
In a recent speech to Dáil Eireann TD Holly Cairns described herself as a member of the first generation that is worse off than her parents.
The 33-year-old Social Democrats leader said she longed for “a fairer Ireland where it’s easier for people to get by” and “where keeping a roof over your head… isn’t such a struggle for so many people.”
Cairns’ intergenerational anxiety is borne out by the facts: a recent study by Eurostat found that over 40 per cent of 25-34-year-olds in Ireland still live at home with their parents; in 1993 two-thirds of people in this age bracket already owned their own home.
As the author Dharshini David once observed in his book The Almighty Dollar: Ever wonder why young people can afford more clothes and phones than their parents and forbearers but not a house to store them in?
As I pointed out the Sunday Independent recently: Ireland’s story is A Tale of Two Economies: where Irish GDP has skyrocketed, reaching sixth in the world per capita, but the prospect of owning a home for young adults has plummeted.
Much of this paradox can be attributed to Ireland’s rapid economic growth. The land that once attracted saints and scholars now attracts techies and Viagra producers. There is a direct correlation between Ireland’s rapid wealth accumulation during the Celtic Tiger years and the measures taken during the recovery from the Great Recession and during the pandemic, with societally devolving trends such as an entire generation locked-out of the housing market forced to pay exorbitant rents.
Ireland’s Success Story
Ireland’s shift from an inward-looking, agriculturally dominant, and protectionist economy to an outward, more diversified, and free market one is heralded as a blueprint for how former colonial and small nations can excel economically.
This growth has often been attributed to various seismic economic policies pursued by successive Irish administrations ushering in what would later be described as the Celtic Tiger. In 1956 Taoiseach John A. Costello defied the conservatism of Ireland’s civil service by passing the Export Profits Tax Relief (EPTPR) bill into law granting tax relief on the profits made by companies through exports. Initially this was granted on 50 per cent of profits and eventually on 100 per cent. In time the Irish State would incentivise manufacturing led growth culminating in a manufacturing tax rate of 10 per cent preceding today’s 12.5 per cent corporate tax rate. In 1947 Co. Clare’s Shannon Airport became the world’s first duty-free airport and in 1959 the Shannon Free Zone became the world’s first free trade zone resulting, in time, with Irish GDP converging with that of its peers, most notably Great Britain. During this period a document entitled Programme for Economic Development authored by the secretary at the Department of Finance T.K Whitaker recommended a number of innovative economic proposals such as increased agricultural exports and the courting of foreign direct investment (FDI). This culminated in the establishment of the Industrial Development Authority (IDA) which helps to attract FDI into the country for which Ireland’s economic model to this day is largely based/dependant on. Ireland’s entry into the European Economic Community (EEC) (1973), the precursor of today’s European Union (EU), and access to the single market (1993) with a common currency (2002) saw a massive market for goods, services and people as well as easy access to cash fuel further wealth accrual. The establishment of Ireland’s very own charter city or special economic zone (SEZ) in the form of the International Financial Services Centre (IFSC) in 1987 saw the State ride the deregulatory wave ushered in other Anglosphere nations such as Ronald Reagan’s America and Margaret Thatcher’s ‘Big Bang’ in the United Kingdom.
With the advent of economic liberalisation and expansion Ireland saw rapid economic expansion from the late 1950s onwards, with a small dip during the financial crash of 08 (See Chart 1). Currently, Ireland’s GDP per capita is the second highest in the EU and sixth highest in the world (See Chart 2).
Several economists, most notably Paul Krugman, have disputed Ireland’s official GDP figures due to the prevalence of foreign companies whose activities are primarily based abroad. The ECB chief economist Philip Lane and former central bank governor Philip Lane instead prefer the GNI* metric with others opting for Actual Individual Consumption. For the purposes of this piece, GDP per capita will highlight the gross discrepancy between official GDP and the reality for young people in Ireland today.
Chart 1

