YESTERDAY a very important article appeared in this paper by my colleague Thomas Molloy on the exorbitant cost of childcare. In the piece Molloy examined the results of a survey carried out by the Irish Independent and KBC Bank, which indicated that many young couples are now paying more each month for childcare then they are on the mortgage.
He went on to make a broader argument about how different generations are bearing differing economic burdens in Ireland and how on many indicators, it appears that the older generations have managed to fare better than the younger generations for a variety of social and political reasons.
These are important points and deserve to be fleshed out in detail because many societies — maybe not intentionally — end up with a situation where one generation does much better than another.
In Ireland this generational split is made all the more stark by the housing boom and the fact that the very people having children now are also highly likely to be the very people lumbered with huge mortgages.
The average woman here has her first child at 31. This means that the people we are talking about crippled with high childcare costs are the generation between 30 and 40, in the main.
These are exactly the same people that were bundled on to the property ladder in the final years of the “smash and grab” exercise known as the housing boom. Therefore, they are caught in a brace between the exorbitant cost of childcare and the collapse in house prices.
In many cases, they bought into the property scam precisely because they wanted to have families.
Owning your own place was marketed as the thing responsible people did. The prevalent view back then was that this was something that responsible young people should do rather than rent and expose their family unit to the alleged vicissitudes of landlords.
As a result, hundreds of thousands were herded into the wealth destroying grinder machine called the wildly overvalued housing market. Some walked willingly into personal financial Armageddon, others were pushed and prodded against their better judgment.
But ultimately they all ended up in the same place — a land of crippling negative equity where financial hope for the future is tempered by the realisation that they have destroyed the wealth of their family forever because general house prices will probably never recover to mid-Noughties levels.
Throughout this madness I warned, in this column, about the consequence of the bubble, so what you are about to read might sound strange — but for many reasonable people, rising house prices is, or was, at least seen almost like a “social contract”.
Most people want to live decently, raise a family and by saving and investing in a house that holds its value, we can generate modest wealth, which we then hope to pass on. The house is a store of this wealth.
We are not talking here about excessive, greedy returns, but just the normal human desire to create something of value that we can call our own when all is said and done.
In our society this was taken to be a kind of “understanding” which is why the fall in house prices is sometimes termed a betrayal of a generation’s hopes and aspirations.
Whether this is the right way to regard accommodation is neither here nor there for now, this is the way our society and all other English-speaking societies have evolved in terms of the individual and the relationship with property.
Banks take advantage of this potentially volatile relationship, which is one of the main reasons why they are regulated or are supposed to be.
What happens when you discover that not only is your house not a store of wealth but quite the opposite? What happens when you realise that it is the single greatest destroyer of the wealth?
It would be fair to say that you tolerate this angrily as long as the monthly cost keeps falling, even if the value has collapsed because you don’t have to sell and crystallise the losses.
WHAT do you think will happen to this generation, caught between huge childcare costs, negative equity and falling incomes, if the monthly mortgage bill were to rise?
What choices do you think the 400,000 people on tracker mortgages might take? Will they choose their children or their houses?
This is what the choice will come down to: do you pay for the mortgage or do you pay for the childcare or do you stay at home, in which case you lose your independence and your income.
Of course they will choose their children and their own careers, which they need to maintain for their own sense of themselves and have to maintain to pay the bills.
At the moment, because of the European debt crisis, interest rates in Ireland are at historically low levels. The main beneficiaries of this are those 400,000 on trackers who have seen their monthly mortgage payments fall and fall since the beginning of the crisis.
But what happens if the European debt crisis is solved and normality returns? Then interest rates go back up and Ireland sees mass mortgage default while the rest of Europe, not mired in such personal and mortgage debt, moves on.
Can there ever have been a more ludicrous situation where failure of the eurozone characterised by on-going debt crises, summits and the like, is actually in the interest of many hundreds of thousands of citizens of that monetary union?
It is quite, quite bizarre.
As the cost of childcare remains extremely high and as, after tax, incomes fall, the only big saving the average punter can make is on their mortgages.
If mortgage rates rise, which they will do over the course of the average 25-year mortgage, the numbers will simply not add up for thousands of the generation that were first-time buyers in the Noughties.
This will most probably manifest itself in more and more mortgage defaults as the next phase of the Great Irish Housing Crash — the mass default phase — plays itself out.
“… by the realisation that they have destroyed the wealth of their family forever because general house prices will probably never recover to mid-Noughties levels.”
As someone in his thirties, who bought a house in the mid-Naughties to start a family, and now has a very young family to support, the above truth really – I mean really really – hurts. The house has cost me twice my annual salary already, and it’s in negative equity by approximately the same amount.
