decision.

British currency vulnerable to further Brexit shocks

Tue, Nov 14, 2017, 06:35

British prime minister Theresa May: sterling could be in for a volatile couple of weeks unless the Brexit talks go smoothly. Photograph: Will Oliver/EPA




The Brexit threat is slowly starting to feel real for Irish business, with the latest dip in sterling a reminder of the nervousness and volatility that lies ahead. As Theresa May’s domestic political problems grow and the Brexit mire deepens, sterling is looking vulnerable.

Against the euro, the UK currency was back around 89p on Monday as markets struggled with the political uncertainty in London and what it might mean.

Sterling is likely to ebb and flow along with the fortunes of May’s government and the risk of no agreement on progressing the talks at the December summit.

If there is a failure at the December summit to give the green light to trade talks, then fears of Britain crashing out without a deal will rise and sterling could suffer.

Cross-Border shopping

Previous research from IBEC, the employers’ body, indicated that Irish companies start to feel the pinch when the UK currency reaches around 85p and that the pips really start to squeak around 90p and higher. Apart from a brief period in August, sterling has held under 90p over the past year.

Now exporters, the tourism sector and retailers – the latter at risk from cross-Border shopping – will again be concerned that the UK currency looks vulnerable.

A key reason for its vulnerability is the threat of a talks breakdown ahead of the mid-December EU summit. Notable, so, that IBEC chief executive, Danny McCoy, speaking after a meeting in Number 10 Downing Street yesterday with Theresa May and Brexit minister David Davis, highlighted the importance of the so-called east-west trading relationship between Ireland and Britain and the necessity to do a trade deal.

This will have been aimed at much at Irish government buildings as at the Conservatives. Irish business want the North-South Border issue sorted, but not at the expense of ignoring a new trade deal.

Trade between Britain and Ireland is, after all, a multiple of that crossing the Border. And both are affected by trends in sterling, where a volatile ride could lie ahead in the next couple of weeks, unless the Brexit talks go smoothly. And, let’s face it, what are the chances of that?

Government’s two-faced game on climate change has resulted in decade of inaction

Tue, Nov 14, 2017, 06:00

Eoin Burke-Kennedy

Billionaire and philanthropist Michael Bloomberg has since 2010 spent $164 million on a campaign to end coal-burning in the US. Photograph: Lukas Schulze/Getty Images




Last week war-torn Syria belatedly signed up to the Paris climate accord, leaving the United States as the only country not to support the framework deal and by extension the world’s climate bogeyman.

However, for all US president Donald Trump’s wilfully ignorant musings on the subject – he has on several occasions linked it to a Chinese plot to make US manufacturing uncompetitive – one could legitimately ask if his stance is any less questionable than Ireland’s.

For the best part of a decade, the Government has been playing a two-faced game of pretending to international audiences – the United Nations and the European Union – that it is taking the issue seriously and that it is acting in parallel with international efforts, when in fact it has skirted any meaningful engagement in pursuit of its own narrow economic interests.

The Government’s decade of inaction is, however, finally beginning to overtake its rhetoric. In nearly every metric by which a country can be vetted on climate change, Ireland is failing.

Emissions are on the rise across all sectors; renewable-energy targets have not been met, water quality is plummeting, while cities are clogged with cars and public transport infrastructures starved of investment.

Climate action plan

The Government’s climate action plan, meanwhile, commits the State to almost no binding targets and contains only vague aspirations about becoming a carbon-free state at some future date.

Sales of electric cars and hybrids, which accounted for 60 per cent of new vehicle sales in Norway last month, make up barely 0.5 per cent of sales here, while the rollout of a charging infrastructure has been mired in delays and difficulties.

Capital funding for transport is also still skewed two to one in favour of building out and maintaining the State’s road network, which has included funding for several white-elephant projects, such as the €550 million Gort to Tuam motorway, which was knowingly built on a flood plain.

While Paris and other cities are switching their bus fleets from diesel to electric, Dublin Bus was last year refused funding even to trial the use of cleaner electric vehicles.

Up to a million houses, nearly half the State’s stock, also still use home heating oil, one of the most pollutant fossil fuels on the planet, and the Sustainable Energy Authority of Ireland even offers subsidies for people who install smart heating controls with their new boilers, effectively locking in oil use for another 20 years.

