Ireland’s pot of gold: you don’t own the half of it

A lot of focus in debate in Ireland tends to go on the gap in incomes between the better-off and those who earn less. Up to now, little information has been available on wealth inequality – the distribution of assets and liabilities across households.

New light is cast on this by Central Bank of Ireland research published this week in an article in its quarterly bulletin, which uses new EU-wide data to look at the spread of wealth in Ireland.

The top line result is that half the wealth is owned by the top 10 per cent of households. But the results are interesting and show how changes in house prices, stock markets and the amounts households borrow have had a fundamental impact on the amount of wealth held in households over the past decade and how it is divided.

1. What is wealth?

We all have an idea what “wealth” means, but it is important to understand what is being measured here. For years, the Central Bank has published estimates of the total wealth of households.

Scope for budget tax cuts and cash for households is limited - this will be a difficult pre-election package to agree on

---

Buyers of older homes may pay thousands more per year in mortgage repayments

---

€6bn has been removed from the budget day pot. Politically, this could get interesting

---

Bridging loans: would the return of this kind of finance help those who want to downsize to a smaller home?

---

This is calculated by adding up the value of houses and property owned and the amount of financial assets – stocks, shares and crucially bank accounts. This is not perfect – the value of pension entitlements is generally not counted, for example, and nobody knows how much cash people have hidden under the proverbial mattress. But it is a decent yardstick.

Then, crucially, liabilities – borrowings – must be subtracted to get a figure for net wealth. As we saw during the financial crash, loans that people have are a crucial factor in their financial position.

The total net wealth of Irish households has more than doubled over the past decade, rising from €490 million since the middle of 2013 to €1,079 million in the middle of last year.

This was ahead of the euro area average increase of 54 per cent. Three key factors were responsible for the Irish rise. The first was the rise in house prices – property accounts for the majority of Irish household wealth so the recovery in house prices from their post-financial crash depths has been key.

The top half of the population in wealth terms benefited much more from rising house prices and increases in the number of houses owned

The second was the rise in the value of financial assets – shares, life assurance policies, bank deposits and so on held by households over the period. And the third has been the sharp fall in borrowings, due to a tightening of borrowing rules and also a population stung by the Celtic Tiger borrowing spree and also – in some cases – needing to mend their own finances after it.

The research published in this week’s quarterly bulletin was written by Marco Moreno of the bank’s statistics division. It springs from a European Central Bank (ECB) initiative across the euro zone and in Ireland and it involves the marrying of data collected by the Central Bank and the Central Statistics Office (CSO).

This aims to give a regular picture of the spread of wealth across different households – through what are called distributional wealth accounts – as opposed to the previously available irregular data.

2. What is the spread in Ireland?

Wealth is generally held more tightly than incomes. And one of the more striking conclusions from the survey is that the top 10 per cent wealthiest households own just under half (48 per cent) of the net wealth in the State.

This is around five times the wealth held by the 50 per cent of the population in the bottom half of the net wealth distribution. Interestingly, the spread of net wealth has become less unequal – back in 2013, the top 10 per cent owned 58 per cent of the total.

Over the same period, the net wealth held by the bottom 50 per cent rose from 2 per cent of the total to 9 per cent. The share of those in the middle remained constant. The reasons why this has happened are worth looking at.

Should banks be on the hook for access to cash into the future here?

Listen | 39:48

The profile of assets held by households varies across the different groups. For everyone but the top 10 per cent, housing represents around three-quarters of all wealth – it is just 44 per cent for the wealthiest 10 per cent.

The difference is that this richest group has significant business assets – such as shares held in unquoted companies, including ones owned by self-employed people. So all groups have benefited from higher house prices.

Among the bottom 50 per cent of the population in wealth terms, the rise in net wealth was driven in part by this too, but also by a fall in their borrowings. Due to a fall in the number of people taking out new loans – or the repayment of existing debt – their borrowings have fallen sharply, dropping by around 57 per cent over the decade. This is part of the great deleveraging of Irish household balance sheets after the crash.

This group has limited other financial assets, bar, typically, some cash in a bank account, which will not have returned much in recent years. While poorer households have cut their debt levels sharply, they are still higher than the rest of the population in relation to their assets.

In contrast, the better-off half of the population did not reduce its borrowings by much – a new insight from this research. As well as higher house prices, this group benefited from a rise in financial assets – though these did fall sharply in 2022, wiping out a few years of increases. And the richest 10 per cent have also benefited from general economic growth as the value of their business assets has risen.

The top half of the population in wealth terms benefited much more from rising house prices and increases in the number of houses owned – the value of their housing stock more than doubled over the decade, while the value of the housing stock of the bottom half of the population rose by 36 per cent.

As this is below the rise in house prices, it would seem to underline the difficulty of many people with lower incomes in buying homes – and as we know the numbers renting have risen significantly over the period.

3. The role of property

Some 97 per cent of the wealth in Ireland is held by people who own their own homes. On average, houses account for 60 per cent of total household assets.

The overall value of the stock of housing assets has more than doubled since 2013 – due to higher prices and a bigger housing stock – to reach €727 billion last year. The richest 10 per cent of households own one-third of these housing assets, while the bottom half own just 14 per cent. The remaining and largest share of housing assets is held by the middle group. The richer groups have thus got more of the benefit from rising house prices over the past decade.

And within these groups, retired people – with longer-established and often bigger properties – have benefited significantly, with their share of housing assets rising from 21 per cent of the total in 2013 to 28 per cent last year.

The reliance on housing has obvious intergenerational implications – what is to happen to today’s “locked-out” generation who cannot afford to buy homes if they are not part of the normal Irish pattern of wealth accumulation?

4. What does it mean?

According to the figures, Ireland moved from one of the more unequal countries in terms of the distribution of wealth in 2013 to below the EU average today.

Nonetheless, the division of the wealth spoils is striking. It will keep discussion of a wealth tax – or taxes on wealth – on the table. Sinn Féin has said it would establish a commission to examine the idea of a wealth tax in Government, proposing a 1 per cent charge on wealth pots of more than €1 million, subject to various exemptions.

The Commission on Taxation and Welfare has said it would not recommend a specific wealth tax, but did call for significantly more taxes on wealth via changes in capital, property and inheritance levies.

Of course, the other key factor is the high reliance in Ireland on the family home as the source of wealth. This is the ultimate illiquid asset so while many households may have a house worth a lot of money, it is not one they can easily cash in on.

Nonetheless, it can mean wealth remains concentrated as houses are passed down through generations. And the reliance on housing has obvious intergenerational implications – what is to happen to today’s “locked-out” generation who cannot afford to buy homes if they are not part of the normal Irish pattern of wealth accumulation?