As Property Values Soar, Ireland's Generations Divide On Returns...

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http://www.csmonitor.com/2007/1017/p04s04-woeu.html


As property values soar, Ireland's generations divide on returns
Many older people gained equity, while young people try to pay large
mortgages.

By Michael Seaver | Correspondent of The Christian Science Monitor
from the October 17, 2007 edition



"Dublin, Ireland - Even as concerns about bad debt fueled Britain's worst
financial crisis in 15 years last month, a bestselling Irish author warned
in a new book that Ireland's skyrocketing property prices have left young
adults mired in debt.

Across Ireland, the average price of a new house rose almost 400 percent
between 1996 and 2006, creating inequality between an older generation who
bought before the decade-long economic "Celtic Tiger" boom and young
people
starting to pay off a mortgage.

With a 16 percent rise in population in the past decade, Ireland is second
only to Iceland in Europe in its proportion of residents under age 15.

"The lion's share of the ?500 billion [$694 billion] in wealth is held by
[those over 40] and ... the vast majority of the ?161 billion debt figure
is
lumbered on the under-40s," writes David McWilliams in "The Generation
Game," which dissects the social classes spawned by the Celtic Tiger. "The
young are getting into huge debt, while the old are basking in
unparalleled
housing wealth."

This property inflation has outstripped wages, which have been held in
check
by a succession of national wage agreements. Since the late 1990s,
public-sector pay increases have averaged about 4 percent annually.

But while the economic boom vaulted one of Europe's poorest countries into
one of its wealthiest and most energetic, there's a debate about its costs
to society - financially and otherwise.

Days after the book's Sept. 15 publication, Germany's ambassador to
Ireland,
Christian Pauls, commented in a public talk that "the question being posed
in Ireland was whether the new prosperity had made Irish society a
rougher,
less caring one." Ireland's Ministry of Foreign Affairs denounced the
comments as "inaccurate, misinformed, and inappropriate."


Boost or bane for social equality?

Christopher Whelan, a research professor at the Dublin-based Economic and
Social Research Institute, cites a report he coauthored on the social
impact
of the Celtic Tiger, "Best Of Times? The Social Impact of the Celtic
Tiger,"
which outlined a high level of satisfaction and social integration in
suburban neighborhoods.

"Critics of the Celtic Tiger often claim that it has enriched the economy
but weakened society," he says. "They say that wealth has come at the cost
of wider social inequality, declining community life, too much emphasis on
work and competition, a more selfish, materialist approach to life, and
many
other social ills. This gloomy view of the social consequences of
Ireland's
recent prosperity is not justified by our report."

But falling levels of volunteerism and charity suggest a society that is
becoming stingier with its time and money. Ireland has long maintained
high
levels of charitable donations. In 1985, with excessive budget deficits,
minimal growth, and 17 percent unemployment, Ireland donated more money
per
person to the fundraiser Live Aid than any other country.

"Irish people are giving more to charities now than prior to the economic
boom, but it is less as a percentage of their disposable income," says
James
Carroll of Trinity College, who has researched whether Ireland's economic
growth has influenced charitable giving. "These figures, as a measure of
generosity, suggest that we have become less charitable." Volunteerism
reached a low point as the economy was at its peak in the late 1990s.

Author McWilliams warns that the unparalleled wealth many are enjoying
could
disappear, at least in part, when the property boom ends. For many, wealth
is only on paper - a result of the value of their property..

"It would seem that many people have borrowed more than they can afford,
and
these people are going to be in trouble in the future," says Morgan Kelly
an
economist at University College Dublin. "They'll be stuck in their homes
for
years with negative equity."


Loans five times customers' income

He says Ireland has no formalized credit-rating system. Professor Kelly
points out that many institutions will lend customers five or six times
their income. Furthermore, Irish bankruptcy laws are harsher than those in
the US or Britain.

Minister of Finance Brian Cowen admitted in September that economic growth
this year will fall short of the government's estimate of 4.5 percent. But
he described this slowdown as an "impressively soft landing for an economy
that has gone through one of the most dramatic shifts in performance in
the
history of the developed world."