Most of the measures we have around climate change were brought in by the Green Party, during its stint in government between 2007 and 2011, and have never been added to or enhanced.

On agriculture, the dairy herd is being expanded as the industry moves to exploit the ending of milk quotas and meet ambitious targets laid out in the Government’s Foodwise 2025 strategy without any consideration of the impact on land use, water quality or emissions.

Greenhouse gas emissions

Despite official declarations to the contrary, Ireland has one of the highest level of greenhouse gas emissions per euro of agricultural output in the EU because of the primary focus on more carbon-intensive beef and dairy systems, which contrasts with other countries where forestry, vegetables and grains account for a larger share of activity.

A recommendation from the recent Citizens’ Assembly to impose a carbon tax on farming activity was immediately shot down by the Irish Farmers’ Association and met with silence from the Government.

In the wake of the assembly’s climate-change recommendations, Minister for Climate Action and Environment Denis Naughten said “as a nation we are engaged and ready to move on from the model [of existence] we inherited from the Industrial Revolution” – a sentence that is not borne out by the facts.

He will presumably make the same sort of noises at this week’s climate talks in Bonn but there is now a growing belief that the Government has failed and is unwilling to act on climate change and that issue must be taken up by civil society and business.

US billionaire and philanthropist Michael Bloomberg has been spearheading a campaign to end coal-burning in the US. He has already spent $164 million on the campaign since 2010, during which time more than half the US’s coal-fired power plants have been closed. Last week, he announced an additional $50 million to expand the programme to Europe.

He has repeatedly argued that the mass closure of coal plants in the US did not result from government action but from civil-society advocacy building on the falling costs of renewable energy. The implication for Ireland is obvious.

Single Malt directs profits to countries with which Ireland has a double taxation agreement but that do not have any corporation tax

Tue, Nov 14, 2017, 05:00

Dominic Coyle

Multinationals have found a way of replacing the ‘Double Irish’ tax avoidance structure with a neat new arrangement called ‘Single Malt’.




Multinationals are looking to tap into alternative corporate tax avoidance measures even after the final phasing out of the much criticised “Double Irish”, according to a new report.

Tax advisers are pointing clients to what is being called a “Single Malt” arrangement, aid agency Christian Aid says.

Essentially, where Double Irish saw income – such as royalty fees on intellectual property (IP) – transferred to Caribbean tax havens, the Single Malt directs profits to countries with which Ireland has a double taxation agreement but which do not have any corporation tax. These include the likes of Malta and the United Arab Emirates.

Ireland has 73 double taxation agreements with countries across the world. Critically, the provisions of such accords override Irish domestic tax law.

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Then minister for finance Michael Noonan bowed to international pressure when he pulled the plug on the Double Irish in his 2015 budget.

Loophole closed

“I am abolishing the ability of companies to use the ‘Double Irish’ by changing our residency rules to require all companies registered in Ireland to also be tax-resident,” he said, although he did allow a three-month window for companies to tap into the arrangement before the loophole was closed, after which they would benefit from the scheme for a further five years.

However, many of the tax treaties retain the concept of “place of effective management” under which Double Irish flourished. These were unaffected by the change announced by Mr Noonan.

The loophole was spotted early by corporate lawyers, including Jeffrey Rubinger and Summer Ayers LePree, who wrote just over a week after Mr Noonan’s ending of the Double Irish: “It should still be possible to achieve the same results [as the Double Irish] using a company managed and controlled in Malta or the UAE, rather than a Caribbean state.”

Tax treaties

The Government has made no move to close the loophole since then. Christian Aid says “place of effective management” features even in tax treaties signed since the new residency rules were put in place. The agency says that status can be satisfied by holding occasional board meetings in the country named.

“Though multinationals with existing Double Irish structures may not restructure until closer to the 2021 deadline, a preliminary search of the Irish and Maltese company registries show at least four multinationals which, since October 2014, have already established such IP holding structures with Irish-registered but Maltese tax resident companies,” Christian Aid says in its report, naming LinkedIn and its parent Microsoft, as well as Zetiq Aesthetics, a Californian weight loss company that is part of pharma group Allergan.

