Jill Kerby

The Housing Crisis is only going to get worse as the population ages

Remember bedsit-land?

Especially the great triangle of shabby Victorian and Edwardian row houses in Rathmines, Ranelagh and Terenure in Dublin’s southside and in the Dorset Street, Fairview and Phibsborough neighbourhoods on the northside?

I remember it well. Nearly every young person I knew who left home or moved to Dublin from rural Ireland back in the early 1980s lived, reluctantly, in grim firetraps for a few years, their only consolation, other than conveniently located neighbourhoods being their affordability. Just about. 

Bedsits, of course, have been banished under recent housing legislation with owners forced to add separate bathrooms and cooking facilities (as opposed to a portable electric hob and grill behind a cupboard door) and a laundry facility.

This are improvements, of course, but last week a well-known Rathmines letting agent advertised three ‘fabulous’ studio and one-bed “apartments” – tiny, souped-up bedsits that now boast a kitchen wall unit literally at the end of the double bed; a bathroom so tiny that the door doesn’t close if the bed is not shoved entirely against a wall and a sofa bumped up against the washing machine. (Whatever happened to dropping off your bag of laundry to the washeteria?)  

In exchange for all this upgrading, but no extra space, the tenant had to cough up €1,550 a month, or €18,600 per annum.

The abolishment of bedsits and the surge in rents for ‘refurbished’ ones is just part of the reason why greater Dublin but also Cork, Galway, Limerick and Waterford are also gripped by the worst housing crisis since the 1930s. Not only are students and single workers crammed into overcrowded flats and houses; there is also an unprecedented rate of working families who’ve become homeless.

The crisis isn’t just due to the aftermath of the 2008 economic collapse, but to  decades-long government mismanagement, especially on the tax relief and planning fronts.

For at least 50 years, developers, buyers and owners have all been incentivised, subsidised (by non-home owners) and protected by laws and regulations that have allowed tax-free land banks to accumulate, vacant properties to be left untaxed, owners to enjoy subsidised grants and allowances, nil or low property taxes and rates, and mortgage tax relief.

Meanwhile, without any capital gains tax on the sale of principal private properties, older property owners whose families have grown and departed enjoy tax-free asset inflation while occupying a disproportionate number of larger family homes.

They have no incentive to sell up or downsize: even the Fair Deal nursing home payment scheme incentivises them to hang onto their large property (the asset contribution to their nursing home care is capped at 23%) in order to leave its remaining value as an inheritance to their heirs.

Labyrinthine planning appeals, meanwhile, make it not only very difficult to introduce ‘density’ into residential city neighbourhoods but also to convert large, city homes into high-quality multi-dwelling ones that would attract other down-sizing home owners.

I mention all of this because last week the CSO announced that between 2011 and 2016 another 100,000 people in Ireland turned 65 and the Department of Social Protection, in its 2016 annual report, stated that in the past 20 years, state pension payments have increased by two thirds.

The ‘Ireland has an ageing population’ story you might have read about is no longer just a warning of things to come. It has arrived.

All the usual suspects in government, academia (including TCD’s excellent Tilda study centre on ageing), the pensions industry, the welfare industry, including the Citizen’s Assembly that met recently to declare that there should be no compulsory retirement the pensions industry – as if this is was an original idea – believe they have identified the issues and that action should be forthcoming.

They haven’t. And it isn’t.

While everyone knows how health resources are already being stretched by our rapidly ageing population, where is the analysis and planning relative to the housing imbalance?

According to a 2016 Tilda paper on the quality of housing that older people occupy, it found that while about half the c640,000 over 65s live in inadequate housing to some degree which impacts on their physical/mental health, nevertheless 92% of older Irish people live in owner-occupied houses, 83% owning their homes outright and only 8% renting.

In other words, the part that isn’t broke, doesn’t merit immediate attention.

But a problem does exist in cities where there is a chronic housing shortage amid growing employment. (Ironically, in Dublin, the size of households has suddenly shot up as children remain in their childhood home, or move back in.)