Source: Angus Maddison
Chart 2

Source: Worldometer
The Celtic Tiger’s Bite
In 2003, at the height of the Celtic Tiger, the singer/songwriter Damien Dempsey and renowned artist Sinead O’Connor composed a song about the Celtic Tiger: “Hear the Celtic Tiger roar – I want more,” the chorus goes.
The two artists warned that the economic exuberance of that period, “brings you good luck or it eats you up for its supper,” adding that, “It’s the tale of the two cities on the shamrock shore.”
“Ireland has never fully recovered from the fallout of the housing bubble burst“
That last line in particular has become more resonant with the younger generations who have lived through a period of skyrocketing economic growth but less opportunity to own their own home.
In 1993, over two-thirds of 25-34-year-olds owned their own home, the majority with a mortgage. In 2016, during the recovery from the Great Recession, that figure fell to less than a third (See Chart 3).
Chart 3

Source: CSO
Indeed, for those slightly older than Holly Cairns, in 2016 60 per cent of those aged 35-44 owned a home compared to over 80 per cent in the early 1990s (See Chart 4).
Chart 4

Source: CSO
With the prospect of owning a home for Cairns’ generation – millennials – and succeeding ones – Gen Z – dwindling a new term to describe the younger generations has emerged: ‘generation rent.’
“Why has home ownership plummeted and the proportion of renters skyrocketed?“
In the early 90s, a mere 15 per cent of 25-34-year-olds were renting; in 2016, that figure exceeded 50 per cent (See Chart 5).
Chart 5

Source: CSO
Not only are a significant number of young people renting, Ireland has one of the highest rents in the world relative to the average wage (Chart 6).
Chart 6

Source: Imovirtual
But why has home ownership plummeted and the proportion of renters skyrocketed?
This can be traced back to the hangover effects from the meteoric growth observed during the Celtic Tiger period.
The Commodification of Housing and Aftermath
During that period a home became much more than a place to live, rather it was viewed as a commodity for banks, local developers and international fanciers. Construction investment boomed as, according to the economist John Fitzgerald, ‘the high expected returns from investment in housing in Ireland had evoked a huge supply response’ (see Chart 8) meaning Ireland was beholden to that investment continuing in order to sustain the economy and, indeed, to provide housing for people. Access to cheap credit from the ECB and international money markets, due to historically low interest rates by Irish standards, helped to facilitate this investment (See Chart 7) with banks such as AIB and Anglo Irish Bank borrowing from wholesale international money markets to lend to local developers. Almost every facet of the Irish economy from employment in construction to tax receipts was beholden to construction investment. It might be hard to believe today but at one point Ireland was building more homes per capita than any nation on earth; the exchequer accrued more than €1 billion annually from Stamp Duty on property.
Chart 7

Source: Money Guide Ireland
Chart 8

Chart shows (i) average annual growth rate of building and construction (ii) how much of total investment in the economy was dependent on building and construction.
Source: CSO
This boom could only continue with rising asset prices in the form of house prices. When house prices eventually fell so too did the house of cards that the Irish housing market and ipso facto the economy so delicately relied on.
Ireland has never fully recovered from the fallout of the housing bubble burst with the supply of homes virtually collapsing as a result (See Chart 9). As the economist Cormac Lucey recently pointed out: “As a result of that bubble bursting, the Irish construction sector shrank dramatically.
“That set the stage… for the current housing crisis. The government stopped investing in building, there were absolutely no apprentices being taken on and most of the tradesmen were going abroad.”
Indeed, according to Cliff Taylor at the Irish Times, ‘for every seven jobs created between 2011 and 2014, only one house was built’ meaning less than 6,000 homes were built during that period compared to 90,000 in 2006 alone.
During the first year of the Covid-19 pandemic Ireland was the only country in Europe to halt home construction.
Banks also grew more hesitant to lend money to households and buyers partly due to post-crash macro-prudential rules limiting buyers’ capacity to borrow.
The ECB also imposed strict capital requirements on Irish banks limiting their capacity to lend.
Chart 9

