Sorry millennials: Buying a home was just as hard for your parents

Sorry millennials: Buying a home was just as hard for your parents

A sobering conclusion for those millennials who feel particularly hard done by

Fiona Redden

Getting on the property ladder was often just as hard 35 years ago, with interest rates at more than 16 per cent in 1981 compared to 3.5 per cent today. Photograph: Gareth Fuller/PA Wire

Getting on the property ladder was often just as hard 35 years ago, with interest rates at more than 16 per cent in 1981 compared to 3.5 per cent today. Photograph: Gareth Fuller/PA Wire

 

Unpaid internships, zero hour contracts, mortgage lending rules, austerity; they’ve been called the “lost generation” but do today’s millennials really have it tougher than their parents and those who have gone before them?

It’s spoken about often – the intergenerational wealth crisis where baby boomers are living it up while their offspring are struggling to make any financial headway. But is it a fair assessment?

Today, in the first of a two-part series on millennials and their money, we consider how difficult it is for first-time buyers today to buy a home; is it, as many people say, actually more difficult to secure for today’s “millennials” – typically those born between about 1981 and 1985 – than it was for their parents who bought back in the 1970s, 1980s and even the 1990s? Or is it a case that for baby boomers, born in the post-war years of 1946-1964, sacrifices didn’t just have to be made in order to buy a property – they actually were made.

Who lives in a home they own?

Regardless of whether or not it’s more difficult to buy a home today, what is true is that, irrelevant of affordability, home ownership is on the decline as today’s generation of 20 and 30 year-olds postpone buying their first home and spend longer renting.

Home ownership peaked in Ireland in 1991 when a staggering 80 per cent of people lived in a home they owned. But it has been falling since.

In 2011 (the most recent figures available), this had fallen to 71 per cent, pushing Ireland closer to European norms of 67 per cent for EU-15 and 71 per cent for EU-28.

Alongside this, the number of younger buyers has also been on the decline. In 1991, for example, according to figures compiled by NESC (National Economic and Social Council), 16 per cent of those in the under-24 age group owned their own home (with a mortgage), while a further 60 per cent of those aged between 25-34 had purchased a property. This meant that by the time people reached 35, the vast majority were already on the property ladder, with just 5.2 per cent of the population renting from a private landlord. At the time renting, rather than owning a home, was simply not the done thing.

Fast forward just 20 years, however, to 2011 and the figures show that just 6 per cent of under 24s had bought their own home, and 40 per cent of those aged between 25-34. The number still renting in their late 30s/early 40s had stretched to almost 20 per cent.

We won’t have figures for home ownership trends until Census data becomes available in September 2017, but one could expect a further decline in the number of people living in Ireland who own their own home. Muted mortgage lending figures, as well as the over-heated rental market, suggest that more people are renting, rather than buying.

This means that first-time buyers are getting older and are renting longer. Back in 2006, the average first time buyer was 29. Central Bank figures show that the average age of the first-time buyer in 2015 was 34. Clearly, many are older.

With limits on mortgage lending of 3.5 times income, following the Central Bank’s new rules which were introduced in 2015, there’s no doubt that someone on the average industrial wage of €37,097 in 2016 (€61,582 for a married couple) will struggle.

Multiply the single buyer’s income by 3.5 and you’ll get €129,839, which, when combined with a 10 per cent deposit would give a purchase price of €144,266. Enough maybe, to buy a property outside of Dublin, but it’s unlikely to go very far in the capital, where average house prices exceed €300,000.

While a couple has it easier, their income will give them a purchase price of about €239,485 – still not enough in a city where the average sale price was €400,000 in August of this year, according to the CSO.

So are millennials being priced out of buying their first home in their twenties as many commentators suggest – or are they just less adept at getting their finances in order?

Who had it tougher: millennials or baby boomers?

Thanks to data prepared for this article by DKM Economic Consultants, we can consider who found it more difficult to buy a home – today’s millennials or their parents’ generation. And at first glance, it seems that, thanks to soaring house prices, today’s generation have it far more difficult.

Consider someone buying a home nationally in 1974. A married couple, on 166 per cent of average earnings (or gross income of €3,695 a year) would have needed a multiple of just 3.2 times their annual income to secure a second-hand home, which would have sold for an average price of €11,817.

And in Dublin, the income multiple would have been no different, at 3.2 times also.

Moving forward to the 1980s, the situation wouldn’t have changed. Our married couple, still earning 166 per cent of average earnings (€17,404) would have needed a multiple of just 2.6 times earnings to buy a new or second-hand house across the State; or 2.9 times in Dublin.

 

Previously published in The Irish Times.

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