Jill Kerby: Are we looking at a lost generation?

Personal finance columnist Jill Kerby looks at the issue of investors buying up property in bulk at the expense of first time buyers following recent controversies...

The knee jerk reaction by the government last week to public outrage about the numbers of apartment blocks and housing estates that have been purchased or built by international investment funds, was inevitable.

Will the huge tax breaks that were put in place nearly a decade ago but are only causing great consternation right now be withdrawn? Will the government step into their place and fund the 33,000 new homes that we need every year? Unlikely. In an RTE radio interview the Minister for Finance claimed that less than 1% of the Irish housing stock is actually owned by institutional funds and expressed support for their continued presence in “having a role to play in supplying the capital to build those private homes”.

Instead the government will do what it always does, which is to tweak away at the rules of the housing market rules and maybe scale back a few of the institutional taxbreaks. The foreign funded build-to-rent programme will continue for the simple reason (as expounded in last week’s column) that the these institutional investors have access to the cheapest pool of credit available, not the Irish banks or Irish State. Their lenders, primarily the US Federal Reserve (and other central banks) will never let them go bust.

What they may be compelled to consider, however, after a quiet word with the Minister, is the scaling back of the rents they charge to an increasingly captive market of young professionals and their unfavourable rental conditions.

Perhaps the main reason why this story has hit such a collective nerve, isn’t just because the ‘vulture funds’ are buying properties that might otherwise have been purchased by individuals and families looking for starter homes, but because these properties represent such poor value compared to the cost of a mortgage and offer very little security of tenancy.

There is nothing wrong with raising a family in a rented home if you can sign a long lease. My own family - two parents, five children, assorted pets and occasionally, my grandfather – lived exclusively in rental accommodation except for a six-year period in the early 1960s when my parents bought their one and only home in a distant new suburb of Montreal. It was a decision they regretted and we happily returned to the city and apartment living.

The housing crisis may be grabbing the headlines, but a far more disturbing report ‘Poverty, Income Inequality and Living Standards in Ireland’ that was launched last Friday by the ESRI and the impact it is having on young people in Ireland is one that needs wider attention.

The ESRI found not just that 15-35 years have been disproportionately affected by the pandemic – hospitality, retail and the arts being the most significant employers of young workers, hundreds of thousands of whom have been living on PUP payments, but that this age group is now caught up in a growing western economic phenomena of employment insecurity, stagnant wages, high rents and especially the incapacity to save and purchase their own homes.

Especially noticeable in the United States where wages have effectively been stagnating since the 1980s and where the wealth gap between those who already own assets like businesses, property and share portfolios and younger workers has widened dramatically since the 2008 economic crash.

Credit terms continue to be ease for the already wealthy and the bankers and institutional fund managers hired to “grow” this wealth and to ‘stimulate’ the wider economy with all their investments.

With the emigration safety valve currently shut and an expected period of higher unemployment, the ESRI report on the problems facing young adults certainly begs the question whether this generation will become the first of the ‘modern’ era to end up worse off financially than their parents’ generation.

Wars and pandemics, historians say, have always been great financial and social levellers.

We’ll know soon enough. My guess is that a short, sharp bout of belt-tightening and more ‘income distribution’ will certainly be on the cards for private sector higher earners and asset owners.

One of the co-authors of the report, Barra Roantree, suggested that, “To minimise the potential ‘scarring’ effect on young adults, policymakers should ramp up capacity on high-quality training programmes in the months ahead. Policies that act to tackle the root causes of high rents will also disproportionately benefit younger adults who risk otherwise being left behind.”

I’m more hopeful about the case for improving the educational and job prospects of our young people than finding a quick way to lower the cost of their rent.

The other sign of hope is that pandemic is waning: fewer young people are claiming unemployment payments. Shops are reopening and billions in unspent income is already filtering back into the domestic economy.

If history is anything to go by, quite a few new businesses and services will emerge from this pandemic and it isn’t beyond the ability of the government and private sector to direct our young people into the high skilled, highly paid jobs that will be created.

They’ve done it before. The alternative is…unthinkable.

Letters to jill@jillkerby.ie The TAB Guide to Money Pensions & Tax 2021 is in all good bookstores. See www.tab.ie for ebook edition.