Housing mismatch, nevertheless, is quietly ticking time bomb.

Ignoring the need for high quality step-down and sheltered properties suitable for retired couples and widows  – the fastest growing population cohort in the state – represents a lack of foresight that we are going to regret in the next few years.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

SAVINGS FUND OR PENSION FUND: THERE’S ONLY ONE WINNER

Are you a saver or a spender?

In Ireland today, the answer to this question is pretty obvious and it’s based very much on what age you are.

The young – 15-24 year olds, may indeed still have a post office or bank savings account, but this age group are big spenders, often of their parent’s money, as well as their own part time incomes or their first wages once they leave school or college.

Rent and repaying education debt is taking a bigger chunk out of the disposable income of the 24-35 year old age cohort, but while many attempt to save for their first home (especially those who move back in with their parents) their spending pattern is very different from previous generations. They increasingly prefer to spend on lifestyle ‘experiences’ (travel, career change) than what were considered lifestyle ‘essentials’ like car and home ownership. like an expensive motorcar, and starter home full of expensive home electronics. They live increasingly ‘virtual’ lives through new technology.

By the time the mid to late 30s come along, spending turns into serious debt. The 35-50 year olds are now supporting a mortgage, car, childcare costs on flat incomes and higher taxes. While they may aim to have rainy day and education savings fund in place, fewer than half of all Irish employees (outside of mandatory PRSI contributions) continue to an employment based retirement funds. Pension coverage (outside the public sector) continues to fall.

The big savers in Ireland continue to be older people in the over 55 age group who no longer have the high lifestyle costs they did 20 years earlier and are very conscious of their looming retirement.

Yet according to recent research by Irish Life, just under two thirds of Irish adults (64%) say they are actively saving and have some savings, However, of the other third, they claim to have no savings at all, and say they cannot afford to save.

The Irish Life research found that saving levels were higher among women (67%) than men (59%), and people over 55 years were saving the most.

Of those that are saving, 43% of people are saving over €100 a month, and people living in Dublin were found to be saving the most: 18% between €20 and €50 a month, with another 18% saving between €51 and €100 a month.

And while even this level of saving is to be commended, given the rising costs of housing, education and healthcare and many years of stagnant wages and state pension benefits, the return from conventional savings like deposit accounts and post office investments continues to fall. 

Demand deposit account returns, according to the comparison website bonkers.ie  now range from absolutely nothing from Bank of Ireland to 0.05% from KBC Bank.  Internet only demand accounts get a fraction more interest but to achieve even 1% interest you need to commit at least €5,000 for about five years (PTSB).  The irony is that even these puny returns are subject to 39% deposit interest tax (DIRT) unless you are over age 65 and your total income is below the tax-exempt limit for a pensioner, that is, €18,000 for an individual and €36,000 for a married couple.

Finding a safe and profitable place for savings is the great financial dilemma of our times and in a country with a rapidly ageing population and a large debt overhang from the 2008 crash.

Meanwhile, the Irish Life research found that only a third of Irish employees belong to a company pension fund, and only 25% of all Irish workers have a private pension. Generous tax relief means that every €100 saved into a pension costs only €80 for standard rate (20%) taxpayers and just €60 for marginal 40% taxpayers and many companies offer matching contributions “which can mean up to €200 into [the workers’] pension fund, for a cost of €80 or €60 to the employee based on their contribution of €100,” says the insurer.

Pensions are a hard sell, but 42% of the respondents to this Irish Life survey admitted that they could afford to save between €80-€100 a month.  Yet the majority (70%) of 20-something workers decline to join their company pension scheme, a 2014 Mercer report found in 2014.

Convincing young people to forego some spending today in order to secure a comfortable retirement four decades away is probably an even tougher task.

But the message from this research is stark and sound:  your contributions attract tax relief and any growth achieved in your fund is entirely tax-free until retirement. Leaving money in the bank is a long term loss maker.

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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Fermat Point Limited, trading as PortfolioMetrix Ireland, is regulated by the Central Bank of Ireland.

