Generation Rent? Try generation Broke

It bothers me when people promote long-term renting as a better choice than home ownership because it belies some basic facts.

When I was studying accounting, I was taught to be accurate. When I was learning about financial advice, I was taught to be prudent. Yet both of these concerns are often cast aside when debating the benefits of buying versus renting.

Nationally we are at an important juncture. It’s acknowledged that huge numbers of people won’t be able to afford to buy a home. If this proves to be true, many will also be locked out of one of life’s most wealth-creating activities.

The first problem is the nature of the comparison. If rent is €1,300 a month and a mortgage costs €1,500, then it’s cheaper to rent, right? Well . . . no it isn’t. The outlay is less, but the actual cost of the provision of occupancy is the rent versus the interest portion of the mortgage, not the entire payment. I will explain that point.

People often say rent is dead money. To be fair, so …

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TodayFM: The last Word features Irish Mortgage Brokers

Matt Cooper had Irish Mortgage Brokers on ‘The Last Word’ to discuss some changes announced by Simon Coveney regarding rent controls in Dublin and Cork.

The piece focused on some of the issues at hand with a commentator from the Dublin Tenants Association also taking part.

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Irish Times mentions Irish Mortgage Brokers: Why is there a housing shortage?

We were featured in today’s Irish Times on an article by Barry McCall asking ‘why do we have housing shortages’.

Our contribution is as follows: Karl Deeter of Irish Mortgage Brokers believes this is part of a global trend. “The mega-trend is that we are now living in a low-yield world,” he says. “Central banks are being forced to play both sides of the same table. Low interest rates cause asset prices to rise and the Central Bank is curtailing credit to prevent asset price rises. But there is an upward pressure on house prices despite this and it has been compounded by the earlier economic collapse which has led to supply disruption. These are trends that are bigger than any of us.”

While the Central Bank rules are undoubtedly playing a part in the problem, Deeter sees supply as equally, if not more, important and one factor here is planning laws. “Ireland has a particular problem when it comes to third-party property rights,” he argues. “Planning applications for housing developments are being turned down in areas where …

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Even supply doesn’t fix a supply issue.

Housing is confounding, we are at a frustrating juncture where after a massive property crash brought about in part by a glut of housing we now have the opposite situation of a housing shortage in many areas.

Solutions abound, but no matter what happens this shortage is going to persist due to the time it takes to deliver housing and even if we announced a shovel ready, commencing tomorrow plan for 25,000 houses in cities the shortage would persist for at least another two years.

When you see various commentators saying what will or won’t work it’s almost arbitrary because nothing works in the short term, the main ingredient required to fix this is time.

Housing grants to first time buyers may push up prices, even if they don’t it doesn’t of itself create supply today. Many of the proposals will serve one side of a transaction without affecting price.

If we got rid of VAT would house prices drop? Or would developers merely pocket the additional income because of the fact that a price set during a shortage becomes …

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Newstalk: Pat Kenny show features Irish Mortgage Brokers

The Pat Kenny Show on Newstalk had Karl Deeter in studio to discuss the property market today. We tried to make the point that there are several issues in the market making a tricky situation even harder to navigate, but that double sided approaches by the Central Bank (loose monetary policy and low interest rates) are helping to drive prices up while other rules are attempting to restrict credit.

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The unaffordability index of Irish housing

This picture speaks a thousand words and in many cases tens of thousands of earnings that a person would have to have in order to afford an average home in different parts of the country. We used recent data from the Daft report and then broke it down into borrowings and compared that to average wages.

The column after ‘county’ is the average price in that region. If we assume a first time buyer will typically want a 90% mortgage we then look at the amount of earnings they’d need to have in order to get the loan.

The last column is where the real story lies, it compares prices in the area to average wages taken from the CSO.

Anything in a white cell with a minus is very affordable, anything in black means you’d have to be earning above average wage to buy a property in the area.

If the cell has a red background that is showing you where the difference is greater than €10,000.

It’s fairly clear that cities and in some cases …

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Today FM: The last word, Matt Cooper talks to Karl Deeter & Ruth Coppinger

Karl Deeter was on Today FM’s ‘The Last Word’ with Matt Cooper to discuss proposals by TD Ruth Coppinger to break the law if you are at risk of eviction.

Our view is that the law should be honoured and that to suggest breaking the law ought to be way down the list of suggestions for people with housing difficulties. It would make far more sense to speak to the Department of Social Protection and to use the services and protections that we have set up as a society rather than to take the law into your own hands.

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The cost of turfing out tenants

It is often assumed that landlords don’t want to give people long leases preferring to see people leave and obtain a rent increase where possible. This belief doesn’t factor in several concerns, firstly is that rents are not always rising, that moving is an inconvenience to both tenant and landlord and that there are some hard costs to factor in.

For this reason we created a small basic calculation to show that in many cases the recouping costs equate to more than a months rent and that a landlord would have to increase rents by about 12% to break even.

The other thing that happens is the landlord takes on a new risk of an unknown tenant, good tenants are like good credit applicants, they often don’t pay top rates because of their past performance, a new person might be habitually late, break more, or be more high maintenance.

This is yet another reason that shows the benefit of a long lease to a landlord, equally the tenant also benefits by having the protections of a …

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Rent control Europe: France

Population: 66,689,000 GDP: $2,829,192,039,172 Avg. Weekly Earnings: €1,128.44 Avg. Apartment Price (Per. Sq. M.): €13,639.00 For 120-sq. m. apartment in city centre (Paris) Avg. Monthly Rent: €848.59

France boasts the second largest economy in the European Union, and alongside their German counterparts, are responsible for a major portion of the fiscal policy introduced by the Eurozone nations. French legislation is also among the most pro-tenant in the world, and this is coupled with the policies introduced by Francois Hollande, the French Socialist President, which target the wealthy.

Currently, France is faced with housing shortages of record proportions; despite government subsidies and tax cuts incentivising construction of rental properties, household investment is at its lowest point since mid-1999. This lack of investment puts additional stress on companies and consumers to create growth, and spur the recovery forward. Paris in particular is a popular destination for foreign investors, which has caused local legislation intended to curtail this absentee ownership. These housing regulations have made the situation worse, with additional restrictions on rents decreasing investor interest in the area.

There also exists considerable …

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Rent control Europe: Finland

Population: 5,488,543 GDP: $237,111,000,000 Avg. Weekly Earnings: €575.00 Avg. Apartment Price (Per. Sq. M.): €6,214.00 For 120-sq. m. apartment in city centre Avg. Monthly Rent: €887.30

Our second foray into the Nordic countries takes us to Finland; similarly to Sweden, Denmark, and Norway, the Finnish economy enjoyed unprecedented growth from 1999, when it joined the European Union’s single currency, until the recession in 2008. In comparison with the rest of the Eurozone, Finland’s recovery has been strong; in 2012, the public debt in Finland was estimated at 50% of GDP, significantly lower than the beleaguered Germans, for whom public debt was 80% of GDP.

Measured differently, however, the Finnish recovery is less impressive. In Q2 2012, the Finnish GDP dropped by 1%, whereas its nearby neighbour Sweden enjoyed an increase of 1.4% in the same period. In the same year, the Swedish government ran an account surplus of 7% of GDP, whereas the Finnish government operated its first deficit since 1993.

The differences between Sweden and Finland extend to their handling of property: while Sweden is staunchly pro-tenant, the practices …

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