Irish Housing and Wages, 1977 to 2006: Portrait of a Scam


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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.]


14 Responses

  1. Charlie

    June 9, 2010 5:22 am

    The capitalists don’t only want to own as much money as possible, they want to own us! So they can – at the end – do whatever they want (with us).

  2. Small Girl

    June 9, 2010 9:58 am

    Ref tax breaks 1997, I’ve heard a few people around me saying that Section 23 has ruined this country. In 1997, Section 23 was introduced in the Taxes Consolidation Act and it was an incentive for rented residential property in a tax incentive area. I think that a good few middle-aged people (electricians, plumbers, ITers etc) who were working hard and had extra income bought a Section 23 not because they imagined themselves building a property portfolio, they bought a second property as their pension. And they did this because government encouraged them to. So they too, along with the first time buyers who got 100% mortgages, are paying the price. You’re right Conor, that’s not development, that’s theft.

  3. Conor McCabe

    June 9, 2010 1:01 pm

    Thanks for the comment, small girl. I think that if we try to make sense of all of this with supply and demand, we will fail each time. And this is because supply and demand – that somehow the buyers can help us explain all of this this – does not factor in the massive, state-sponsored speculation which occurred not only when McCreevy got to the Dept. of Finance of course, but which really hit the stratosphere once he took up that portfolio. and section 23 is part of that, no doubt.

    But, home mortgage market doesn’t explain commercial property speculation, although they are linked by the availability of cheap money. How much of NAMA is commercial property? Middle-aged teachers and guards buying pension homes don’t even come close to explaining the Ringsend Bottle Plant fiasco.

    These worlds are not hermetically sealed, they are linked, but the link is the credit markets and the change in the production of credit and, indeed, currency, since the early 1990s which took place internationally. I think one of the last comments of our former financial regulator before he was decommissioned was that as long as the money is available on the international markets for Irish banks to buy, there is no credit/debit problem in Ireland.

    I think we should always keep our eye on the credit itself, where it was coming from, how it was disseminated in Ireland, and to whose benefit. It’s what I’m trying to do anyway.

  4. Charlie

    June 9, 2010 6:57 pm

    Yous guys forgetting that capitalism – or call it “free market system” – is not only based on supply and demand. It is also based on depts. Every Euro currency generates also a growing amount of debts. On the one hand there is the money which wants to reproduce and enhance its power (possession). On the other hand there is a growing demand of money from the “real” economy to keep things going and to grow. Put that together and you’ll get the answer to your question. The capitalist system – as unsustainable as it is – is condemned to collapse from time to time, that’s its nature. Only the damage caused by that will grow every time as we’re desaling with more and more money (virtual values). And I personally believe that the intermissions between these downturns will become shorter and shorter.

  5. Conor McCabe

    June 9, 2010 7:01 pm

    Yeah, that bit in my last comment where I talk about the importance of credit and credit markets in understanding what is going on, and in the post where I say how debt is a form of theft, that must be where I forgot that capitalism “is also based on depts (sic)” but sure thanks for the lesson anyway. Much appreciated.

  6. Charlie

    June 9, 2010 7:13 pm

    😉 That’s why it’s called capitalism.
    On the one hand the capital hungry to reproduce and enhance influence. On the other hand an economy – more or less producing supply AND demand – which can only grow, or even survive, in making more depts.

  7. Small Girl

    June 10, 2010 10:36 am

    Hmm Charlie, it always seems to me that reducing everything down to ‘ah shur that’s capitalism for you’ doesn’t help me to understand our now a bit better.

    Excuse my rambling for a bit, I can’t seem to help it! Accepting that we live, whether we like it or not, within phases of capitalism, I don’t think it’s useless to look at how capitalism governs people and how people should try and govern capitalism. For instance, during the capitalist phase called Keynesism regulation kept the capitalist momentum from spiralling out of control, and you could say that was better for people because there was better (not brilliant) redistribution. How? Through taxation on the profit makers. So Keynesism is capitalism but it’s important to look at taxation which controls it.

    Then the rules changed with the Washington Consensus and we ended up with neo-liberalism and here we are today with a multitude of social and environmental disasters across the world. When it comes to the rules of society or the social contract some people like it the way it is, some would like uncorrupt socialism, and most people don’t think about the system but they would like stability and a fairer distribution of wealth. So a trade off middleground (while we’re waiting on the revolution) might be through taxation on financial transactions (which create the virtual values of credit) like the Tobin Tax which was shafted in favour of the Basel II process ie. corporate social responsibility. Capitalists policing themselves was never going to work. Keynesism wasn’t perfect, it didn’t reject capitalism but it did regulate it. So taxation is important.

