Some are getting rich from the housing crisis, because one person’s mortgage is another’s piggy bank

Investment funds bought 20 per cent of homes sold in the State in 2023: 12,201 dwellings with a total value of €4.2 billion.

The Programme for Government accepts that rising house prices are a given. Nowhere is the new Government talking about falling house prices over the foreseeable future. It seems to accept this as a fact, putting it down to a rising population, an inability to build quickly enough and an already significant deficit of houses – largely because nothing significant was built in the decade after 2008. But the question is: who benefits from this?

If house prices and thus housing wealth are set to increase, who is getting this wealth – Irish people or foreign investors? Surely if Government policy can’t stabilise houses prices, it should – at the very least – ensure that the wealth accruing from house price increases benefits Irish people?

If foreign investors benefit from Irish house price increases we are simply adding insult to injury. Not only do we have a housing crisis, but some of the people who are profiting from the crisis are taking Irish money out of the country every month. This seems a bit illogical, doesn’t it?

From an Irish perspective, why do we allow foreign funds to buy Irish property? If the country had no money and had to depend on foreign capital to build it might be understandable, but Ireland is full of money. There is €155 billion of ordinary people’s savings on deposit – enough to finance outright, without any mortgages, half a million houses at today’s prices – far more than the 67,000 houses that were bought and sold last year. In a nutshell, Ireland doesn’t need foreign money to build homes. Countries with current-account deficits need other people’s money, but Ireland has a massive current account surplus of more than €45 billion per year.

So why are we giving away the wealth accruing from Irish housing to foreign pension funds?

Before we answer that question, let’s look at the numbers – how many homes are being bought and sold, who is buying them and where is the money going. Some are getting rich off the back of this housing crisis, because one person’s mortgage is another person’s piggy bank. The figures and the momentum of the market are well known but we should restate them to give us a sense of how much money is involved.

The CSO confirms that the average price paid for a home in the Republic in October was €429,212, up from €382,510 in October 2023. Even the ESRI, the forecasting institute that completely missed the 2008 crash, won’t be caught napping this time; it warns of overvaluation. Rents have hit record highs. The national average rent is up 5.2 per cent in the third quarter to an average €2,476 per month. This is twice the rate of inflation and 43 per cent higher than before the outbreak of Covid-19. The price of the average home is nine times the average full-time salary in the State (which was €53,995 in 2023, according to the CSO) and reflects the huge affordability challenge facing buyers.

So that’s the price, but how many homes are we talking about? In 2023, the latest year for which we have full data, a total of 62,435 homes were bought and filed with the Revenue Commissioners, with a value of €23 billion.

Who is buying? Investment funds bought 20 per cent of all houses and apartments, or a total of 12,201 dwellings, with a combined value of €4.2 billion. This was 6,438 houses and 5,763 apartments and over half of these were new builds, the homes that first-time buyers should/could have bought. The rest of the homes were bought by Irish residents.

A total of 17,435, or 35 per cent of all homes, went to first-time buyer owner-occupiers, while people trading up or down bought 26,752 or 53.3 per cent.

The investment funds are in competition largely with first-time buyers. They are obviously not only adding upward pressure to house prices but garnering a significant chunk of the wealth accruing from Irish property, prompting the question: Should Ireland ban or limit the amount of Irish property that foreign funds can buy?

Or, to put it another way, if we can’t stop house prices going up, should the Government at least ensure that the wealth finds its way into Irish hands?

Before we blame foreigners with our own version of Ireland First, it is worth remembering that of the €4.2 billion spent by investment funds, €3.9 billion (92.9 per cent) was spent by Irish-registered companies and institutions. Some of these “Irish registered” might be legally and technically Irish but are in fact financed by foreign money and thus the dividends leave the State, but a big chunk will be Irish pension funds. Once again, the demographic war plays out in Ireland where the older Irish people hijack the younger buyers, elbowing them out of the property market.

Although the foreign element might not be as big as headlines lead you to believe, is there an argument for limiting them? Well, many countries seem to think so. For example, Spanish prime minister Pedro Sánchez has just proposed a 100 per cent tax on property purchases by non-EU nationals without residency in Spain. Sanchez argues that this policy would curb speculation in the real estate market.

Canada too introduced a two-year ban on foreign homebuyers in 2023. Under the act, non-citizens, non-permanent residents and foreign commercial enterprises are banned from buying Canadian residential properties. The legislation also has a CA$10,000 fine for anyone who knowingly assists a non-Canadian buyer and is convicted of violating it.

In Singapore, foreign buyers pay what is called the Additional Buyer’s Stamp Duty rate of 60 per cent on any residential property purchase. Foreigners who want to buy in Switzerland must apply for a foreign buyer’s permit and are limited to owning only one residential property. In Denmark, people who have not been resident for at least five years must apply for permission from the government to buy a property. In fact, Germans buying second properties on the Danish coast was one reason the Danes rejected the Maastricht Treaty and consequently stayed out of the euro. In New Zealand, non-residents have also been banned from buying most types of homes since 2018.

Given that the world is awash with money but the supply of houses only responds very slowly, the wealth accruing from a housing crisis should at least go to Irish people. Because investment funds target new developments, it is logical that this new Government will move against foreign buyers as part of its efforts to tackle the housing deficit.

After all, Ireland, with our huge deposit base, doesn’t need foreign capital. So why are we giving away the crown jewels?