Vincent P Martin: 'Owning a home is now an impossible dream for ordinary working people'
The young and the less well off are paying for our past sins - and this stops the growth of a dynamic society, writes Vincent P Martin
The scars of the financial crash are real life-experiences for thousands of ordinary people shouldering giant debt.
To avoid repeating sins of the past, we are doing permanent damage to a younger generation who bear no responsibility. Worse still, the punishment is directed at the less well off.
A dynamic society is one where those born in working-class communities can achieve anything they wish to aspire to.
Presidents in the United States often come from poor or disadvantaged backgrounds. Lincoln, Eisenhower and Clinton all experienced grinding poverty but rose to the nation's highest office, proving the US to be a land of opportunity.
In Ireland, working or lower middle-class families used to aspire to home ownership. Today this is practically impossible.
The current policy cruelly punishes hard-working people living in some city suburbs, the very same communities which provide the crucial services required to keep our society going and whose children should, in our real Republic, aspire to anything the nation has to offer.
A number of three bedroomed houses for rent in these areas and further afield manage to command at least €1,900 per month, with families put to the pin of their collar to meet such exorbitant rents.
The makeup of these tenancies often comprises a couple with two children. The State advises that this couple will need a gross income of at least €60,000 per annum to be able to afford this rent. In fact, the couple will need at least €70,000 per annum in order to be able to pay the rent and to avail of basic services.
Yet similar houses in their neighbourhoods are for sale ,quoting €250,000.
Could these families break free from the never-ending grind of expensive renting and realistically buy a home in one of these same local areas of their choice?
The answer is no.
Firstly, they can borrow maximum 3.5 times their gross salary which means the most they can borrow is €245,000.
But a 10pc deposit means they will need a cash reserve of €25,000. Having cash reserves of €30,000 will be beyond this family.
And if they have anything other than rock-solid jobs underwritten by the State, or if either is self-employed, they will have no chance of a mortgage even if they can raise the deposits required.
Now let's be bold.
If this family could borrow 100pc of the €250,000 payable over 35 years on a fixed interest rate of 3.5pc, their monthly mortgage payments would be €1,033 per month - almost half the monthly rent.
Let this sink in.
As a founder of New Beginning, I have seen first-hand the devastation caused by excessive debt and how 100pc mortgages helped drive the madness between 2004 and 2007. I do not advocate such mortgages on a general basis but strictly only for this income group who are excluded from home ownership. And any such offering must be closely monitored with a pre-defined 100pc mortgage limit for use to purchase family homes only.
While increasing housing supply is the obvious long-term solution, why should this young generation have their family plans hopelessly stalled, stymied indefinitely?
While such credit may cause some price inflation in the lower end of the market, rent there is currently almost twice as expensive as a mortgage.
And payments on the mortgage could be fixed over the long term which in real terms means payments will decrease over time. But rent will do the opposite. Even if kept to the current restricted rental increase of 4pc per annum, the rent will nearly have tripled over the long term.
And renting provides no security of tenure.
The dreadful truth is that wealthier citizens do not face this same dilemma. They will have jobs that pay more and families that can support deposits. The fact that they can afford more means that developers are incentivised to build for them and supply will come on stream.
Not so for the lower end of the market.
While expensive cars and the like may be exclusive to the better off in society, when we apply this apartheid to home ownership, we split our society further apart in a way that is deeply troubling.
During the Great Depression in the United States, 25pc of all mortgages had defaulted - a similar figure to Ireland in 2011. Hundreds of thousands of homeowners faced losing their homes. To address this, the US government established the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae. Its purpose was to provide local banks with federal money to finance home mortgages to raise levels of home ownership. It was an outstanding success leading to a golden age in the US.
Here, faced with similar difficulties, we have done the opposite by making home ownership impossible for ordinary people.
This has forced people on lower incomes to rent with massive upward pressure on the rental market. Simultaneously, as local people are excluded the prices in the lower end of the market are too low to make private development economical.
But most significantly, this all leads to the disenfranchisement from home ownership of ordinary working people who are forced to pay huge rents while richer citizens have access to cheaper mortgages.
The deepest and most lasting scar of the financial crisis is the transfer of punishment to the most innocent.
It was not young working people who caused the crash, many of whom were mere children at that time, so why should they be the ones to pay most for it?
Vincent P Martin is a senior counsel and the Green Party's general election candidate for Kildare North