Irish Housing: Renting provides less security than ownership, unpredictable rents
By Michael Hennigan, Finfacts founder and editor
Dec 3, 2014 - 9:30 AM

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The National Economic and Social Council (NESC) says in a report today that while there are benefits to renting, such as low-entry costs, no investment risk and flexibility, in the Irish housing system renting provides less security of tenure than ownership and unpredictable rents.

The NESC includes representatives of business, trade unions, social groups and the public sector, and advises the taoiseach (prime minister) on strategic policy issues relating to sustainable economic, social and environmental development in Ireland.

The agency in a report, 'Homeownership and Rental: What Road is Ireland On?' [pdf] says that in other countries, large well-managed rental sectors provide affordable housing with secure occupancy, help keep house prices low and stable, and support the economy. But in the Irish housing system renting provides less security of tenure than ownership and unpredictable rents. "Those taking out a mortgage in a stable housing market build up an asset while paying their housing costs, but renters do not.  A lower level of home ownership raises the issue of how a future generation of older people will be able to afford private rental accommodation out of their pension incomes."

The report shows that certain groups will struggle to achieve homeownership—those on low incomes, single person and lone parent households, those in the larger urban areas and young people. In 1991, 65% of unskilled 35–44 year olds were owner-occupiers, but by 2011 this had fallen to 49%. For professional 35–44 year olds, the fall was from 91 to 80%. The proportion of lone parents renting has also increased from 10% in 2002 to 23% in 2011.  Owner-occupation continues to be much higher among Irish nationals than among those from other countries.

The NESC says that in the past, government supported home ownership through local-authority loans, tenant purchase and generous mortgage interest relief.  These have been greatly reduced.

It says the trends in ownership and rental now pose challenging questions for Irish housing policy. Dr Rory O’Donnell, NESC director, said today: “Ireland needs to discuss its housing aspirations, the feasibility of policy measures to promote a high level of ownership, and comparison of these with measures to support the emergence of a larger rental sector that can provide secure affordable long-term occupancy."

The report refers to Central Bank's recent consultation paper on limits in mortgage borrowing, proposing the introduction of limits on the loan-to-value (LTV) and loan-to-income (LTI) ratio of mortgages from January 2015.

"The proposals will:

  • Restrict new lending for principal dwelling houses (PDH) above 80 - per - cent LTV to no more than 15% of the value of all new PDH loans;
  • Restrict new lending for PDHs above 3.5 times LTI to no more than 20% of the value of all new PDH loans; and
  • Restrict new lending to buy - to - let above 70 - per - cent LTV to no more than 10% of the value of all housing loans for investment purposes.

First - time buyers now comprise approximately half of those drawing down mortgages. The proposal on LTV values is likely to cause some difficulty for them, particularly if they have to rent accommodation in a large urban area while saving a deposit. To buy a €200,000 - dwelling, a first - time buyer would need to save €40,000. However, the limits on LTI ratios should help to sustain affordability in housing prices."

Patrick Honohan, Central Bank governor, hinted last week at an Oireachtas committee hearing, that the proposals may be amended.

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