Generation rent: Here’s how ‘forever renters’ in Ireland can look to secure their financial futures

Is it better to own your own home or rent? Those reliant on the vagaries of today’s rental market, where tenure can be unsecured, landlords can be unresponsive, retirement can seem uncertain and rents seem to rise inexorably higher, would likely say the preferred option is to buy.

The reality, however, is that more and more people are either living at home longer, renting in the private market or relying on Government support to meet their housing costs.

Figures from Eurostat show that Ireland has one of the highest proportions of people aged between 25-29 living at home, at 68 per cent – considerably higher than the EU average of 42.1 per cent.

Meanwhile, a report from the ESRI back in 2022 found that more than a third of those aged 35-44 at the time were unlikely to own their own home by the time they retired – dropping to just one in two of those aged between 25-34 at the time. This is in stark contrast to the 90 per cent of those who were aged 65 and over at the time and who did buy their own home.

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It’s not a trend that’s unique to Ireland; housing affordability is an issue across the developed world.

Generation rent looks here to stay.

How best then, if the old model of owning a home mortgage-free in retirement is on the wane, can “forever renters” look to secure their financial futures?

It’s not (always) dead money

First, perhaps, it’s worth remembering that renting isn’t all bad.

“There are several financial advantages to renting over home ownership,” says Nick Charalambous, managing director of Alpha Wealth, pointing to flexibility as a main one.

“Renting allows individuals the freedom to relocate easily, whether it’s between counties or even countries. This flexibility is particularly advantageous for younger workers who haven’t settled in a particular location or those who wish to travel for extended periods,” he says.

[  Renting in Ireland: ‘I’m constantly living with the fear that I can be homeless’ ]

A frequent criticism of renting is that it represents “dead money”, because, each month, you’re paying into someone else’s investment. Better, the argument goes, to build up equity in your own home by paying down a mortgage.

For Charalambous, however, it’s not always that simple.

“Renting is essentially paying for the use of a property when needed, providing the flexibility to move without the long-term commitment and financial burden of home ownership,” he says.

Homeownership is more expensive than you think

Homeowners typically face a certain amount of “dead money” too.

Property taxes, stamp duty, legal fees, life insurance, broken boilers, garden maintenance – a lot of extra costs come with owning your own home.

“Home ownership entails additional responsibilities such as obtaining contents insurance, managing utilities and handling property maintenance and repairs. This can significantly reduce the stress and financial burden on renters, making renting a viable and attractive option,” says Charalambous.

But these aren’t the real costs. Borrowing is.

Unless you’re a cash buyer, you could say that “owning” your own home is a bit like renting from the bank.

[ How do we go about buying our first home? ]

Take a property that sells for €450,000. With a €50,000 deposit, the new owner ends up borrowing €400,000 over 30 years at a rate of 4 per cent. Should this stay the same for the life of the mortgage, then at the end of the term, the homeowner will have ended up paying €287,478.03 in interest payments or “rent” to their lender.

As David Quinn, managing director of Investwise, says: “The interest on the mortgage is dead money as well – that’s the cost of buying.”

And, while you are building up equity, it builds at a slower rate than you might otherwise expect. In the first year of the aforementioned loan, for example, the homeowner will make monthly repayments of €1,909 – but only €576 of this will go off the loan. Some €1,333 will typically go to the lender in interest.

And renting, believe it or not, can ultimately lead to a better financial outcome.

“Renting can lead to a much better outcome at the end. It’s not a doomsday scenario; good investors will end up wealthier,” says Quinn.

As Quinn points out, if the interest on the mortgage is similar to the rent, and you’re saving or investing a sufficient amount, then you could end up with greater wealth at the end of your life.

“Irish people in general think that property is the best investment going,” says Quinn. But, as he points out, if you invested the differential (ie €576 in the above example), your net worth would likely be higher at the end. Over the last 100 years, for example, the S&P 500 has returned an average of about 7 per cent a year, when adjusted for inflation.

Renters will often say that homeowners have the security of knowing that their rent won’t increase; but what about their mortgage repayments? Tracker mortgage holders have had a tortuous few years as interest rates jumped from less than 1 per cent to more than 4 per cent – adding a couple of hundred euro a month on to the bill of many. And none of this was building up equity – it all went directly to their lender.

Invest for the future

If you don’t buy a home, investing and saving while renting is going to be very important.

“The end goal at retirement is that you either own your own home, or you have a very sizeable pension/savings to live off,” says Quinn.

With a mortgage, this planning for your future housing costs is taken care of for you, to a certain extent. When renting, you will likely need to be more proactive to ensure you are saving enough to withstand the vagaries of the rental market – all the way into retirement.

Quinn cites a recent client in her mid-50s who only recently bought her first home, but she had been saving and investing for many years before that.

All well and good perhaps, but the challenge for many renters is the current environment, where the average rent for a three-bed home in Dublin is €2,327 and €1,298 outside of Dublin, according to the latest RTB [Residential Tenancies Board] report (rent for existing tenancies is some way lower, at €1,916 in Dublin, and €1,048 outside).