/

http://www.csmonitor.com/2007/1017/p04s04-woeu.html


As property values soar, Ireland's generations divide on returns
Many older people gained equity, while young people try to pay large
mortgages.

By Michael Seaver | Correspondent of The Christian Science Monitor
from the October 17, 2007 edition



"Dublin, Ireland - Even as concerns about bad debt fueled Britain's worst
financial crisis in 15 years last month, a bestselling Irish author warned
in a new book that Ireland's skyrocketing property prices have left young
adults mired in debt.

Across Ireland, the average price of a new house rose almost 400 percent
between 1996 and 2006, creating inequality between an older generation who
bought before the decade-long economic "Celtic Tiger" boom and young people
starting to pay off a mortgage.

With a 16 percent rise in population in the past decade, Ireland is second
only to Iceland in Europe in its proportion of residents under age 15.

"The lion's share of the ?500 billion [$694 billion] in wealth is held by
[those over 40] and ... the vast majority of the ?161 billion debt figure is
lumbered on the under-40s," writes David McWilliams in "The Generation
Game," which dissects the social classes spawned by the Celtic Tiger. "The
young are getting into huge debt, while the old are basking in unparalleled
housing wealth."

This property inflation has outstripped wages, which have been held in check
by a succession of national wage agreements. Since the late 1990s,
public-sector pay increases have averaged about 4 percent annually.

But while the economic boom vaulted one of Europe's poorest countries into
one of its wealthiest and most energetic, there's a debate about its costs
to society - financially and otherwise.

Days after the book's Sept. 15 publication, Germany's ambassador to Ireland,
Christian Pauls, commented in a public talk that "the question being posed
in Ireland was whether the new prosperity had made Irish society a rougher,
less caring one." Ireland's Ministry of Foreign Affairs denounced the
comments as "inaccurate, misinformed, and inappropriate."


Boost or bane for social equality?

Christopher Whelan, a research professor at the Dublin-based Economic and
Social Research Institute, cites a report he coauthored on the social impact
of the Celtic Tiger, "Best Of Times? The Social Impact of the Celtic Tiger,"
which outlined a high level of satisfaction and social integration in
suburban neighborhoods.

"Critics of the Celtic Tiger often claim that it has enriched the economy
but weakened society," he says. "They say that wealth has come at the cost
of wider social inequality, declining community life, too much emphasis on
work and competition, a more selfish, materialist approach to life, and many
other social ills. This gloomy view of the social consequences of Ireland's
recent prosperity is not justified by our report."

But falling levels of volunteerism and charity suggest a society that is
becoming stingier with its time and money. Ireland has long maintained high
levels of charitable donations. In 1985, with excessive budget deficits,
minimal growth, and 17 percent unemployment, Ireland donated more money per
person to the fundraiser Live Aid than any other country.

"Irish people are giving more to charities now than prior to the economic
boom, but it is less as a percentage of their disposable income," says James
Carroll of Trinity College, who has researched whether Ireland's economic
growth has influenced charitable giving. "These figures, as a measure of
generosity, suggest that we have become less charitable." Volunteerism
reached a low point as the economy was at its peak in the late 1990s.

Author McWilliams warns that the unparalleled wealth many are enjoying could
disappear, at least in part, when the property boom ends. For many, wealth
is only on paper - a result of the value of their property..

"It would seem that many people have borrowed more than they can afford, and
these people are going to be in trouble in the future," says Morgan Kelly an
economist at University College Dublin. "They'll be stuck in their homes for
years with negative equity."


Loans five times customers' income

He says Ireland has no formalized credit-rating system. Professor Kelly
points out that many institutions will lend customers five or six times
their income. Furthermore, Irish bankruptcy laws are harsher than those in
the US or Britain.

Minister of Finance Brian Cowen admitted in September that economic growth
this year will fall short of the government's estimate of 4.5 percent. But
he described this slowdown as an "impressively soft landing for an economy
that has gone through one of the most dramatic shifts in performance in the
history of the developed world."

/