February 21, 2005
Luxury apartments went on sale in Dun Laoghaire in Dublin last week, and punters queued up overnight to buy them. This reasonably common occurrence has been repeated all over the country for the past ten years.
However, last week’s episode was different. Instead of first-time buyers camping out in sleeping-bags, 50 and 60-somethings queued in orderly lines exchanging pleasantries before handing over deposits to salesmen half their age.
Meet the down-traders – Ireland’s accidental millionaires and the new darlings of the property market.
These are the 1960s and 1970s radicals who railed against the bishops, flirted with Provo-chic, secretly suspected Eddie Gallagher was good in bed and, at the same time, supported to the hilt that most anti-republican statesman, Garret FitzGerald. Today, they have – more or less unwittingly – become enormously asset-rich on the back of the property boom.
Having climbed their way up the corporate ladder, paid expensive school-fees and kept the entire grind industry alive through the dark days of the 1980s and early 1990s, they are now trading down.
They are moving from their five-bedroomed family homes to large apartments with teak balconies, neat steel and glass kitchens and grey-slate wet rooms.
The down-traders are the richest Irish people ever. Like their mascot, the frisky, ever-youthful Mick Jagger, they are in good shape. With the help of healthy diets, a bit of exercise and the Blackrock Clinic, Ireland’s Jagger generation should live into their 80s.
Many of these people in their late 50s and early 60s have a lifestyle that they realise will not be sustained by their pensions. It’s expensive to run a Lexus, play two rounds of golf a week, take a winter week in the sun and top up young Rachel’s extortionate mortgage payments, particularly as her loser boyfriend keeps getting fired from techie jobs.
Down-traders will comprise one of the most influential sectors of the property market in the years to come. Not for them the tiny two-bed apartments of the re-gentrified inner city. They want big spaces, preferably with a nautical feel – smoked glass porthole loo windows at the very minimum. Down-traders want a smaller version of their big family house because, despite becoming accidental millionaires, they still display the tell-tale signs of their generation: they are hoarders.
So they have kept everything from Ann’s communion photos and Gerry’s graduation parchment to photos of Rachel’s debs in Jurys (when Jurys was Jurys mind you) and Michael’s rugby medals.
They need at least two guest bedrooms (useful if any of their children divorce), at least two loos in addition to the en suite, a walk-in dressing room and lots of storage.
Typically, down-traders will splash out close to 60 per cent of the cost of their old house on the new gaff and will pick up a winter place in the Algarve – along with the rest of Booterstown.
Summers in Dublin: mornings on the golf course, lunch in Roly’s, a few afternoon G&Ts followed by a snooze and dinner with a decent New World bottle or two later.
Winters in Quinta do somewhere or other: short-sleeved golf in the mornings, with other Irish down-traders, followed by a swim, a light lunch and a siesta and then off down the town for al fresco bacalhau, washed down with a fresh vinho verde.
Down-traders are the first Irish leisured class, a class that has existed in other western countries for some time.
In Britain, early Victorian industrialists and imperial adventurers emerged in the late 19th century and swanned around Europe on grand tours. A little bit later, the fruits of the more vigorous German industrial spurt were the health tourists at the great European spa towns of Baden Baden and Karlovy Vary.
In America, where the leisured classes have been written about and documented extensively from F Scott Fitzgerald’s Great Gatsby to Thorstein Veblin’s The Theory of the Leisured Classes, places like Martha’s Vineyard, Kennebunkport and Shelter Island are synonymous with a class living off profits from stocks or property. Now Ireland has caught up.
There are some 600,000 people in Ireland between the ages of 50 and 65. Given the extremely high home ownership in this group, it is fair to say that many have considerable property-based wealth after ten years of the boom. Until recently, it was argued that this wealth did not mean much as they couldn’t sell their houses because they had to live somewhere. So in effect the wealth was tied up.
Now that argument is less persuasive as builders and developers are filling a gap in the market, realising that the new market is grey and, as their children are moving out, these people want to downsize. Over the next ten years this trend will accelerate. The strongest growth in our population will be in the 30-something age group, which implies massive flight from suburban 1960s and 1970s homes. More and more parents will be left alone in their big empty suburban houses and will be tempted to trade down.
In the US and Canada, this development is known as ï¿½condo craze’ and is marked by a huge demand for condominiums catering for the over-50s. It is highly likely that this will be repeated in Ireland.
However, if we are getting older more slowly, who is going to pay for us in our now-prolonged dotage? How much are you putting aside today for your retirement? Apart from your house, what do you have? Will that be enough? Who are you saving with, and how? Have you a ï¿½pay as you go’ï¿½ pension, or are you actively trying to manage your own wealth?
Common sense suggests that no one looks after your money better than yourself. For example, in 1620 the original Pilgrim Fathers tried to hold land on a communal ownership basis, but crops were not tended well and famine threatened the settlement. In 1623 they reverted to small privately-owned plots. As a result, yields soared and soon they were trading wheat for meat with the local Indians.
The moral of the story is that people look after stuff that they own better. Conversely, when you give your stuff to someone else, it is unlikely that they will nurture it as you would yourself. Ownership matters and nowhere is this more evident than in the pensions industry. In Ireland, we have a perverted system where you earn the cash and you give it to someone else to manage (or mismanage as the case may be). It is called the pensions industry and it is shorthand for the financial tyranny of the so-called experts.
In recent years, the government has tried to change this by introducing innovative and important legislation governing self-administered pensions for the self-employed. Lately there have been rumours that Brian Cowen is thinking of reversing the provision that allows people to borrow to invest in their self-administered fund.
Surprise, surprise, the lobby pressure for this retrograde move is coming from the existing pensions industry – explicitly from the Pensions Board, which fears that the so-called experts will lose business.
Well, of course, they would object to something as ludicrous as you saying that you might want to look after your own money and that you might take a view as to what was the best investment for you.
God forbid, you might borrow to make that investment. Such entrepreneurial flair is dangerous, such personal responsibility deviant in the face of the experts who ï¿½manage’ï¿½ your money – for a princely fee!
Given the rise and rise of the Irish leisured class, it is important that we figure out how best to finance our retirement.
The golden rule of money is that you will care about your own more than anyone else will. The down-traders are not wrong.
They are not waiting for some expert to tell them to move, trade down, take cash and live a little – they are doing it for themselves.
Whether you’re from the Jagger or the Geldof generation, the chances are that you are going to live a long time. Now is the time to invest for that. If you want to borrow to grow your pension, you should be allowed to and no one from the nanny state should tell you otherwise. Forget the nanny state; here’s to the granny state.