Can We Really Afford Shelter?

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Shelter, especially in the form of long-term housing, is a basic human need. That's why Abraham Maslow put it at the base of his hierarchy of needs back in 1943. As a basic requirement in life, it should also be seen as undeniable right - something all people deserve, no matter who they are or where they come from.

Strangely though, despite the fact that a majority of people in Ireland would accept this, we cannot demand shelter today in the form of decent, affordable housing. The huge increases on the prices of houses* all across the country has made them unaffordable to many working people.

The average house now costs 12 times the average industrial wage in the country and almost 16 times in Dublin. Affordability is viewed as the annual cost of servicing a new 25-year mortgage relative to average income. This figure has averaged 28% over the past 30 years, with a high of 39% in the early 1980s (when interest rates were around 15%) and a low of 20% in 1994. Since then the figure has moved up steadily to 35% in 2006 and the banks think it could go as high as 37.8% this year as a result of the interest rates hikes by the European Central Bank. [1]

Because of this, people are taking out 100% mortgages for up to 40 years on 5 times a couple's joint income in order to be able to afford a house. Others are teaming up with friends and colleagues to get a foot on the property ladder. We may not be far off the situation in Japan, where mortgages can last up to 100 years passing from one generation to the next.

Once the housing bubble stops growing, it is likely to burst. For the housing boom to continue people have to be enabled to borrow more and more and new buyers have to keep entering the market. 100% mortgages for up to 40 years is pretty much at the limit at how much people can borrow. New buyers cannot keep entering the market forever.

Already, house prices are dropping. There was a decline in national house prices of 0.6% in March of this year. [2] If this trend was to continue and the predictions of a fall in house prices by 40-50% materialized [3], people will be left in a situation where their mortgages are worth more than their houses. Paying back a mortgage of €300,000 to the bank for a house that's now only worth €150,000, nevermind the huge amount of money given to the bank in interest over 30 or 40 years, is not a situation anyone wants to be in. With increasing interest rates people will inevitably default on their debts and the banks will reclaim their houses. This will inevitably lead to an economic recession and job losses. So, not only is buying a house in Ireland unaffordable but it is also extremely risky.

Despite what the media is telling us - that we're all rich now, that the Celtic Tiger has lifted all boats and that the working class no longer exists - this level of uncertainty and financial pressure tells a different story. Many people may consider themselves middle-class, living a middle-class lifestyle with a new house and a new car. However, this lifestyle may well be superficial and precarious. How middle-class can you be when you are tied to the bank for 40 years of your working life and have a monthly heart-attack when the European Central Bank announce changes to the interest rates. Many people may consider themselves middle-class but at the end of the day they have to go to work each day and work long hours of overtime to be able to pay off the debt they live under in order to be able to afford a place to live. They are working-class. They have no right to shelter without working every day of their lives to be able to afford it.

With such levels of debt and the risk involved it might seem crazy for people to bother buying a house at all. However, people have no choice. Not only are the greedy developers creaming off huge profits from house sales but the landlords of this country aren't far behind. Over the last year, rents have increased by almost 12% [4]. That's not just in Dublin but also across the country. The nation's average monthly rental is now €1,382, an increase of approximately €150 since the same time last year. It doesn't take a genius to notice that wages haven't being going up at the same rate.

So houses are ridiculously overpriced to make money for the developers. The government won't build any affordable housing because they're too busy giving tax-cuts to the rich. And to top it all, rents are going through the roof so working people are paying more and more of their hard-earned wages down the drain into someone else's pocket.

But let's remember what we said at the start. People believe that shelter is a basic human need. Housing is a fundamental human right. That's obviously not the case in Ireland. But it is a right, and the sooner people organise together and stand up and demand that right, the sooner we'll stop getting shafted by the developers, the government, the banks and the landlords – in other words – by Capitalism.

* Since 2000, house prices have risen 30 per cent more than income.

[1] "Debt - Riding the Tiger" by Richard Douthwaite in Sustainability (Vol 1, Spring 2007)

[2] PermanentTSB/ESRI National House Price Incex, Quarter 1, 2007 available from http://www.permanenttsb.ie/house-price-index/Default.asp

[3] “How the housing corner stones of our economy could go into a rapid freefall”, by Morgan Kelly, professor of economics at University College Dublin in The Irish Times (28/12/2006)

[4] "Surging rental market to increase investor confidence" by Fintan McNamara,
Chief Executive, IPAV available from http://www.daft.ie/report/Daft-Rental-Report-June-2007.pdf

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