    To link that to the national level, you might think that individuals paying more tax is not a good idea but to understand how taxation provides for people you need to look at how it is gathered and how it is spent on housing, medical care, care for children and the elderly, education etc. The Irish government spent money on creating a housing bubble which was to create a bouyant economy and this was meant to trickle down to all and sundry. That is not the same as providing housing. Now the Irish government is spending money on the banking abyss. This is a failure of the system and as you say Charlie the system is designed to fail intermittently but for me it’s also a failure of the nation state which should and can regulate within its borders. So it’s not just about the system and credit and debt, it’s also about how the state should act in ‘the national interest’ in regulating this. And what Conor’s article does is to provide a link between capitalism proper and housing in Ireland.

    I think it’s important to separate the big system from national governance, am I bonkers? What do you think Charlie? Maybe you have a different take on that.

  8. Conor McCabe

    June 12, 2010 2:17 pm

    Small Girl, I’m reading Frank Mcdonald and Kathy Sheridan’s book, The Builders at the moment. Just came across a passage that you might find interesting.

    “The biggest loophole of all was Section 23, a tax break first introduced in the 1981 Finance Act with the purpose of reviving the construction industry. Initially the measure could be applied to any qualifying residential property; from 1992 it was applicable only in areas designated for urban renewal under the regime established by the 1986 Urban Renewal Act. Section 23 allowed investors to write off all but the site costs of an apartment against their total rental income in the first year, including rents from other properties owned, with any unused tax relief being carried forward indefinitely. After a slow start, Section 23 eventually became one of the main drivers of development, with investors often snapping up the lion’s share of new housing schemes. And, if this wasn’t enough to keep the developers happy, further tax-breaks were made available over the years for multi-storey car parks, holiday homes in jaded seaside resorts, hotels anywhere and everywhere, and student accommodation. In most cases, these incentives meant that the capital cost of qualifying new developments could be written off against an investor’s tax liability over a 10-year period. What’s more, anyone leasing office or retail space in a designated area got tax allowances equivalent to double their annual rent bill and didn’t have to pay a penny in commercial rates for 10 years.

    The incentives – some of which were eliminated or amended following publication of the Bacon Report on residential housing in 1998, and others, subsequently by Brian Cowen, who took a more jaundiced view of them than McCreevy – had nothing to do with aiding the frequently invoked ‘first-time buyer.’ ‘The government was quite disingenuous, harping on about the first-time buyer,’ says an insider, ‘when it was simply aiding and abetting what the builders were doing. Because the legislation they brought in was pitched at the new homes market, it allowed all of that building to go on unchecked.’ By making it cheaper to operate as a landlord, the tax incentives actually hurt prospective first-time owner-occupiers by attracting investors into the market; developers could charge a premium of up to €100,000 on apartments in Dublin city centre, for example, compared to similar units that didn’t have tax-relief designation.” (pp.5-6)

  9. Small Girl

    June 14, 2010 11:14 am

    Thanks for this Conor, I didn’t realise Section 23 was introduced so early. Have you noticed that we, including myself, don’t even talk about homes anymore, just housing.

  10. Donagh

    June 17, 2010 11:09 am

    I’m reading Frank Mcdonald and Kathy Sheridan’s book, The Builders at the moment. Just came across a passage that you might find interesting.

    “The biggest loophole of all was Section 23

    Frank McDonald goes into this in his Irish Times Op-Ed today:

    The juiciest of these reliefs was the Section 23 tax incentive scheme, first introduced in 1981 when the building industry needed a boost. Under this highly popular scheme, buy-to-let investors could write off all but the site cost of an apartment or town house against their total rental income in the first year – including rents from other properties – with any unused tax relief being carried forward indefinitely.

    Although the measures taken on foot of Bacon’s first report slowed down the rise in property prices – principally by curbing the speculative frenzy among Section 23 investors – they didn’t solve the problem. So Bacon was commissioned to do two further reports, published in April 1999 and June 2000, which recommended further squeezing investors with some relief for tenants facing big increases in rent.

    Then, in 2001, when the residential property market was showing real signs of stabilising, Charlie “When I have it, I spend it” McCreevy buckled under intense pressure from builders, developers, estate agents and the growing army of buy-to-let investors, executing what his predecessor as minister for finance, Labour’s Ruairí Quinn, described at the time as a “spectacular U-turn”.

    Stamp duty for investors was cut and an annual tax rate equivalent to 2 per cent of the value of second and subsequent properties proposed by Bacon was not implemented. In response to Quinn’s taunt that the government had “capitulated to the moneyed interests”, then taoiseach Bertie Ahern claimed that it was doing this “to maintain the supply side and the number of first-time buyers”.

    Even more significantly, McCreevy reinstated as a tax-deductible expense loan interest payments by investors – reversing a decision taken on foot of Bacon’s first report. This was hailed by Liam Connellan, then director general of the Construction Industry Federation, who said it would make investment in residential property as attractive an option as investment in commercial property.