Counting the costs for Generation Rent

The benefits of higher incomes are being cancelled out by Ireland’s spiralling cost of living and housing is the biggest culprit, writes Cormac Lucey

Once in a while, you come across information that forces you to fundamentally reconsider a firmly held viewpoint. This happened to me recently.

Ireland’s economic history over the last four decades has been one of spectacular growth. 

The first stirrings that the recent performance of the Republic’s economy might fall short of spectacular success came in an article written two years ago by Patrick Honohan, titled: ‘Is Ireland really the most prosperous country in Europe?’

Take a look at Gross Domestic Product (GDP) figures and you might think so, but they have long been dismissed as an accurate measure of the output that is actually under the ownership and control of Irish people and entities.
 
That’s why the Central Statistics Office (CSO) gathered a group of expert economists to compile a more realistic alternative measure of Irish economic output. In late 2016, the CSO unveiled modified Gross National Income (GNI). 

Honohan’s article questioned whether we—having lost faith in GDP as an accurate measure of Irish output—should put all our trust in this new GNI measure. 

The former governor of the Central Bank of Ireland highlighted the impact Ireland’s extraordinarily high cost levels have in reducing the purchasing power of people with higher incomes. 

According to Eurostat, the EU’s statistics agency, cost levels in Ireland were 41.4 percent higher than the EU average at the end of 2021. Most of Ireland’s higher cost level is the result of higher housing costs. 

Comparing Irish GNI per capita data to EU GDP per capita data, Honohan showed that Ireland was the eighth richest EU member state in income terms. Using Actual Individual Consumption at Purchasing Power Parities, however, put us in 12th place. 

In other words, recent economic growth has seen strong income growth, but an awful lot of this has been eaten up by higher costs, especially higher housing costs. 

That paper caused a tremor in my rosy view of Ireland’s economic performance over the last few decades. 

That tremor became an earthquake when I considered the more recent assertion by Holly Cairns TD, the new leader of the Social Democrats, that she was “a member of the first ever generation” that would be worse off than their parents. 

I examined Actual Individual Consumption levels per head adjusted for inflation to test whether, in real terms, people today are worse off than a generation (or 25 years) ago. 

The data contradicts Cairns’ assertion. It shows that, in 2020, peoples’ real consumption levels (including housing) were 87 percent higher than in 1995. Far from being worse off, people today are nearly twice as well off compared to a generation ago. 

It was only when I examined Eurostat data, comparing Ireland’s Actual Individual Consumption (AIC) level with that of the EU (27) average, that I got an unpleasant surprise. 

Between 1995 and 2007, this rose from 96 percent to 118 percent. Three quarters of a century of economic underperformance by the independent Irish state was triumphantly reversed. 

The Celtic Tiger was followed by the crash, however. This saw income levels drop and consumption levels fall even more sharply as Ireland switched into deleveraging mode. 

Between 2007 and 2021, real Irish AIC as a percentage of EU levels fell from 118 per cent to just 88 percent. We are further behind than we were in 1995.

Our economic development model promotes substantial immigration through the mechanisms of EU membership, substantial foreign direct investment and large refugee numbers. 

Between 2012 and 2022, the population of Ireland grew by 10.3 percent while that of the EU 27 grew by just 1.4 percent. 

Add in a hopeless Department of Housing and you get a housing crisis that is getting worse, not better. This benefits older property-owning generations but disadvantages younger, non-property owners. 

No wonder Holly Cairns and Generation Rent are left so exasperated when Official Ireland celebrates its economic success.