INSURANCE RAIDS UNLIKELY TO PAY OFF ANYTIME SOON

Last week’s raids by the EU and Irish competition authority investigators on a number of insurance company offices, brokers and Insurance Ireland, the trade organisation for the industry, may be the first step to uncovering what has been suspected price fixing here.

The sharp rise in motor premiums – 38.8% in the year to June 2016 and by as much as 70% over the past three years - has been a source of considerable anger by consumers, especially those with clean driving records. Advanced price ‘signalling’ – where insurers have allegedly announced, in tandem, that there will be upcoming increases is one of the causes being cited for the surprise inspection.

There have also been questions about the way consumer claims records have been shared within the industry and how this may have closed off access to the market to outside competition, as well as a suggestion that false information was reportedly given to the Central Bank, which regulates the sector.

All of this may have been sufficient cause for the joint action, but the EU Commission quickly noted after the raids that no charges have been laid against any insurer or insurance body and that they have no legal deadline to complete their inquiries. 

In other words, don’t hold your breath. Premiums are not about to fall back to 2013 levels. If you’re a young driver, there is no magic solution at hand if you need affordable cover, and if you are a returned migrant, that clean driving record (and no claims bonuses) that you still have after a few years in Australia or the States is not going to be automatically recognised now that you’re back home.

These are just three common complaints about motor insurance but the headline catching raids are only ‘optics’. The competition authorities have been aware of pricing and competition problems for several years but, frankly, have done very little to address them.

These include agencies like the Competition and Consumer Protection Agency, the EU Competition Directorate, the Central Bank, which oversees the insurance companies and the Insurance Compensation Fund); Injuries Board Ireland, whose presence is supposed to help reduce the costs involved in motor injury claims, and even the Gardai whose job it is to enforce the traffic codes, but too often have insufficient information about the drivers they stop to fully access the risk they may pose.

Until issues like alleged price setting and other cartel-like activities; the compensation scheme (which is being boosted); better use of insurance databases and driver insurance records; tackling fraud and payments of excessive injury settlements, the cost of not having an efficient motor insurance system in place will continue to be passed onto drivers in the form of higher insurance premiums.

Offers of cheap insurance – a door-to-door motor cover scam with flat rate quotes of just €300 has been uncovered recently – should be avoided, and reported to the Gardai.  As always, if something seems to good to be true…that’s because, it is.

So what should you do until then to keep your insurance costs affordable? Whatever you do, ignore offers from door-to-door con artists of flat rate insurance quotations. (If a deal looks too good to be true, it’s because it’s a scam, warn the Gardai.)

Here are some cost saving suggestions, but forewarned is forearmed: driving in Ireland is expensive and will be for some time. 

-       Always shop around when your policy hits its renewal date. Unless you have a trusted, independent broker – a very good idea - then methodically call the insurance companies for best quotes, terms and conditions.

-       Pay by lump sum, not monthly payments. Insurers charge a hefty premium for paying by instalments.

-       Check that you include only the cover you need – comprehensive insurance for an old car is not good value, but it may be worth paying a little more to protect your no-claims bonus. It will prevent your premium jumping sharply the next year if you have a minor or major accident.

-       The larger, newer and more expensive the car, the bigger the insurance premium. (Vintage cars, even a Rolls Royce, carry very low insurance premiums but can cost quite a lot to repair ordinary wear and tear problems.)

-       Consider increasing your excess payment - the amount you will pay if you have a claim. The higher the excess, the lower the premium.

-       Do you have an indoor garage?  Off-street parking? A good car alarm? These will all help reduce your premium.

-       Mature drivers will pay less than younger ones. Some insurers will even charge less if you include another mature, named driver on the policy

-       Don’t forget to disclose previous claims, etc. If you have an accident and a previous claims record that you didn’t disclose the claim will be rejected.

-       Group scheme members (like trade unions, credit unions, sports clubs) should also shop around. Those high commission schemes are not always best value for every driver.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

(The TAB Guide to Money Pensions & Tax 2017 is available in all good bookshop, €9.99. See www.tab.ie for ebook edition.)  

