Europeans renting in retirement

irishguy

As the vase majority of Europeans live in rented accommodation all there lives. How do they afford to pay rent during retirement ? Do they just invest lots into a pension while they are working?

Also would it not make financial sense to buy somewhere over say 25 years so you could could live there for free in retirement?

fricatus

irishguy wrote: »

As the vase majority of Europeans live in rented accommodation all there lives. How do they afford to pay rent during retirement ? Do they just invest lots into a pension while they are working?

It's funny that this notion has taken hold in people's minds when it's not true! The majority -vast or otherwise - of Europeans do not live in rented accommodation. If you don't believe me, take a look at this graph from Eurostat. Source here.

Indeed Ireland's rate of home ownership is not unusual! Indeed it's below that of successful countries like Slovakia, Estonia, Slovenia and Norway, and only slightly above the Euro-area average! There is no "obsession with owning your own home" here!

Interestingly, that graph doesn't include Germany as some of the information is not available (how un-Teutonic of them!), but in other sources I've seen, that appears to be the only European country where a majority rents. Even Austria and Finland have majority home ownership!

irishguy wrote: »

Also would it not make financial sense to buy somewhere over say 25 years so you could could live there for free in retirement?

Well I would have thought that made sense all right!

It's what we've always done in Ireland and the older generation who have their homes paid off and who can spend all their pension on themselves, rather than a third of it on rent, seem to have done the right thing - unless I'm severely missing something?

Victor

fricatus wrote: »

It's funny that this notion has taken hold in people's minds when it's not true! The majority -vast or otherwise - of Europeans do not live in rented accommodation. If you don't believe me, take a look at this graph from Eurostat. Source here.

That doesn't tell the whole picture by itself.

Home ownership is high in central and eastern Europe as a legacy of communism. In Ireland, renting has become a lot more common in the last 20 years and many (but by no means all) of those renting are of migrant / immigrant communities.

trishasaffron

Thanks for the data Fricatus. I had always suspected that the idea of a specifically Irish attachment to home ownership was a cliche not based in fact. I know France fairly well and everyone I know there is a home owner - not only do they own their own home but they usually have an interest in a holiday home. Same in Germany even though the chart isn't as clear.

I do think that an elderly person without home ownership is vulnerable - no matter what country they live in. For most people owning a home is part and parcel of their pension planning. As one gets older simplifying life and firming up on expenses is important.

fricatus

Victor wrote: »

That doesn't tell the whole picture by itself.

Of course not. It's a snapshot of a single statistical item at a single point in time. It gathers data into a single graph from 502 million people. It could never be expected to tell "the whole picture", but it's better than half-truths and anecdotal evidence.

Victor wrote: »

Home ownership is high in central and eastern Europe as a legacy of communism.

Yes, and it's high in Ireland as a legacy of our colonial past (receiving end) and in Spain as a legacy of their colonial past (giving end), and in Norway and Iceland as a legacy of Swedish (or was it Danish?) domination...

Sorry for being facetious, but there are legacies everywhere you look. There's a tendency in Ireland however (especially in the media) to believe that we are somehow unusual, and to try to find explanations for that. We had a huge property boom and traumatic bust, and understandably enough we're questioning ourselves as a nation whether we're obsessed with owning houses.

We need to start with the facts though, and the facts show that we have no particular "obsession", at least no more of an obsession than people in other countries do!

This is a serious matter. A whole generation seems to be giving up on home ownership as a legacy of the boom and bust, and the commentariat are cheering this on without anyone stepping back and looking at the facts. We have a pension timebomb ticking (some €300 bn in unfunded public pension liabilities) and a lot of people who are not preparing for retirement.

That would be bad enough if those retiring had their homes paid for by the time they retire, but it will be worse again if a whole generation spend their life renting and have to continue renting into retirement without (a) the pension provision to cover this, and (b) the infrastructure to support a renting culture, such as they have in Germany.

Victor wrote: »

In Ireland, renting has become a lot more common in the last 20 years and many (but by no means all) of those renting are of migrant / immigrant communities.

Well of course - the graph doesn't capture trends. We can pretty much assume that migrant populations will rent, at least to begin with. We can also infer that a country with a lot of recent immigration like Ireland will see a growth in the rental market as a result.

Remember though, that home ownership rates are still around the 65-70% mark in countries that have traditionally had high levels of immigration, like France, the UK, the USA and Australia.

noxqs

Let me explain this from a Scandinavian perspective.

* We got pensions. Private and public is the norm.

* Low income people, including some pensioners (some are quite well off), get means tested support for rents. Ie my granddad lives in a nice house for about 350 euros a month.

* Generally all medical care is provided by the state - and the medicine is heavily subsidized.

Theres a concept thats quite different from Irish renting and thats Property Coops, (Boligforening) which is non-profit for rent high quality accomodation for a very cheap price. My mom rents a semi-d for 500 a month, 120 square meters in a nice location. Coops consists of both houses and appartments - they are built from the rent they receive and its administered by the coop. You can as per 2005 buy these in Denmark, if the coop later agrees to allow this. But its typically a lower all around cost to just keep renting. Every 10-15 years they replace bathrooms/kitchens etc from the common pool to keep things nice. I honestly think this is one of the best forms of accommodation I have ever lived in.

There is also properties which are apt blocks with a common debt, you buy into this and pay a "rent" per month and the value of the apt rises as the common debt is paid off. This is literally a share you buy in an apt block, which is low price entry and your rent will pay maintenance + common debt.

