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In 1824, Nathan Rothschild was rich enough to personally bail out the Bank of England. By 1836, at the age of 56, the wealthiest man in the world died of an abscess – an ailment that today could be treated with widely available antibiotics. Medicine that wasn’t available to the ultra-wealthy in the past is now routine for the average person today. We observe this across the whole gamut of human life: things that were beyond the richest are now available to the poorest. Rothschild would have marvelled at your flat-screen television, iPhone, air fryer, straight white teeth, not to mention your online shopping or Ryanair flights jetting you all over Europe for a song. In the old days, travelling for fun was the preserve of aristocrats; today Dublin Airport is one of the most democratic and socially representative public spaces in the country.
This is what we call economic growth, which delivers more access to more things for more people at more affordable prices. Such economic diffusion alters how much we spend. In 1922, the typical family spent 57 per cent of its money on food and non-alcoholic drink. Today, that figure is 8.3 per cent. Back then, nearly 90 per cent of a family’s money went on food, clothing, rent, fuel and light. Today, it is less than one third. We’ve seen a process whereby poorer people are buying stuff – luxuries, consumer goods and experiences – that used to be the preserve of richer people.
This feels like the norm, but there is one massive exception: housing.
In today’s Ireland, rich people live in houses that were built over the past hundred years for poor people. This is bizarre when you think about it. Last week, an article by the ever astute Rory Sutherland in The Spectator made a similar point about England. In Ireland, the affliction is even worse. Everywhere you look, rich people are outbidding each other for ex-council houses and artisan cottages that were built for poor people. How did we get to the place where rich people live in houses built for poor people and are devoting enormous portions of their income to live in houses that used to cost much poorer people relatively much less?
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[ Housing is the missing link in the debate about immigration ]
In 1866, in response to a massive housing crisis in Dublin, the Artisans and Labourers Dwellings Act was enacted. A new company was set up to build homes for poor people. These houses were also connected to the city centre by tram. To make things affordable, Dublin Corporation offered sites they owned to the company at cost price, as well as a lower ground rent. Homes were built. A major concern was affordability. For example, it was reported in the Irish Independent in February 1906 that rent in one development, the Harold’s Cross cottages, was too high: “Labourers and artisans must be in receipt of very good wages to pay such rent. How can a man, in receipt of 18s per week, with himself, a wife and four children to feed, cloth, and pay society money, give 6s or 8s a week in rent?”
They are wealthy, but are buying ex-council houses and artisan cottages dotted around the city, again rich people settling for the homes of poor people and paying huge chunks or their salaries over 30 years for the pleasure
People thought it outrageous that a working man, earning close to the minimum wage, would have to spend more than 30 per cent of his wages on rent. Today, someone on the minimum wage would probably spend a much higher percentage of their wages on the same Harold’s Cross Cottages, which are on the market for €1,558 per month. That would leave that minimum wage worker taking home €1,700 a month with almost nothing. Today, the only people who can live in these houses built for the poor are rich people and, in some cases, really rich people.
[ Is Dublin still an option for first-time buyers? ]
Consider a wealthy couple back from a stint in London. In their early 30s, he’s a staff software engineer at a big tech company down in the docks and she’s a corporate lawyer. Combined, they’ve a significant household income of around €200,000. They are in the top 5 per cent of all earners. There are a lot of rich young people in Ireland. In the last two years there has been a 112 per cent increase in the number of “tax units” (both singles and couples assessed jointly) with an income in excess of €200,000. Even our tech and lawyer couple, the top earners, can only borrow up to a maximum of four times their gross income, so that’s a potential mortgage of €800,000. Meanwhile, LTV (loan to value) regulations will necessitate that they have saved a minimum deposit of 10 per cent of the property’s value, €80,000.
Now look at where they are buying and what they are buying. We are talking about former artisanal homes in places such as Portobello. Remember, these are the very richest of young earners and they are now buying homes that were built for “ordinary” working people.
Let’s move from the top 5 per cent to the top 15 per cent, those who earn over €100,000. They are wealthy, but are buying ex-council houses and artisan cottages dotted around the city, again rich people settling for the homes of poor people and paying huge chunks or their salaries over 30 years for the pleasure.
Quite apart from the societal effect of pushing poor people out of their old neighbourhoods, funnelling so much money via mortgages into housing has reversed the inventive structure of our economy
The main reason for this is they have no choice. There isn’t much on the market, and 40 years of financialisation has thrown mortgages at housing, fuelling price increases. And, as we began by observing, while the value for money for people has gone up in many ways, giving poorer people more access to a lifestyle formerly reserved for the rich, in housing the opposite has occurred. During the period when the Harold’s Cross cottages became exorbitantly expensive, life expectancy has risen from around 50-51 years in 1875 to 80-83 by 2016. That’s an additional 30 years’ worth of life. Infant mortality was 81.3 in Ireland in 1916; today it’s 3.7 deaths per 1,000 births. Many Irish people couldn’t read 150 years ago. Today, Ireland’s rate of literacy is at 99 per cent. And the list goes on.
[ How long more is the Government going to cling to the fiction that 30,000 new homes is enough? ]
Quite apart from the societal effect of pushing poor people out of their old neighbourhoods, funnelling so much money via mortgages into housing has reversed the inventive structure of our economy. We are now rewarding people who buy homes and sit on them, and penalising workers who go out to work. These rentiers are extracting enormous wealth from property and giving two fingers to the rest, many of whom – especially the younger ones – are choosing to leave. When you take money from workers, spending in the aggregate economy falls because the rich who get the cash hoard, whereas young workers spend.
The solution to this was laid out by Henry George around the time the Harold’s Cross cottages were being built: tax housing wealth, tax land hoarding, create a site-value tax and make the country liveable for the many, not the few. Any party that suggests this will get my vote and hundreds of thousands more.