WHAT IS THE easiest way to work out if someone in Ireland is well-off?
Maybe ask them where they were educated? Check what they work as? Forget that – by far the easiest way is to ask them whether they own a home.
If the answer is ‘Yes’, they almost certainly have decent ‘net wealth’.
If the answer is ‘No, I rent’ – well, you can probably guess what that means.
But just in case it isn’t clear, here are some stats to drive it home. A study published recently by Central Bank researcher Marco Moreno looked at the wealth divide in Ireland - ie, how much of a gap there is between the wealthiest and poorest in society.
A detailed breakdown of how this was calculated is available here, but basically it combines various data sources to calculate the assets and liabilities of Irish households.
The resulting difference between total assets and liabilities equals a household’s ‘net wealth’.
Crucially, this means a household’s net wealth takes its mortgage debt into account (ie, if your house is worth more than you owe, it’s a net positive).
A common view is that in recent years, Ireland’s wealth gap has gotten bigger. The research from Moreno found that isn’t true.
Now, there is of course a large divide between poor and wealthy. The research found that the richest 10% of Irish households own about as much wealth as the other 90% of the population combined.
But the gap has actually closed over the last decade.
In 2013, the bottom half of the population combined (the poorest 50% are grouped together in the research) owned €10 billion in assets. This was just 2% of Ireland’s wealth at the time.
As of 2023, the net wealth for this group had increased to €98 billion, or 9% of Ireland’s total wealth.
Of course, the richest 10% own far more. But their wealth has grown at a slower rate. In 2013, this group owned €286 billion, equivalent to 58% of Ireland’s wealth at the time.
Now, they own €518 billion, which is 48% of the country’s wealth.
So while the richest 10% are getting richer, the poorest 50% actually gained wealth at a faster rate.
(Source - page 79, fig 1)
So things seem to be getting more even, which would be good news. But what has caused this?
To understand that, it is crucial to recognise how closely linked Irish wealth is to property.
As of 2023, housing accounts for about 67% of total Irish assets.
It is also a more important source of wealth for those on the lower end of the income spectrum. The top 10% is more diversified than the rest of the population, with significant wealth in ‘business assets’ such as company stock. But even among this group, housing accounts for about half of their wealth.
For the other 90% of the population, it’s even more important, accounting for about three-quarters of their wealth.
Meaning that the rise in house prices is largely what has been behind the improved net wealth of the poorest 50%.
As house values have gone up from the bottom of the crash, household wealth has gone up with it.
So, Irish wealth is tied up in housing. Shocking stuff, says you. But it’s important nonetheless to lay out in black and white just how close the link between housing and wealth really is.
Because it gives crucial context to the following fact: Of Ireland’s total wealth, as of 2023, 97% is owned by homeowners. Just 3% is owned by renters.
What’s more, little has changed over the last decade. In 2013, renters also owned about 3% of Ireland’s wealth.
This is despite the fact that rented households account for more than 20% of the population, a figure which has been growing quickly - between the 2016 and 2022 census, the renting population rose by 10%.
As renters have not benefited from the massive rise in house prices over the last decade, their net wealth, already at pitifully low levels compared to homeowners, has stagnated.
The findings from Moreno’s research line up with data published by the Central Statistics Office last year, which puts the overwhelming gap between renters and homeowners in slightly easier to understand figures.
It found the median net wealth for homeowners in 2018 was €267,500, which surged to €303,900 by 2020.
For renters? Net wealth was a paltry €5,300 in 2020, or about 1.75% of the typical property-owning household.
This itself was a marginal improvement compared to 2018, when the net wealth of a renting household was €3,900, or about 1.5% of a typical home-owning household.
(Source: fig 5.3)
But taking a property-owner who is paying off a mortgage for 30 years and a tenant paying rent for 30 years, it is pretty clear to see who will be in a better position.
Owning a property gives many advantages, such as removing the need to pay rent in old age, the ability to borrow against an asset, and so on.
This is compounded by the fact that renting tends to be the more expensive option, with tenants typically spending over €3,500 more per year compared to someone who has taken a 90% mortgage on the same property.
Another potential counterpoint - don’t renters tend to be young? So maybe the issue is they just haven’t had time yet to get a mortgage and build wealth. Then once they do, things will even out.
That is true - to an extent.
CSO figures show the vast majority of young people rent, especially those under 30. Again unsurprisingly, this relationship flips for the older population. By age 40, just over a third of people rent, while the majority either have a mortgage or own their home outright.
(Source: fig 3.3)
There are two issues here.
One, there is still a chunk of people who rent into old age, with about 10% of those over 70 renting. These people likely have very little in terms of 'net wealth' or assets.
Two, as Ireland’s renting population is increasing, the number of older people renting also looks likely to continue to grow. Based on the above figures, they will almost certainly be far poorer than their home-owning peers.
So what does all this tell us? Two things.
One, that the wealth gap as we would traditionally think of it is actually narrowing in Ireland.
In fact, Moreno’s research found that Ireland had the largest reduction in wealth inequality over the last decade of 17 European countries studied.
(Source: page 89, fig 6)
But, two - this easing in inequality only applies to property owners. For renters, the gap has stayed the same between 2013 and 2023 and may have even gotten slightly worse given that a higher number of tenants still hold much the same level of Ireland’s wealth - about 3%.
Going back to the encouraging news of how the wealth gap between the top 10% and bottom 50% has narrowed (relatively speaking) over the last decade.
Renters are likely the ones in that bottom 50% who *have not* seen this gap shrink.
This is borne out by the fact that the CSO found that in the very lowest wealth group in the country, a staggering 91.6% are renters. Just 8.6% were homeowners, almost all of whom were in negative equity.
Basically, if you rent, it’s overwhelmingly likely that you’re among the poorest people in the country, at least in terms of net wealth.
The results are clear - Ireland’s wealth divide is improving. But only if you have your name on the deed.
For renters - the gap remains as entrenched as ever.
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