Long-term pension funds are at risk with the aging population and increases in the rental market. The aging population is going to dry up pension funds because there will not be enough younger people to payoff older generations pension funds. Additionally, the expanding rental market will cause long-term retirees having trouble sustaining a comfortable lifestyle. Renting can be a great solution in the short term if someone is young, temporary, etc. However, not owning a home and having your mortgage paid off when you reach retirement ages can cause a lot of stress.
Cuckoo funds are contributing to this problem by spending approximately €2 billion on buying thousands of apartments and still have about €6 billion left to invest in the housing market according to global real estate advisor CBRE. Many consider Dublin to be one of Europe’s top markets for large, global funds to invest in.
There has been a dramatic shift from investing in Ireland’s commercial to residential property. In the first half of 2019, about 40% of commercial property investment is now being used for the residential market. Many experts are worried that the government has not considered the long-term effects of what a rental market would look like. More importantly, how this would shape pensions.
Assistant Professor Orla Hegarty, a housing expert from UCD’s School of Architecture, Planning and Environmental Policy, stated, “Our whole pension system relies on the fact that it used to be that 70% of people bought their own home and by the time they came to retirement they didn’t have to pay any housing costs so their pension just needed to cover their day-to-day expenses.” These large funds are paying more for large sites than what a local buyer would pay causing rising housing costs.
These large funds get their nickname ‘cuckoo funds’ because they buy up blocks of rental investment properties that could otherwise be bought by home owners. Critics of these funds site low tax rates for investors and low tenancy protection laws as being the reason for the large attraction of funds to Ireland. These two problems need to be addressed to decrease the number of funds driving up prices and shifting the economy towards renting.
These cuckoo funds will deliver houses quickly, but they will be more suitable for singles/couples and not families. The highest return is usually building smaller one- or two-bedroom studios verse large family homes. Additionally, there will be no park or playground area on the premise for kids. Ireland is lacking affordable family sized homes which are not as profitable for large funds.