There’s a comment often bandied about when it comes to housing in Ireland: ‘our parents got through it, so can we.’
Well, our parents didn’t get through this, because our parents never faced what Ireland is facing now – at least in terms of housing debt.
The sheer level of theft which has taken place – and I’m not even talking about NAMA – is completely unprecedented.
The tsunami of debt which is the Irish mortgage market has yet to hit us, but when it does there will be very few cards on the table as the government played most of them in setting up NAMA in order to save the architects of this Celtic Babel.
And this was orchestrated. Note the date when things really go crazy, i.e. just after 1997 and just after Fianna Fáil gain power.
Best practise has house prices at 2.5 to 4 times the average industrial wage.
Once this ratio is broken, we’re into bubble territory.
The CSO lists the Average Industrial Wage back to 1977 for those in the manufacture of transportable goods.
Taking that as the base wage, and taking the average price of a house as the average between the price of new and second/hand houses, we get the figures above, and the affordability ratio below.
It shows us that apart from the recession years of the mid-1980s, housing in Ireland has been overpriced for the past 33 years.
However, it only goes completely nuts after 1997, when Charlie McCreevy is made Minister for Finance and implements the various tax breaks and incentives as outlined here.
The figures belie the current myth of the ‘Good’ Celtic Tiger which ran up to around 2002, and the ‘Bad’ Celtic tiger which ran from 2002 to 2007.
In 1979, on the cusp of Ireland’s last major recession, the house affordability ratio breached 5.0.
In 1997, house prices once again breached 5.0, and just kept on climbing.
By the time the ‘Good’ Tiger ended in 2002, the affordability ratio stood at 8.17. In 2007, at the end of the ‘Bad’ Tiger, it stood at over 11.
And these figures for affordability are based on the average industrial wage (transportable goods).
In 2006, when that yearly wage was, gross, €30,000 Euro, the median income in Ireland was €25,000, and 2/3 of ALL incomes were below €30,000.
It is hard to know what will be left of the Irish economy once this government leaves office.
[House prices going back to 1975, adjusted to Euro, are available here.
The Average Industrial Wage(Transportable Goods) for years 1977 to 2006 is available in the yearly Statistical Abstract/Yearbook of Ireland, published by the CSO.]
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