Think tank says the figure could be even higher if housing supply issues are not addressed

Tue, Nov 14, 2017, 00:01

Conor Pope

A new report from property website says rents have risen by more than 11.2% nationally over the last 12 months. Photograph: Frank Miller




The cost of buying a home will rise by at least 20 per cent over the next three years, according to the Economic and Social Research Institute (ESRI), which said price growth at such a rate would not mean another property bubble was inflating.

The latest report from the State-funded think tank says that if economic growth projections are realised and if housing supply issues are not addressed then prices could rise significantly more between now and 2020.

The study compares house prices in the Republic with prices internationally and looks at price-to-income ratios and price-to-rent ratios before reaching the “unambiguous” conclusion that “the Irish market does not yet display any signs of overheating”.

It characterises the market as one where prices have almost fully recovered from the substantial declines experienced between 2007 and 2013 but says by “international comparisons, Irish prices appear to be quite affordable”.

Unless there is “some unexpected significant shock or a substantial increase in housing supply” prices will continue to climb, the ESRI says.

The report also warns that continuing house price increases “pose certain competitiveness pressures for the economy” and calls on the Government to focus on increasing supply.

Credit provision

“Policies should not serve to increase housing demand, for example, by easing loan-to-value or loan-to-income restrictions,” it says. “As economic growth continues and the banking sector recovers, it will be critical to monitor credit provision to avoid fuelling house price inflation.”

Prof Kieran McQuinn, the author of the report, told The Irish Times that inflation estimates of 20 per cent “are on the conservative side” and he warned that prices could climb higher and more quickly.

With dramatic fall in unemployment levels and historically low interest rates as well as inward migration and “a very sticky supply you are unfortunately going to see house price increases. We are not saying that is a good thing but it is a reality,” he said.

He accepted there would be criticism of this assessment but said “it would be remiss of us it we didn’t put out there what we think is going to happen”.

Meanwhile, a new report from property website says rents have risen by more than 11.2 per cent nationally over the last 12 months.

The annual rate of inflation in rents eased from 13.4 per cent at the start of the year but double-digit price inflation has been recorded for six straight quarters. The quarterly increase in rents between June and September was 3.4 per cent, the fourth largest ever recorded.

The average rent nationwide has risen by 61 per cent since bottoming out in late 2011 and, having exceeded its 2008 peak last year, is now 16.4 per cent above those pre-crash levels.

‘Brokenshire budget’ to boost public spending to more than £10.6bn

about 3 hours ago
Updated: about 2 hours ago

Francess McDonnell

Northern Secretary James Brokenshire has approved a £10.6 billion budget to fund services while Stormont is suspended. Photograph: Niall Carson/PA




Northern Ireland will get an additional £322 million as part of a “Brokenshire budget” that will boost total public spending over 2017-2018 to more than £10.6 billion, according to new estimates.

Northern Secretary James Brokenshire has drawn up an emergency budget for the North to “allow the Northern Ireland Civil Service to keep things ticking over” in the absence of a powersharing government.

Senior civil servants have been in charge of public spending in the North since the Stormont executive collapsed back in January without an agreed budget in place for 2017-2018.

The civil servants had informed Mr Brokenshire that Northern Ireland needed a budget in place by November or they would be in a position where there would effectively be no money available to fund essential services that were already under pressure in the North.

Current projections

The so called Brokenshire budget has mainly been drawn up based on previous spending allocations and current projections.

Mr Brokenshire has stressed that his Northern Ireland Budget Bill, which is currently going through the House of Commons to become law, does not signify a return to direct rule from London because he says it does not stipulate any UK government spending priorities.

Instead, his budget simply enables the North’s Civil Service to continue to fund essential services like health and education.

On Monday, the Department of Finance in the North published details of estimates that each Northern Ireland department would be allocated.

The North’s overall health budget will receive a 5.4 per cent increase, which will bring total spending to more than £5.4 billion.

Education will see its budget increase to more than £1.9 billion, while the Department of Finance will get a near 11 per cent rise in its spending power to take it up to more than £155 million.

The North’s Department of Infrastructure will also get a modest increase to increase to just over £375 million but others departments will suffer major cuts to their overall spending plans. The Departments of Agriculture, Justice and the Economy will be the hardest hit.