February 22, 2006
Property booms do not so much create wealth as redistribute it. In the past few years, the great Irish housing frenzy has done more to reallocate wealth in this country than any government initiative on tax and social welfare since the foundation of the State.
The transfer has been monumental. Arguably, we have to go back to Lenin’s persecution of the Kulaks to see one section of the population forced into giving so much of its wealth to another.
The major difference in Ireland is that the redistribution of wealth via property has made the old richer and, more depressingly, the young poorer.
It has created a drone class of the over-45s – Ireland’s accidental millionaires – who have seen their wealth increase enormously as their houses have soared in value. These drones are financed and indulged by a worker-bee class of the under-35s who are first-time buyers and renters.
For every four first-time buyers who are fretting in the traffic, working long hours, pinned to their collars by mortgage payments and creche fees and being bullied to part with money they don’t have by the threat of “mandatory” pensions, there is a healthy 50-something couple drinking vino verde on the Algarve, sun at their back and not a care in the world.
In financial terms, Ireland is now sitting on a demographic faultline. Bubbling away underneath the tectonic surface is the overheated property market, stoked up by cheap credit, irrational expectations and the corrosive psychology of the property-ladder tyranny.
As the property mania reaches fever pitch, this rumbling instability – like its geological equivalent – naturally leads to political, financial and social tremors.
Like the citizens of San Francisco, we know our economic San Andreas fault-line is vulnerable, but all of us ignore the possibility that the next one could be the “Big One”.
At the moment, there is an uneasy truce between the competing demographic of haves and have-nots but the problem for society is that, while an unforgiving meritocracy governs the lives of the worker-bee generation, the drones live in a pampered world based on equity releases and rental income.
This is not sustainable. Take, for example, a not-untypical middle-of-the-road office worker of the 1970s and 1980s. Although he now plays golf off seven, like the Monty Python sketch of old he reminds his office juniors how hard times were in the 1970s, how people had little money and few expectations.
He probably bought his house in 1975 for ï¿½10,000; it is now worth ï¿½1.3m . He has no debts, a well-financed pension, annual clean bills of health, a subsidised VHI Plan A scheme and an early retirement scheme that is just about to kick in.
With his enormous pile of equity, he took advice from an accountant mate and bought a couple of places off plans in the late 1990s. The (only recently declared) rental income nets him ï¿½3,000 a month, which more than covers his mortgage on the golf resort town house in Quinta da something. He is one of Ireland’s accidental millionaires and he is not alone.
According to the census in 1990, there were just over one million private households in the country. For these people, as prices have risen, the most telling indicator of wealth is not brains, hard work or entrepreneurial ability but the year they were born. Those 1990s households born in the late 1940s, 1950s and early 1960s are on the right side of the demographic faultline and are likely to be sitting on enormous property wealth.
Those worker bees, born in the late 1970s and 1980s – the productive core of the economy – are now the ones paying exorbitant house prices via 35-year 100pc mortgages or they are renting. A major determinant of whether you are a drone or a worker-bee is the date you were born.
So the main redistributive mechanism in our economy works like a demographic lottery which is heavily weighted against the young. It is, of course, natural that the 50s generation will be the ones in power, but because of our population structure, they are much less representative of the general population than they would be, for instance, in Britain, where they constitute 27pc of the population, or in France and Germany, where they’re over 30pc.
Here, those in their 50s only represent 11pc of the population and yet they are being enriched constantly every time house prices rise. Each notch upwards in house prices adds to the wealth of the drone class and the worker bees’ debts. We live in a society where the young work to excess to make the middle-aged rich via house prices.
The big banks tell me that house prices are going to rise by 10pc this year. Quite apart from being a grotesque scam which lines the Government’s pockets, enriches developers and drives up the share price of our money-lending banks, it is sowing the seeds of a demographic civil war.
Every 10pc rise in the price of houses is equivalent to a 10pc tax hike for the young who are trying to get into the housing market.
Another way to look at it is that every 10pc increase in the price of houses adds an extra 10 miles of commuting on to the day of the next batch of the dormitory-town-dwelling tribe. In contrast, the same 10pc price hike adds 10pc to the wealth of the drone generation and 10 more days in the Algarve.
What does this mean for politics? Well, if the outcome of government policy has been to enrich one section of the population at the expense of another, it isn’t surprising that the hardest working sector of society opts out politically. By stoking up the property market at the behest of its paymaster – the construction sector – this government has engineered the progressive indebtedness of our under 30s and the relentless enrichment of our over 50s.
In the last election, the worker bees did not turn up. They see what is happening and are profoundly cynical about national politics. They couldn’t be bothered.
So a bachelor farmer from Achill or a 50-something from Sandycove, Foxrock, Terenure or Clontarf is twice as likely to vote as a suburban, double-income worker-bee family with kids.
In fact, the two areas of Ireland where the under-35 worker bees are present – the new suburbs and the inner cities – vote least. This opting-out trend contrasts with the rest of Europe where voting patterns follow education.
In Ireland, it’s when you were born, rather than letters after your name, that’s much more likely to determine whether you vote or not.
This is because the older you are the larger your stake in society and the more the present status quo suits you.
So the worker bees who toil hardest, commute longest, pay most taxes, have the biggest mortgages, have children, pay exorbitant creche fees and keep the profits of multinationals operating in Ireland sky-high, participate least in politics. But they won’t remain docile forever.
This vacuum is potentially explosive because, when you live on a faultline, the potential for eruption is never far below the surface.