Source: CSO
Indeed, this low supply has not been met with low demand: Ireland’s population has grown by over 40 per cent since 1990 compared to the EU average of only 6 per cent (See Chart 10). As the economist Dan O’Brien pointed out in the Business Post, since 2016 Ireland’s population has grown by 7.6 per cent, “about twice the British rate of growth and more than four times that of France.”
Chart 10

Source: CSO
House prices and wages have not reached even close to equilibrium: from 1980-2020 house prices rose by over 230 per cent with wages rising by only 100 per cent (See Chart 11). Even in the 1980s when high interest rates and unemployment was the rule, a couple in Dublin only had to sacrifice around 25 per cent of their disposable income, after paying rent for over a year, to raise a 10 per cent deposit; today, the same couple would have to fork over 75 per cent of their after-rent disposable income for the same deposit (See Chart 12).
Chart 11

Source: RTÉ Investigates
Chart 12

Source: RTÉ Investigates
Rents
As mentioned, Ireland has one of the highest rents in the developed world relative to national average wages. The average nationwide rent now exceeds €1,000; in Dublin average rents are above €2,000. As with the low supply of houses to buy, a low supply of rental properties has contributed to such extortionate rents. In a nation of just over 5 million people and increasing rapidly Ireland has less than 900 properties available to rent. While the uneven ratio between supply and demand is certainly a contributory factor to high prices, that’s not the full story. A high wage economy for the multinational sector coupled with low supply and continued access to cheap credit for investors following the low interest bonanza pursued by policy makers, including the ECB, following the Great Recession and during the pandemic has contributed to Ireland’s disproportionately high rents. In a recent feature in the Financial Times Jude Webber, the paper’s Dublin correspondent, highlighted the impact of Ireland’s tech economy, which has helped to boost GDP following the crash, on rents: “Ireland has added 24,000 new jobs in the information and communications sector since the first quarter of 2021… the purchasing power of highly paid tech staff has driven up rents in a market where housing supply was already under severe pressure.”
According to IDA Ireland, in 2019 FDI companies paid staff on average €66,000 per annum compared with the national average wage of €46,000 (See Chart 13). These highly paid employees comprise 10 per cent of the entire working population.
Chart 13

