The wealth of Irish households has now reached more than €1,205 billion. New Central Bank figures provide key insights into where this wealth is held, the trend over time and its distribution across the population.
Rising home ownership and increasing property prices remain central to the Irish wealth story which – as in many other countries – shows those who have it already are well placed in an era of rising property prices and stock markets.
1. The long climb upwards: The total wealth of Irish households was 4.6 per cent higher in the third quarter of last year compared to with the previous quarter, bringing it to €1,205.1 billion, a new record. The increase over the past year was a striking 15 per cent, with rising house prices, healthy stock markets and new investment in property and financial assets all playing a role. But the real story is in the longer-term data. Irish wealth has ebbed and flowed along with house prices. Total net Irish household wealth – in other words assets minus liabilities – reached a pre-financial crash peak of €716 billion in the second quarter of 2007, though in hindsight the house prices on which this was based were, in many cases, overly inflated.
Such was the extent of the property crash that it would be the second quarter of 2018 before this level of wealth was exceeded again. In the meantime, by early 2013 household wealth had bottomed out at €407 billion, meaning the crash had taken 43 per cent off the 2017 peak.
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It is worth looking at the value of liabilities here, as well as assets. Driven by a surge in property borrowing, the financial liabilities of Irish households – mainly mortgage borrowing – peaked at €211 billion in late 2008. It was a case of once bitten twice shy for households – and for banks – and so these borrowings fell to €132 billion in 2020, a massive deleveraging. They have since risen to more than €160 billion, still well short of the pre financial crash high in cash terms.
Total wealth rose €56.2 billion in the third quarter of last year, with rising house prices contributing €29.2 billion of this, while in addition there was €3.5 billion in new investment in housing
2. Getting richer: Rising house prices are obviously a factor pushing the total wealth of the Irish population higher. But fresh investment as income is put into property or financial assets is also playing a role. Total wealth rose €56.2 billion in the third quarter of last year, with rising house prices contributing €29.2 billion of this, while in addition there was €3.5 billion in new investment in housing. The rest was accounted for largely by the rising value of financial assets and new investment in this area, as well as small changes in debt levels.
The breakdown of the figures shows two things – first the influence of house prices and second the amount of money going into financial assets such as life assurance policies (many linked to the markets) and pensions, where total investment has risen steadily in recent years.
3. Debt decline: Irish households have moved over the last 15 years from being highly indebted – mainly due to property-related borrowings – to being in line with European Union norms. In cash terms, as we have seen, debts have fallen, but there are better ways to look at this. The most common indicator is debt as a proportion of annual income. Using income figures from the Central Statistics Office, the Central Bank now estimates that on average the debt-to-income ratio of Irish households is 93.3 per cent. To put this in context, at the end of 2009 the debts of Irish households were on average more than twice annual income levels (216 per cent, to be precise). Household debt levels, mainly driven by mortgages, have fallen from way above EU norms to something roughly in line with the average.
With debt mainly incurred to buy property, house values are important too in looking at how secure finances are. At the time of the financial crash, house prices were significantly overvalued based on incomes. Following the crash they were then undervalued and between around 2018 and 2022 were seen by economists to be roughly fully valued. But this has changed over the past couple of years, with the Economic and Social Research Institute (ESRI) calculating that prices were again overvalued, perhaps by about 10 per cent.
The ESRI also points out that while overall household debts remain low, there are those who have borrowed heavily to get into the property market in recent years: “It is evident that an increasing number of Irish households are facing elevated leveraged positions in terms of the mortgaged debts they are carrying. This renders these households quite vulnerable, particularly to any labour market shock, both in terms of a sudden rise in unemployment and/or a decline in real wages.”
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4. The family home: Housing wealth now stands at €812 billion, representing two-thirds of total net wealth. Irish household wealth is not all about housing – but it is the dominant factor. And research has shown that those who rent rather than own generally have little by way of wealth. The concentration of wealth in home ownership also has implications for accessing it. Households can dip into deposits and many financial investments can be sold quickly, too, but everyone needs somewhere to live and the bulk of property wealth is tied up in the family home.
In terms of the way they hold their wealth, Irish households can roughly be divided into three groups – though in all cases property is dominant. The richest 10 per cent have a more diversified portfolio with business wealth – such as companies they own – accounting for more of what they own. They also have low borrowings relating to their income, and property accounts for about 40 per cent of their assets. For what might be called the middle group it is all about the property, in many cases the family home, which typically accounts for 80 per cent or more of their wealth. The family home accounts for much of the wealth of the least wealthy half of the population too, though on average they hold more than other groups in bank deposits and have more borrowings in relation to their income. A key factor improving the position of the less wealthy half of the population in recent years has been falling borrowing levels. It is also important to note that within the least wealthy group are renters who own no property at all and typically have little by way of financial assets.
5. The rich get richer: In cash terms in recent years, the rich have been getting richer. Just about half of the €400 billion-plus rise in wealth of Irish households since before the pandemic has accrued to the wealthiest 10 per cent of the population. This partly comes down to maths – those with a lot of assets already gain most when property and share prices rise.
Nonetheless, the overall wealth gap has closed a bit between rich and poor over the past decade, due to rising house prices and, crucially, falling indebtedness among the less wealthy. The story here is that the fall of many households into negative equity following the financial crash has slowly been undone. As housing wealth is more important for those on middle and lower incomes, soaring house prices and the gradual clearing of boomtime mortgages have closed the wealth gap a bit, with the most used measure of wealth inequality a bit lower in Ireland than the EU average.
Central Bank research in 2022 suggests the share of households with millionaires more than doubled from 5 per cent to 12 per cent between 2013 and 2022, increasing from about 87,000 to 223,000 households over this period
That said, wealth is still concentrated among a few. The top 10 per cent of Irish households own half of total household net wealth, more than five times the amount owned by the least wealthy half of the population. There is also a comfortable middle – the group above the average but below the top 10 per cent – who own 42 per cent of the total. Wealth distribution is complicated and there are also signs that the very rich are doing increasingly well. Central Bank research in 2022 suggests the share of households with millionaires more than doubled from 5 per cent to 12 per cent between 2013 and 2022, increasing from about 87,000 to 223,000 households over this period. This total may well have risen close to 300,000 in the meantime.
6. What does it all mean? The figures are important for a few reasons. They show, first, the continued reliance on property wealth and the risk of some recent borrowers being exposed if economic conditions turn. Second, the vast wealth tied up in property is lightly taxed in Ireland, particularly when it is the family home. The Commission on Tax and Welfare argues that this needs to change – and there are equity arguments supporting this – but politically this argument is not popular. Third, better-off Irish households have more financial assets and we know there are billions lying in bank deposits. There may be an opportunity here to tap some of these savings to boost investment in the economy in areas such as housing and infrastructure in the years to come. For now, the State has plenty of cash in its coffers, but pressures will grow over the next few years.
