What is the Irish equivalent of avocado on toast for brunch? A daily diet of cappuccinos maybe? Or a satellite-TV subscription? Or a night out every Friday?
A storm was set off in Australia recently by an opinion column saying that if millennials were serious about saving for a house, they shouldn't be spending 22 Australian dollars (about €15.40) a pop on a brunch of smashed avocado with crumbled feta on five-grain toasted bread. Columnist Bernard Salt, writing in the Australian newspaper, said that, as a middle-aged person with grown-up children, he could afford it. But he wondered how millennials found the cash.
“How can young people afford to eat like this? Shouldn’t they be economising by eating at home? How often are they eating out? Twenty-two dollars several times a week could go towards a deposit on a house,” Salt wrote.
Cue the expected attack on social media and elsewhere, where it was pointed out that it would take more than 9,000 brunches to save a 20 per cent deposit on a typical house in Sydney, which now costs a whopping one million Australian dollars, or just under €700,000.
The ire of the millennial was perhaps best expressed in the Guardian by the columnist Brigid Delaney, who wrote : "Brunch is the opiate of the masses. We are not going out for brunch instead of buying houses: we are brunching because we cannot afford to buy houses."
Many Irish millennials faces the same dilemma. To save the €50,000-plus deposit that would be needed on an average new home in Dublin would involve forgoing 4,000 portions of the grilled zucchini, mushroom, red pepper and halloumi cheese on ciabatta that features on the menu of one Dublin eating house. Or more than 16,000 cappuccinos at €3 a pop. Or 138 years of the cheapest satellite-TV subscription that I can find.
At a more serious level, it is clear that buying a house remains a stretch too far for many, though by no means all. A study by the National Competitiveness Council (NCC), which crunched a range of house price and income data, indicated that only two cities out of 12 studied – London and Amsterdam – were less affordable for borrowers than Dublin. Also, the NCC noted: " Affordability is increasingly challenging for renters who aspire to purchase and must save a significant deposit while paying relatively high rents."
As with most arguments, this one is not black-and-white. A dual-income couple looking to buy a house in rural Ireland should not face insurmountable problems. Their biggest difficulty may be be saving the deposit.
A single-income low-to-middle-earning employee in Dublin, on the other hand, faces big barriers not only in terms of saving the deposit but also in making the necessary mortgage repayments. The savings bit becomes particularly hard if the single person is renting rather than still living in the family home.
An affordability index published by consultants DKM and the EBS building society shows that repayments for a single housebuyer averaged more than 50 per cent of net income during the height of the boom in 2006, but is still not far off 40 per cent, based on a modest enough mortgage of around €180,000. You could argue about what is sustainable, but touching 40 per cent of net income clearly isn’t, no matter how many brunches you forgo.
For a couple earning a total of €72,000 a year, the average mortgage on a Dublin property comes in at a more manageable figure of a little more than 20 per cent, assuming a mortgage of around €210,000. But, depending on their circumstances, many also face a tight financial outlook.
The Government has tried to address this through its help-to-buy scheme, which is designed to help people over the hurdle of saving the deposit by allowing them to claim an income tax refund. The real risk of this at a time of constrained supply is that it will push prices higher by, for some, effectively finding a way around the Central Bank mortgage lending rules.
Of course, one key to addressing this is a greater supply of housing. There has been a lot of talk about this – and some action – but it will take time to bring more houses on stream. And there are dangers in the meantime
There are other ways that the Government could help younger households too. One is by lowering income taxes, particular the high tax hit on relatively low incomes. The second is trying to make progress on the twin insurance bills – health and motor – which have a huge impact on household budgets. And the third is doing everything possible to beat the banks into reducing mortgage rates, which have fallen, but, at 3.7 per cent for the average new loan, are still well above euro-zone rates of less than 2 per cent.
All of these factors, together with high childcare costs, mean the housebuying sums just don’t add up for many first-time buyers. These problems, of course, are the kind of messy structural issues that governments everywhere find hard to address. Instead, “ the scheme” is the easy solution.
But more trouble may be on the way. With low vacancy rates and housing supply remaining very constrained, Savills economist Dr John McCartney estimated this week that the cost of renting could increase by as much as 25 per cent over the next two years. This will increase the squeeze further on those renting, and make it impossible for many to save a deposit. With average monthly Dublin rents already more than €1,200, forgoing the brunches and cappuccinos may become essential just to survive, never mind buy a house.
New housing supply would help to address this eventually, but the millennial squeeze could take a heavy toll in the meantime.