How affordable is housing for trainee Chartered Accountants?

Mar 01, 2019
Housing remains an issue all over the country. So much so, even trainee professionals can struggle to get on the property ladder. Annette Hughes, Director at EY-DKM Economic Advisory, examines why this is the case and what should be done about it.

Housing remains top of the political agenda for the sixth year in a row in 2019. These housing challenges are wide-ranging, not least for those working and studying in our major cities. Recent headlines announcing the first signs of a slight slowdown in house prices and rents will be most welcome for the many first-time buyers (FTBs) who were keen to do so in the decade since the recession. The emergence of the crisis in the private-rented sector has led to rents by end-2018 being 14% above where they had been at the height of the Celtic Tiger years in 2007, according to RTB Rent Index.

The most recent data from the CSO for November 2018 showed the first monthly decline in residential property prices since the end of 2016. By December, the annual rate of house price inflation had moderated  to 6.5% nationally and to 3.8% in Dublin. Average house prices for FTBs were €366,000 in Dublin and €209,000 in the rest of the country. Soaring rents, according to daft.ie, have shown the first signs of slowing, with annual rent inflation reported at 9.8% by the end of 2018, while average monthly rents nationally were €1,347 and €2,029 in Dublin city. 

Like most of the younger demographic studying and working, the rising cost of accommodation over recent years will be uppermost in the minds of Chartered Accountants Ireland students. As a profession, accountants are an invaluable asset in any economy, working across a vast range of roles in businesses, the public sector and academia, with approximately 5570 students nationally, including circa 2160 in Dublin, currently training to be a Chartered Accountant. 

Affordability

Recently, EY-DKM carried out an analysis of affordability for students involved in a structured programme, along with newly qualified accountants, to ascertain the cost of buying and renting. The average salary for each individual is based on salary surveys undertaken by Chartered Accountants Ireland and irishjobs.ie, with lower salaries for those working outside of Dublin.

The analysis examines the maximum priced property that could be purchased based on two people on the same income seeking a mortgage using the Central Bank rules which set a loan-to-income (LTI) ratio of three and a half times, and a loan-to-value ratio of 90%. The deposit on the house is the last 10% but, given their income levels and limited participation in the workforce, this is likely to be challenge for young workers. The proportion of net income required to fund mortgage repayments is calculated and these proportions are compared with the cost of rent for an individual at each stage, based on the assumption that the individual is sharing the accommodation and pays 40% of the average monthly rent as a first-year trainee, 45% as a final-year trainee, 60% as a newly qualified accountant and 75% of the total monthly rent after working for five years. 

analysis-march-2019

The results are summarised in the analysis above. In regard to house purchase, it is clear that as the average salary increases, the maximum property price based on loan-to-income multiples and two earners increases by around twofold between the first year in training and becoming qualified. However, the deposit required is equivalent to almost 80% of an individual’s salary in each case (40% for a couple), which makes the option of purchasing a property an impossibility, at least until working for a period of five years. 

In this instance, the only alternative, apart from those who have the option to live at home, is the private rented sector. Based on current rents and the assumptions outlined above, rent consumes between 35% and 42% of an individual’s net income in Dublin. The corresponding proportions are substantially lower outside Dublin at around 21% to 26%. With rents above 40% of net income (30% of gross income), it is no surprise that it is most unaffordable for trainee accountants in the Dublin area.  
 
Over recent years, Dublin has been ratcheting up the rankings in a number of cost of living surveys of major cities, mostly to do with our accommodation crisis. According to a 2018 survey by Mercer, Dublin moved up 34 places in the global rankings from 66th to 32nd position to claim the top eurozone spot from Paris. While a range of policies have been put in place and are beginning to deliver new supply, there needs to be a concerted move with respect to policy to find ways to reduce the cost of building, thereby ensuring better viability for delivering new, much needed supply in city centres. This alone would go a long way to helping the housing affordability issue for many potential  first-time buyers.