This doesn’t leave much left over to save or invest for a typical household. Moreover, investing as much as you can, for as long as you can, will be difficult given the regular demands on your income.

“It’s extremely difficult at the moment because rents are so high,” says Quinn, “This means that people are desperate to buy because it’s cheaper and for the cash flow benefit of owning a property for retirement”.

But it may not always be this way.

“These things run in cycles, and we’re at a high point at the moment,” says Quinn.

Indeed, it’s easy to forget that not so long ago a generation of homeowners were effectively trapped in their homes – many of which no longer suited their needs, either because they were in the wrong location, or were too small for growing families – in the aftermath of the financial crisis. As property prices slumped, homeowners found that they were in negative equity, whereby they owed more than what their properties were worth – effectively trapping them.

As Charalambous notes: “While you do not build equity when renting, you also avoid the risks associated with owning a large, illiquid asset that can be difficult to sell.”

Look for cheaper rent

In addition to trying to invest – where possible – locking into more affordable rents may also be key. Not an easy task, but the arrival of cost-rental properties is something that can help with this.

First launched back in 2021, these properties, which offer below-market rents, are aimed at middle-income earners who would traditionally have been outside the scope of State support.

To qualify, you will need a net, or after-tax, household income of €66,000 in Dublin, or €59,000 elsewhere; you must not be in receipt of housing supports or own a property.

This is quite a high ceiling – and if taxes fall again in the next budget, even more people will meet the criteria. For example, a couple with one earner can earn €97,000 a year and qualify, while a single earner can earn more than €100,000 and meet the net income figure for Dublin.

One of the greatest advantages of the schemes is the security of tenure they offer; tenancy is for an initial period of six years, and will automatically roll over after that provided there are no issues.

Not only that but you won’t be kicked out, even if your income increases substantially. Thus, the savings can be substantial for long-term renters. Rents can rise, but they are based on growth in the CPI [consumer price index].

Where’s the catch you might ask?

First of all, rents are below market – by about 25 per cent – but they’re still not what one might consider “cheap”.

In Archer’s Wood, Delgany, Co Wicklow, for example, rents start at €1,455 per month for a two-bed apartment, while three-bedroom apartments are in the region of €1,600.

And they are hard to get. More than 1,000 potential tenants applied to live in the first 25 cost-rental homes, for example.

However, under the Government’s Housing for All plan, there are plans to deliver about 18,000 cost-rental homes between now and 2030. Imminent schemes include The Crossings in Adamstown, west Dublin, where 392 cost-rental apartments are due to be completed by 2026, and Shanganagh in south Dublin, where there will be 306 cost-rental homes, including apartments, terraced, semidetached and detached houses. Meanwhile, in Limerick, plans are to redevelop Colbert Station in the city and create more than 400 cost-rental homes.

So how to get one? Given that no waiting list is in place, it is up to potential applicants to make themselves aware of upcoming schemes.

Fiona Dunkin, housing policy manager with Clúid Housing, which has developed cost-rental schemes in Kildare and Laois, advises those who are interested to keep an eye on its website and social media platforms, as well as Daft.ie.

Applications typically open on Wednesday at 9am, she says, and stay open for a week – usually closing at 5pm on the following Wednesday. All eligible applicants are then entered into a lottery for a home.

Given the tight time frame, make sure you are eligible and have gathered the required information in advance of this.

Availing of the rent credit is also important; it’s now worth €750 for a single person/€1,500 for a couple.

Protect your financial future

• Make sure you claim your rent credit – now worth €750 single person/€1,500 couple.
• Look for a cost rental and save 25 per cent on market rent.
• Start investing – can be done from about €100 a month – as well as saving into a pension.
• Remember home ownership costs too – a €400,000 mortgage can cost a further €287,478 in interest to your lender.

Which is more financially rewarding: renting or buying?

Consider a couple earning €100,000 combined. Option one would be that they bought an apartment for €350,000 with a 10 per cent deposit, so a mortgage then of €315,000, which they repay at 3 per cent over 30 years.

The other scenario would be that they don’t buy but instead pay rent of €2,000 a month, which increases by 2.5 per cent a year. They put all their savings into a low-cost index fund.

“In both scenarios, they are good savers and save everything above their rent/mortgage and €5,000 per month of expenses,” says Quinn.

Who has the better outcome? Well, if our renter can achieve a return of 7.4 per cent a year on their investments, they can have a portfolio worth about €3 million at retirement – pretty much the same as our homeowner, whose apartment will have grown by 3.5 per cent a year.

“What this shows is that with good investment discipline, a renter can secure their income in retirement and continue to pay rent,” says Quinn.

Another issue for our purchaser, is that they might have to downsize at the age of 80 to release equity, as they run out of cash according to a model run by Quinn.

Of course, such an investment return, while not impossible, is not a given.

And ultimately, Quinn still plumps for the homeowning option.

“I think it’s better to own; it’s so hard to manage investment behaviour,” says Quinn, adding that “it takes a lot of discipline” to run an investment strategy, as outlined above. Indeed, the temptation to cut back on savings, and or exit the market at times of volatility, will have a big impact on the overall outcome.

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