Source: IDA
Another factor that has contributed to disproportionately high rents in Ireland is the decision by the Fine Gael Minister for Finance Michael Noonan to delegate the provision of social homes to the private market.
As the columnist Larissa Nolan pointed out in the Irish Mirror, citing Sinn Féin’s housing spokesperson Eoin O’ Broin’s book Why Public Housing Is The Answer, before 2014 rents were half what they are today, however, the utilisation of private landlords to provide social housing “meant those who had bought properties to rent out during the Tiger would have a steady stream of tenants and guaranteed rent from the State in RAS and HAP” which costs the taxpayer €1billion per annum.
According to Nolan, “Rents shot up and more people needed supports – today, more than half of renters need assistance.”
This has also had an impact on the housing market: “The vast majority of punished private renters want to get out of the rent trap and buy – which has caused a rush for houses and driven up the price of property.
“With house prices now at their Celtic Tiger peak, many canny landlords have realised this is the time to sell, further depleting supply.”
Lessons Learned?
Despite the lessons learned during the Celtic Tiger, that the commodification of housing as an asset is highly volatile and prone to a boom-and-bust cycle, this mindset has continued unabated under the veneer of ‘recovery.’
Following the Great Recession Mario Draghi of the ECB infamously promised to do “whatever it takes” to save the Euro currency.
Super Mario embarked on a conquest of preventing a flight of investors from the Eurozone. According to the prophetic economist, who warned of the 08 crash before it happened, Morgan Kelly this involved two policies: cutting interest rates and lending unlimited amounts to sovereigns and banks allowing the Irish state to issue debt at very low rates. Sound familiar?
As such house prices rose to the same extent they did during the Celtic Tiger period. According to Eurostat house prices have risen by 47 per cent since 2010, with The Economic and Social Research Institute (ESRI) estimating that Irish house prices are around 10 per cent overvalued.
Observing the monster he helped create Draghi warned in 2018 that the Irish property market, both residential and commercial, ‘was “overstretched” and vulnerable to “repricing”.‘ The then ECB president sourced the property spike to “the search for yield by international investors” while calling for the macro-prudential rules that were imposed on households following the crash to be applied to non-banks.
Essentially, Draghi admits that while the burden was placed on households following the crash non-households were given a free pass to engage in lucrative investments.
This was observed when in May 2021 the US property investment firm Round Hill Capital bulk purchased most of an 170-home estate in Maynooth, Co Kildare locking out prospective first time buyers in the process. The homes were not only designated for first-time buyers but also, in conjunction with the affordable housing body Tuath, for those on a social housing waiting list. Instead, the estate would be a source of favourable rental yield for the fund.
The week before the purchase was announced, the same REIT purchased an estate in Hollystown Dublin 15 heralding the return on investment on the company’s website stating this was, “further evidence of the strong appeal of the Irish build-to-rent sector for institutional capital, attracted by its resilient, long-term yields.”
Having opened an office in Dublin and bragging of its €1billion balance sheet, Round Hill Capital may have been more conspicuous with its investment than others, but they are not the only players in town far from it.
Figures from Q1 – January, February and March – of last year show that almost two thirds of all new builds in Dublin were bought by non-household purchasers. According to Maynooth University Professor Rory Hearne, “In 2010, investors bought about 10% of property in Ireland. Now they are buying 25% of housing.”
As Aidan Regan of the Business Post pointed out, the low interest environment has “pushed down interest rates to encourage private investment, and as a means to encourage economic growth.
While “Irish households don’t benefit from the ECB’s policies… the global cheap credit environment has, however, meant that institutional investors have endless access to cash, and endless amounts of money to invest” with many turning to the ‘high yield real estate market.’
“The global cheap credit environment has… meant that institutional investors have endless access to cash, and endless amounts of money to invest.
“Ireland’s tax incentives, strong population growth and the presence of many high-tech multinationals with a transient workforce that need rental accommodation, Dublin and many other high-growth cities have become a magnet for this money” meaning housing has become once again a “financial asset that generates a high yielding rental income.” (Chart 14).
Chart 14

Source: CSO
As the ECB reverses course under the tenure of Madame Christine Lagarde the repricing that her successor warned about is on the horizon. The prospect of yet another housing bubble bursting is not beyond the realm of possibility as house prices in Ireland begin to fall meaning my generation may live through two housing crashes. As Conor O’ Grady of American Affairs highlighted: “Between 1995 and 2008, construction investment accounted for around 57.5 percent of gross fixed capital formation, while between 2013 and 2017 it accounted for around 39.3 percent.
“This would mean that construction investment is about 68 percent as important to Irish economic growth as it was in the previous bubble. Roughly speaking, if construction investment growth is running at around the same rate as it did before the 2008 crisis, then the present bubble should be roughly two-thirds the size of the previous bubble.”
According to Sean Keyes of The Currency, rising rates could knock €20,000 off house prices.
Going Forward
Ireland’s rapid ascent from the poor boy of Europe to one of the world’s richest and most prosperous nations on earth is to be commended. However, behind the veneer of inflated GDP figures lies an entire generation locked out of the housing market forced to either live at home with their parents or face gruelling rents. It is clear that Ireland’s massive wealth accumulation reflected in GDP has had an inverse relationship with societal evolution, particularly for young people, reflecting the upward surge in young renters and a moribund supply of housing.
All that glitters is not gold.