SUMMER MEANS WEDDING BELLS AND MARRIAGE CONTRACTS…

There is much to say in favour of the state of marriage - as opposed to the state of most people’s marriages, which, as any married person knows will occasionally need a little extra work and maintenance over the course of a long union.

What better time to do so from a financial perspective than in the summer, when so many couples are about to take their wedding vows or are celebrating their anniversaries?

Regular readers of this column know that I am not a big proponent of big, expensive white weddings where the funding of the event (which too often is spread over three days) requires bank loans, credit card debt or an appeal for cash from wedding guests instead of a conventional gift.

In the Talking Money Guide (see www.irishlife.ie for free download) which accompanied our RTE Drivetime radio slot, mortgage and financial adviser Karl Deeter and I wrote about how a €25,000 wedding loan over five years at 9.7% interest “translates into a monthly repayment of €528…and a final interest payment of €6,200.”  But we also pointed out that a monthly investment of this amount for five years, assuming a lower 6% return, would produce a gross lump sum of €36,867.

Meanwhile, the couple who opted for a more modest wedding and gave each other an on-going wedding gift of a €265 each into their respective pension funds, earning 6% net of charges and fees, could expect a combined fund worth €1,055,490 after 40 years. Only their pension income would be taxable.

Substituting a lavish wedding for a dull, but worthy pension investment is a lot to ask. But foregoing expensive wedding debt for affordable mortgage debt – and a contribution to a pension fund – may appear plausible if presented in their right light.

Which is why it is so important that every young couple who is planning to marry should be sitting down and discussing their finances in an open and honest way and certainly no later than their engagement party.

It may not be the most romantic discussion, but finding out what financial assets and claims each party will bring to a marriage is a very necessary one.  Too many couples have never had frank and open discussions about their respective and collective finances during the entire married life.  Too many working spouses don’t know exactly what they each earn, how much tax they pay, the size of their savings accounts, the debt they carry. 

Wives (mainly, still) who take career breaks to rear children and are not certain about their joint finances, can be left nearly entirely financially dependent on their spouse for the first time, leading to a great deal of unnecessary stress on their marriage.

At the very least, engaged couples should want to avoid nasty, post-honeymoon surprises like the one that happened to a young husband I once met who mistakenly opened his new wife’s credit card bill after their two weeks on a golden beach.  He discovered she had a stubborn, €10,000 outstanding Visa card balance that was now his problem – quite correctly – as well as hers.  (They were lucky it didn’t cause a serious, early rift; instead it gave them the nudge they needed to sit down and review not just the total cost of their wedding, but their wider finances.)

That young couple was lucky.  But luck isn’t what makes a successful marriage; love and mutual respect, trust and good communications does. So for every blushing bride and groom-to-be and their mums and dads who will be celebrating their own wedding anniversaries this summer, here’s a short checklist of financial issues that every couple should discuss and adopt: 

-       Net worth – our individual and collective income, savings and investments, including pension funds and other assets (like property). How much debt do we have and its service costs?

-       How much tax do we pay? What will our liability be as a married couple? As parents? Should we consult a tax adviser? (Yes!)

-       Should we have a joint current/deposit account or keep separate ones? (How about both!)

-       We need to make wills and take out life insurance on each other’s lives. Our wills will need reviewing as circumstances change, like after having children.

-       The need for an annual budget that identifies household and personal costs and from the outset allocates our income proportionately to our joint costs – the mortgage/rent, utilities, food, insurance, child-care costs, retirement, holidays, etc.

-       We need to discuss spending priorities, our discretionary spending and to agree to always reach a consensus regarding financial purchases, investments, debt, career changes, starting a family and retirement.

Marriage contracts seldom appear in written form…more’s the pity. But good communications can avoid costly disagreements few brides and grooms ever anticipate on their wedding day.

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

14 Fitzwilliam Square Dublin 2  +353 1 539 7244   info@portfoliometrix.ie

Fermat Point Limited, trading as PortfolioMetrix Ireland, is regulated by the Central Bank of Ireland.