State ‘unlikely to be able to carry cost burden of people renting in retirement’
One in five people aged between 45 and 54 who are now renting have little prospect of ever owning a home, a new study from the Economic and Social Research Institute (ESRI) has shown.
The research reveals how this age cohort are at the front of a rising wave of a generation facing a significantly poorer retirement than current pensioners.
It also warns that the State is unlikely to be able to fully carry the cost burden of large numbers of people renting in their retirement.
The decline in home ownership rates is hitting younger adults in greater numbers, but is being felt across all working-age adults, the study shows.
While 90pc of current retirees own their own home, that drops to 80pc among those aged 45 to 54.
Crucially, researchers say this gap is unlikely to close substantially for these groups, given their position in the life cycle.
That is because middle-aged renters are being squeezed by rents, rising house prices and a declining ability to take on a long-term mortgage as they approach retirement themselves.
While younger workers have more time to make up ground, the home ownership rate for those aged 35 to 44 is just 58pc, with the ESRI estimating that figure is not likely to pass 71pc through home purchases in the open market.
The home ownership rate is set to fall as low as 50pc for those now aged 25 to 34 – a radical shift from the decades when Ireland was characterised by mass home ownership, and one with potentially massive social and economic consequences.
The Future Trends in Housing Tenure and the Adequacy of Retirement Income report focused in particular on the link between home ownership and retirement, including significantly higher risk of poverty in old age for those locked out of home ownership and ineligible for social housing.
Economic simulations by the research team show a clear link between the share of future pensioners in the private rental sector and the share of pensioners at risk of poverty.
Income poverty rates for those people approaching retirement would reach 31pc under a low home ownership scenario of 63pc; 28pc under a home ownership scenario of 70pc; and 21pc under a high home ownership scenario of 78pc.
These figures compare with 14pc for people who are due to retire in the coming five years, 92pc of whom are homeowners.
The report said multiple factors are behind the drop in home ownership, including labour market dynamics, house prices, income, supply bottlenecks and credit.
However, the report’s main focus is on what will happen as a result.
Unsurprisingly, it found women, those with lower levels of education and people who live alone during their working life are particularly vulnerable.
The sharp and ongoing drop in home ownership has major implications for pension provision, which to date is greatly supported by the so-called double dividend associated with home ownership – lower housing costs and higher assets in retirement.
Assuming mass home ownership is no longer a given means, policymakers will have to consider ways to address rents for retirees or to support their after-rent incomes, or possibly both.
Home ownership peaked in 1991, when 80pc of people lived in owner-occupied housing, including a cohort of owners who are now retired.
Citing research from Belgium, Germany, Ireland and the Netherlands, the ESRI said outright homeownership in Ireland had a particularly strong effect on reducing deprivation in older age.