Generally - no one would bat an eyelid if you lived your entire life in rented accomodation in atleast Scandinavia. It can be very cheap, high quality, and you're well protected by the law (which sets maximum rents for quality/location/size) and you have a body you can complain to if the apt/house is not up to standards which are kept quite high. People in Copenhagen theres many examples of people living their entire lives in one apt, because its not a for profit landlord but a Coop arrangement etc.

PS: It is a bit of a fallacy to think if you don't have a house when you're old you are penny less. I can assure you, my granddad is doing fine and he is on a mediocre pension. It all depends on how the system works.

irishguy

noxqs wrote: »

Let me explain this from a Scandinavian perspective.

* We got pensions. Private and public is the norm.

* Low income people, including some pensioners (some are quite well off), get means tested support for rents. Ie my granddad lives in a nice house for about 350 euros a month.

* Generally all medical care is provided by the state - and the medicine is heavily subsidized.

Theres a concept thats quite different from Irish renting and thats Property Coops, (Boligforening) which is non-profit for rent high quality accomodation for a very cheap price. My mom rents a semi-d for 500 a month, 120 square meters in a nice location.

There is also properties which are apt blocks with a common debt, you buy into this and pay a "rent" per month and the value of the apt rises as the common debt is paid off. This is literally a share you buy in an apt block, which is low price entry and your rent will pay maintenance + common debt.

Generally - no one would bat an eyelid if you lived your entire life in rented accomodation in atleast Scandinavia. It can be very cheap, high quality, and you're well protected by the law (which sets maximum rents for quality/location/size) and you have a body you can complain to if the apt/house is not up to standards which are kept quite high. People in Copenhagen theres many examples of people living their entire lives in one apt, because its not a for profit landlord but a Coop arrangement etc.

But I assume most middle income people would buy property and would be better of as a result over the longer term?

noxqs

Many people buy - sure. But it depends really, if you want to live in central Copenhagen or within metro range, you're looking at at least 400K euros or so for a decent 3 bed apt.

But you could join a property coop and rent the same place for a dramatically lower price than cost of loan. For example we know that loans typically would double the total payback cost, so lets say 800K / (30 * 12) = 2222 a month real cost. You can typically rent these for 1K euros a month from a coop (and falling as you get further away from copenhagen but still in metro range ofc). Rents are quite heavily regulated, if you suspect its too high, you go to the regulatory body and they will enforce backpay + interest on anything paid too high. Being a private landlord in Denmark is not something most people want to do because of that. The regulatory framework is very strict.

These coops first came into existence in the late 1800es and early 1900es so the idea is quite ingrained in the culture.

That is not to say people dont buy - I don't have numbers on hand but I believe something like 60%+ own property. But renting is not looked down on in any way, and there's no real pressure there. You will find many a smug renter these days as Denmark also had a bit of a property bubble.

Theres another thing, stocks and bonds is very popular investments, and you can manage your own pension portfolio this way, so its quite well known and used. And it is well known that houses are a poor store of money, as they are inflation hedges when theres not a bubble, so you will find a lot of people invest in mutual funds or directly in the market. So the idea of a house being somewhat of an asset isn't really rooted as deeply. And also how do you recoup the money from a house when you get old? Sell and rent is actually typical in this case.

Better off buying a house entirely depends on how well you manage your money. As I said buying can (and is typically) a lot more costly than renting from coops. If people are savvy with money they can save the difference and be much more well off in terms of savings or just live a better life from the money they're not spending on debt.

(but we know people aren't always that good with money but thats another thing )

PS: Property taxes is 1-1.5% depending on county you live in, and theres many other associated costs - over 30 years you have paid a lot in interest + taxes. Its always interesting when you explain people what opportunity cost is on that.

box_car_maker

irishguy wrote: »

As the vase majority of Europeans live in rented accommodation all there lives. How do they afford to pay rent during retirement ? Do they just invest lots into a pension while they are working?

Also would it not make financial sense to buy somewhere over say 25 years so you could could live there for free in retirement?

a old age pensioner on the state pension in ireland could afford to rent as many places can be rented for a hundred quid per week , especially outside dublin , why do you think it would be any different for people on mainland europe

StillWaters

box_car_maker wrote: »

a old age pensioner on the state pension in ireland could afford to rent as many places can be rented for a hundred quid per week , especially outside dublin , why do you think it would be any different for people on mainland europe

That's not sustainable, that's 50% of a low income.
It is worrying if the cohort of people shying away from buying are not providing for pensions and savings, the State will be looking at a huge RA bill for >65 year olds, which historically we never had before.

Scruffy Sandra

Paying back mortgages is for the financially inept. There are so many better ways to make your income work for you.

The Germans, of course, know best.

mdebets

Having paid off a mortgage doesn't mean that you live in the house for free. You have to pay building insurance, you have to maintain the house (this might be a big expanse with many houses built in the last 10 years, due to the poor quality).
Don't know, how it works in Ireland, but in Germany for example, you can be made to pay for the rebuilding of the street outside your house (every 20 or 30 years, don't now the exact time frame), which can run into 10 of thousands of Euro.
You might need to remodel your house, if you get mobility impaired in later years.
What are you going to do, if your neighbourhood changes for the worse and you are afraid, but you can't move, because you don't have money for a new house, and can't sell your old one, because no one wants to live there?