Who are buying all the new houses?

If you're suggest that there was a brief golden period in the mid- to late-1990s when housing was unusually affordable — no.

Looking at long-term trends, the exceptional period was not the 1990s; it is now.

The key issue is the relationship between house prices and earnings.

• Your ability to save a deposit depends on how much you earn.
• The size of the mortgage you can get depends on how much you can earn
• The amount of regular payments you can make on your mortgage depends on how much you earn..

At every point in the process, then, your ability to buy a house depends on how much you earn. So if house values rise faster than earnings, paying for a house out of earnings becomes more and more difficult.

The usual way of measuring this is the ratio of average house prices to average earnings. The higher that ratio is, the more difficult house purchase is (for anyone who has to finance house purchase with their own earnings; it's a different story if you inherit wealth). For purposes of international comparisons, a commonly used rule of thumb is:

• ratio of average house price to average earnings is in the range 3 or less: housing is affordable
• ratio is between 3 and 4: housing is moderately unaffordable
• ratio is between 4 and 5: housing is seriously unaffordable
• ratio is above 5: housing is severely unaffordable

In the mid-1990s, the ratio in Ireland was below 3. But this wasn't exceptional; this had been the case for at least 20 years. (Probably longer, but i haven't found any data on earlier periods.) It then shot up to 4 by the early 2000s, and reached 5.5 just before the crash, when it fell back down to 3 by about 2011. But then it started to rise again, and as of 2022 it was just below 5. That's a level reached only once before, in 2007, and it wasn't sustainable then.

It has to do with interest rates too. I remember in the 1980 interest rates were in the teens.

Yes, but interests rates change. I made the point earlier that someone who borrows €X at 12% is in a much happer situation, financially speaking, than someone who borrows €3X at 4%. They're both (intially) paying the same interest, but the second one has to repay three times as much principal over the life of the loan. Plus, the first one has huge scope to benefit from interest rate falls; the second has much more limited scope. Even with the higher interest rates, buying a home in the 80s was much easier than it is today.

Also, every western country- in fact every country probably in the world - has a problem building good quality houses for everyone. Houses are not cheap in the south of England, Paris, Sydney, or New York either.

Indeed. I'm not saying that housing affordability is a uniquely Irish problem.

Third, rightly or wrongly the government increased the spec of new houses big time since the 1980s. Much more insulation, compliance, double + triple glazing etc, so of course houses cost more. Plus wages and standards of living have gone up. I see tradesmen and builders now getting takeaway coffees 4 or 5 times a day now : in the 80's they had tea from a flask. And some tradespeople I know go on exotic holidays, unheard of uin the 80s.

Which comes back to the point made earlier. Takeaway coffee and foreign holidays are two of the things that are much, much cheaper today, relative to earnings, than they were in the 1980s. People are buying more of these, not because they are extravagant, but because these things are more affordable. There were things they bought much more of in teh 1980s than today, because (relative again to earnings) they were cheaper than today — tobacco, for instance.

Not at all. Not all homes are purchased with a mortgage. Many are purchased by people who don't need a mortgage — often, because they're financing the purchase with the sale of another property. So the proportion of borrowers who are first-time buyer is not at all the same thing as the proportion of buyers who are first-time buyers.

Most first-time buyers need a mortgage, but that's hardly a revolutionary insight. What your statistic shows is that many people who are trading homes need a mortgage to do so, to the point where 40% of mortgages are advanced to people who already own a home.

Couple of points:

First, your calculations assume that both loans pay the same interest throughout. But not only is that not a given; it's not even likely. Comparing the two borrowers, the 12% interest rate that the first one suffers is not a permanent feature of his loan, and is not likely to endure. But the €3X principal tha the second one suffers is permanent. Hence the unattractive feature of the 1980s house purchase market (high interest rates) is not really comparable with the unattractive feature of the current housing market (high prices); it's transient as opposed to permanent. That's why the people who did in fact take out mortgages at 1980s interest rates to buy houses profited hugely, as opposed to losing money, as your calculation suggests they should have done.

Secondly, your calculations assume that the house bought for €3X will appreciate at the same rate that the house bought for €X did. Not only is this not a given; it's wildly unlikely. Look at some of the factors that underpin the growth in house prices over the past generation:

• Substantial long term fall in mortgage rates
• Growth in buyers' borrowing capacity due to increase of women in the workforce, and therefore two-income mortgage applicants dominating the market
• Political rewards of stoking house price inflation

It is impossible that some of these factors will be replicated over the next generation (there isn't a third gender that we can bring into the workforce so that three-income households will dominate the market) and others seem unlikely to be (no government is going to adopt or pursue policies to drive house prices higher, relative to earnings, than they already are).

If we go back to the figures in the model that I set out in post #530 and expect the pattern of earnings increases and house price increases that occurred from 1997 to 2025 to be replicated from 2025 to 2053, then by 2053:

• a starter home will cost €997,000
• average earnings will be €128,800
• a first time buyer on average earnings will need a deposit of €482,400, representing 45 months of their gross earnings
• If they can manage to save 10% of their gross earnings each month, it will take them about 37 years and 6 months to save the deposit they need, by which time they will be too old to qualify for a mortgage.

Clearly, that's never going to happen. The housing market is irretreivably shattered long before we get to that point. Society, and the economy, simply cannot tolerate for another generation the kind of house price inflation that we have seen in the past generation. So someone buying a house today is absolutely not going to enjoy the same kind of appreciation, relative to earnings, that their parents did. Government policy is in fact likely to be focussed on ensuring that the value of housing does not appreciate faster than earnings, and if at all possible appreciates at a lower rate than earnings do. The only way for houses to be come more affordable is for the price of houses, relative to earnings, to fall.

So nobody should justify committing to the enormous cost of buying a house today with the expectation that, as an investment, it will perform like their parents' house did. It pretty definitely won't.

There has been a marked decline in home ownership at younger ages.

For the 25-34 year-old cohort:

• 1991: 62% owned their own home
• 2011: 42%
• 2016: 30%

Or, age at which more than half of people own their own home:

• 1991: 26 years
• 2002: 27 years
• 2006: 28 years
• 2011: 32 years
• 2016: 35 years
• 2022: 36 years

• Some of the change after 1991 can be accounted for by greater participation rates in higher education, and therefore later entry into the workforce. But mostly it's down to affordability issues.