Why is Ireland such an expensive place to live? The annual review from the National Competitiveness Council – published this week – may focus on the costs of doing business, but it also highlights the high cost of living.
Ireland is the fifth most expensive place to live in the EU, with prices here 13 per cent above the euro area average. We are in line with the Netherlands and Austria, and ahead of big players like France and Germany. Only Scandinavia, with its eye-watering cost of living, and tiny Luxembourg are more costly.
And for some these high costs lead to a real squeeze. Look at a couple in Dublin, renting a home and paying for childcare, and suddenly your cost of living here, relative to elsewhere, shoots up even higher. Dublin is the fifth most expensive cit y in the EU to live in, 18 per cent more expensive than Brussels.
While overall inflation here has been very low in recent years, meaning the general level of prices has edged closer to the euro zone norm, increases in rents have been way ahead of the average, while childcare costs have also risen steadily. For this part of the squeezed middle, things have been getting tighter.
There is no problem with high prices if you can “walk the walk”. If the economy is productive enough then companies can afford to pay relatively high wages. Luxembourg, built on financial services and, eh, secrecy, has the highest level of earnings in the world, so it is little wonder that prices there are above the norm.
Nouveau riche Ireland has a more diverse economy, and so we have affordability problems for significant numbers.
Everyone’s circumstances differ, but the competitiveness council for the first time includes a chapter on housing and childcare costs, and you don’t need to be a mathematical whizz to see the issues.
Rents averaging over €1,600 a month in Dublin could take 30 per cent of the after-tax income of a dual-earning couple, or not far off 40 per cent with one earner. Lower-income earners just cannot afford it at current costs.
Average earnings
The council points to OECD research which shows that the average net cost of childcare – counting in child benefit and other State supports – is around 28 per cent of average earnings compared to the EU average of 12 per cent.
Add this to housing costs, throw in a few household bills and grocery shopping and then you see many families priced out of living anywhere close to their work – and many others with not a lot left at the end of the month.
So while the council is correct that rising wages could hit competitiveness, the upward trend is still welcome. Rising corporate tax receipts, while boosted by multinational restructuring, suggest that many companies have the profits to afford to pay a bit more after a couple of years of bumper growth.
Now we are seeing this feed through to higher living standards for many, with pay rises outstripping the general rate of inflation of around 1 per cent.
But with regard to the key pressure points, things are still getting worse – rents are rising, childcare costs are on the up, and house price growth, while slowing, remains a factor in many areas.
Estonia is the only other EU country to be experiencing the same level of rental price increases, while recent house price growth here is matched only in the Netherlands, Slovenia and Portugal.
There is no one reason why we are a high-cost country. But there are a few obvious points beyond the clearest of all – the collapse in house-building during the crisis and the resulting chronic shortage of supply.
The council’s report identifies some of them – the cost of legal and other business services here are high. Few sectors have resisted reform more successfully than our legal sector. The cost of borrowing is higher for businesses as well as individuals. Insurance costs have moderated, but remain a key problem in some areas, notably public liability. This springs in part from our infamous “compo culture”.
Property people
And then there is the knotty problem of why building anything – an office, a house, a warehouse – is so high here. There is more than a suspicion that the interests of landowners and property interests continue to get priority, and that we went too far to attract in capital after the crash, which is now looking for its reward.
Dublin is now one of the most expensive cities in the world to build a prime office buildings. Land prices are high, and as we saw from the children’s hospital fiasco that a whole range of services firms lose no opportunity to increase their cut.
Prices can fall as well as rise when circumstances change. In car insurance, for example, where prices shot up in 2015/16, we are now back near the EU average after a drop in costs. A focus was put on this problem, and some progress was made even if problems remain.
From the point of view of both businesses and consumers, the same attention now needs to be applied to answer a few other questions.
Why are land and building prices here so high? Can we address some of the issues raised in the key area of childcare? And why does it still cost more to get a loan here – more than would seem to be justified by different lending and security practices here?
These issues are important not only for consumers, but also for businesses competing internationally.
We can let this drag on, and greet the annual report from the competitiveness council with the usual raised eyebrows.
Or we can pick a couple of sectors, and actually try to do something about it.