The Housing Crisis: On Debt

It’s January in Ireland’s housing crisis – a time when everyone’s backs should be against the wall. Yet swathes of Ireland seem to be in the full swing of a second Celtic Tiger. How can this be? Who is responsible and who, utimately, will pay the price?

Dear Minister,
How’s it going, Eoghan? Coming down after the Christmas splurge? I wouldn’t be surprised if you were out with the hordes of homeless squatting around Leinster House, holding a bowl out for alms. Things are tough this end too. M just applied for a credit card. Our backs are against the wall. I mean it’s January and I know everyone’s back should be against the wall. But M and I can’t seem to get off the back foot and actually save some money. And, as I look up from my baked-bean dinner, it looks like Ireland’s having a great time. I can’t reconcile the two.

Luckily, I guess, neither M nor I are in serious debt. I’m grateful that every penny I have is my own. Well, “my own” for about 5 nanoseconds every payday, before the bank’s servers kick in and deduct my rent and bills. Of course, that’s after my pension has come out, because what am I going to do when I retire? And taxes of course. Jesus, how does anyone survive in this country?

Yet people do, and they thrive. The 191-reg cars are already on the road; the overpriced G&Ts are flowing on Camden Street; and a house just went on the market for €950K described (tongue completely removed from cheek) as modest.

Walk-in ready Churchtown home exudes contemporary cool

Posted by The Irish Times on Thursday, 10 January 2019

This is it: we’re living in The Celtic Tiger Episode 2 (“Same Shit, Different Decade”), and no one has learned a goddam thing.

We’ve crunched the numbers before, and there’s no way the average Irish person can afford to splurge like this – not after they’ve paid for their extortionate living costs. They must be borrowing. In this second gilded age, what’s important seems to be, as the Italians say, fare una bella figura: that everyone give the impression they’re doing well, even if we’re all in hock to somebody else. We’re all starving beauty queens; we are 17-year-old boys with carefully-coiffed hair puffing out our chests to get into that over-21 nightclub. If the answer is debt, then we’re as pathetic and delusional as we were in the early 2000s, and we’ll fall just as hard as we did in the catastrophe that followed.

I was reading recently about the aftermath of that catastrophe when I came across a passage which got me thinking about debt. A Florida lawyer, speaking to a desperately insolvent (and desperately ill) client in the aftermath of the subprime loan crash, said: “The only thing that is even remotely possible is massive worldwide debt repudiation … It all gets fucking burned up, because, if not, your son works for his entire life and never accumulates anything, because he is busy paying off personal debt and government debt and institutional debt.” Well, that debt repudiation never came and a lot of what that lawyer prophesied is in the here and now. Is there a causal relationship? I don’t know, but in my quest to find out if everyone else is as messed up as I am financially, his prophecy does provide some answers.

Even governments – entire nations – seem to owe far more money than they actually have. This struck me just before Christmas when Macron – a politician who usually strikes me as a very astute man – addressed a nation of impoverished and angry yellow vests from behind a gilded desk. (It reminded me inevitably of Charlie Haughey’s infamous “tighten your belts” speech.) At the very time Macron was making this speech, he may have been thinking of his government’s running debt of over €2 trillion – equivalent to 97% of the national GDP. Almost every government around the world is running a debt in the billions or even trillions, yet performs its duties in the most ostentatious of surroundings.
This contradiction, of course, descends to the politicians like you who are running the government. The cost of (re)election is profound and well-documented. As we’ve seen, politicians in the UK run up five-figure sums to get a parliamentary seat, but this is dwarfed by the millions which US senators must pay. That’s why you never can completely trust a politician – whether they’re a Healy-Rae or an Ocasio-Cortez – not until you’ve seen their ledgers, and the kinds of names that appear in their lists of donors.

Ireland is doing a little better than France, but the country’s finances are still as ragged as an overused pair of knickers. We just owe 68% of our GDP compared to France’s 97% (though that’s still €233.2bn, or almost €47,000 per Irish person*. After the government’s net worth is deducted, it’s on the hook for €155bn. It’s enough to make your eyes water.)
That aside, it’s our household debt that we should really be worried about. Granted, it’s at its lowest since 2004, and the financial experts are spinning the fact that it’s down 10% since 2017. But it’s DTI you’ve got to look at. This is debt as a proportion of disposable income – or, “how much money you owe versus how much you have”, and the answer for Irish people is (drumroll please): 133%. In other words, the entirety of an average Irish person’s income is debt they have to pay off – plus another third that they don’t have. The Central Bank says that “Ireland’s DTI ratio remains the fourth highest” in the EU. This is worryingly similar to our comparative position in Europe 10 or 15 years ago in terms of housing prices, wouldn’t you say? Lately, the increase in the value of properties in Ireland has helped offset household debt, but the same the same Central Bank report shows a significant uptick in remortgaged loans since 2014.

I’m assuming that everyone else is in the same situation as me: working hard and unable to pay the bills. If that’s true, then, this is simply a fact of life – albeit the kind they really didn’t prepare us for in school. The French yellow jackets, though, are driven by some vague notion of a gilded few keeping the many in debt so as to pay for their own corrupt lifestyle.
I’ve said before that in Ireland the revolution will probably never come. Whether this is because there is, actually, no cabal above us to spark a revolution, or because there is a cabal but citizens are permanently drugged or distracted, I couldn’t tell you.
Here’s hoping the former is true, Minister, because if it’s not – if, in fact, the many of us are indebted to the few – then there’s going to be hell to pay, and in such situations the government is always first in the firing line. The US government shutdown is the most egregious example of an upper echelon of society engendering debt and destitution amongst poorer citizens: government workers are now facing an intractable situation with the family finances because their wages and their work are being used as political footballs.  

https://www.bbc.com/news/av/embed/p06xnlw3/46815797

To paraphrase national treasure BlindBoy Boatclub, debt is natural but excessive debt is to be avoided. A fair chunk of household debt in Ireland consists of mortgages: this is “natural” debt. (In fact, did you know the original meaning of mortgage is “an agreement unto death”? Look it up. It seems even Ye Olde English knew that there was no getting out of paying some fat baron for that roof over your head)  Keeping up with the Joneses, however – that’s unnatural debt. Now, it seems, overpriced drinks and new cars are driving us into the red, but how long before everyone starts buying two houses again? And when the bottom falls out like it did last time, will we take it lying down like 10 years ago or will there be pitchforks and torches waiting for you outside Leinster House?

All the best, Minister,
Simon

 

[Featured photo, altered, from Icons8 team via Unsplash]