The cost of housing and indebtedness across European and OECD households

Jane Kelly, Gerard Kennedy and Derek Lambert
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Gerard Kennedy: Central Bank of Ireland

No 10/FS/21, Financial Stability Notes from Central Bank of Ireland

Abstract: Challenges around housing affordability have been growing internationally in recent years. In that context, we compare how Ireland’s experience has related to that of other European and OECD countries. Housing represents one of the largest single outlays for households as well as one of the largest sources of wealth for most owner occupiers. We show household debt burdens in Ireland are now closer to other European countries having been above average in the past. We highlight that mortgage and rental burdens in Ireland – although uneven across the household income distribution – are broadly comparable to those of other OECD countries. We find that house price valuations relative to incomes and to a lesser extent rents remain elevated relative to history, but nowhere near the levels preceding the housing crash and are slightly lower than two to three years ago. We also examine the relative affordability of acquiring home-ownership in a cross-country context, by constructing a series of national house price to income ratios and find that, on average, the current Irish level is in-line with many other developed economies. This is not to say that housing in Ireland is inexpensiveon an absolute basis but in placing the Irish data in a broader international context we show that the housing affordability pressures appear to be part of a wider set of global challenging trends in housing markets. This note mainly focuses on averages and does not examine the issue of housing affordability of individuals where experiences are likely to vary widely depending on income and within country regional dynamics.

Date: 2021-10
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