This to me is the elephant in the room.It is a very painful reality. These are my experiences over the last 5yrs: Young family in our early 30’s, bought a family home.moved out 20miles out to buy what we thought was affordable at the time. only took two thirds of mortgage of what we were approved for. We lost at least 150k of saving in our house and had to hand to bank as was long term unsustainanle(permanent tsb varible). Between us we had lost our job and business with 3 very young kids. I was an accountant. I have… Read more »
I just moved back to Ireland with my wife and three kids (10,7 & 5) after 27 years abroad. The move was something we wanted to do sooner rather than later but we waited several years before taking the plunge. One of the main reasons we moved now was that our youngest is able to go to infant school and we don’t have the burden of childcare to worry about along with all the other unavoidable expenses. On the whole, we’re finding that the cost of living (in North County Dublin) is on a par with what we paid in… Read more »
Morning David In my experience I have found many young couples suffering in silence under the pressure of trying to raise a family and meeting their banking obligations which they signed up to in the good times. This stress,anxiety and fear is putting a huge strain on couples today trying to do ,what they believe is the right thing.This group in Society has little or no savings and is trying to survive week to week or month to month.The hope that “next year will be better” holds a lot of sway in a household like this. Some are good at… Read more »
One observation, from the ‘post bust’ generation. Renting is not a viable option in Dublin if you have a young family. I have lived in rented accommodation in Dublin for the last decade. And it is poorly appointed, overpriced rubbish. Myself and my wife are a young ‘starter family’. A one year old baby and neither of us are from Dublin so we have no family support. We are eager to ‘settle’ someplace, to begin laying ‘roots’, to start preparing for schools, to get to know our neighbours, to build a life etc. But the issue of childcare means that… Read more »
“alleged vicissitudes of landlords” are you for real David we are not in Germany If I rent equivalent family home 60 years or till I die with nothing to pass on and with rent increases for sixty years = If I mortgage equivalent family home for 25 with a house to pass on plus other benefits, like this simple one for example I am able to hang a picture on a wall = Work out the cost and numbers yourself’s So no debt forgiveness for the people renting who will also in David world have to pay rent for those… Read more »
There was plent of affordable homes for rent along the rail lines outside of Dublin ? It would help if employers based in cities gave a housing allowance of €5k a yr to their staff. Many employers take the view that you should move back in with your parents !!!!!! That’s what I remenber older people telling me in the eighties.It’s called the Bill Cullen approach. What do need a salary for ? Work for pocket money, pretend that you are still 12.LOL.
[…] McWilliams has published this article in relation to the news this week that “many young couples are now paying more each month […]
My 2 cents here:
http://www.meetmums.ie/blog/trapped-between-childcare-costs-and-a-mortgage
In the middle of the Bertie bonanza, they introduced tax individualisation, which removed any financial incentive for one parent to remain at home with the kids. I know of families who nonetheless decided to stick with the stay at home option, but whose peers, especially some of the the new generation of working women, branded them as mad. Strangely enough, this new species of Irish couple in a lot of cases splashed the cash on an oversized house instead of a modest one, an uppity area instead of an average one, an oversized motor instead of an average one, more… Read more »
Hi, Very important article. I am 40 with 3 kids 3 and under. Those of us who were trained professionals in the construction industry found ourselves surplus to requirements BEFORE the crash for the same reason as top quality risk managers in the banks found themselves sidelined. The fact that we would do our jobs properly was too much of a threat to the establishment and status quo. The decision to stay at home and mind the kids has been made for me because I would need a salary of 45k to 50k just to break even with child care… Read more »
David, We’re talking about 2 different things here — childcare costs and negative equity. Childcare costs are high everywhere not just in Ireland, and there are plenty of single people also affected by negative equity. Childcare is actually more expensive here in Paris. Up to the age of 3, we were paying €1100 per month for our son (now 8). And we were supposedly the lucky ones, as only one child in ten gets a place in a creche in Paris. And when your child has a cold or is ill, they cannot take your child in the creche and… Read more »
Very relevant. I have a relative with a huge interest only mortgage from NIB. Hes paying only 0,5% above ECB rate so hes on 1,25 % interest at the moment and its the only thing keeping him above water as far as I can see. At the height of the boom his interest rate was 4,75% which I believe is near the normal long term cost of money. NIB must have been losing money on the mortgage until the ECB allowed all banks to borrow at 1% as they were allegedly paying 3% in the market before that point. Because… Read more »
Pardon me asking, but what are the reasons for childcare being so high in Ireland?
EU and national regulations about quality?
I’m living in Holland. A decade ago, when young women joined the labour force, neighbour childcare sprang up everywhere, very cheaply. The government intervened, because accommodation and the day care quality weren’t up to EU standards. Now, it’s very expensive to have day care, if you’re so lucky as to find a place, at all.
Hmm, I think there is some merit in your proposals but what if you’re a mortgage holder who is lucky enough not to be struggling as a result of the property crash (not my situation, btw). Does that person have to service the repayments in full whilst his neighbour gets a debt deal? Who pays for the debt forgiveness ultimately? What about people who haven’t a mortgage perhaps because they didn’t play the keep up with joneses game in the early to mid noughties. Remember, it wasn’t as laudable as simply wanting a home for your family – the social… Read more »
Steven Pearlstein who writes for the Washington Post had some interesting observations that I have edited down for those of you who do not have subscriptions to that publication. The first quote is from Boyracer who posts some interesting stuff on another forum……. “Glass-Steagall was not in fact repealed. Only the provision prohibiting a commercial bank and an investment bank from being controlled by the same holding company was repealed” (Boyracer) Repeal of Glass-Steagall has become for the Democratic left what Fannie Mae and Freddie Mac are for the Republican right – a simple and facially plausible conspiracy theory about… Read more »
I agree with what has just been said. Greed and keeping up with the joneses had a lot to do with the whole thing. Debt forgiveness will never happen, because why should other people pay? We’ve all bought things and then wondered later on, why did I ever buy that? I remember a few years ago some friends of my sister popped in to see us in Paris. They spent the whole time saying, how do you live here, so small, 2nd floor, no lift (you don’t get lifts in classified historic buildings in Paris) … and bragging about their… Read more »
Childcare costs are high because of bureaucracy and the anti-community effects of today’s form of living. By the way, I feel everyone should have access to childcare at a good price – indeed I claim children benefit from childcare from experienced parents (as against institutional process childcare monkeys) certainly in the initial years. Take boarding schools. These are creches for rich absentee parents. Such can be found in the corridors of power in the EU and elsewhere. Because a disturbing number of these people are sociopaths (being boarded away themselves) and/or opportunistic they can easily dream up reasons for having… Read more »
Go Katie Box Ireland out of the ‘Debts’ of despair
Halo Effect must be perfect, and his/her ability to predict with such uncanny accuracy who requires assistance, and the reasons for which they require this assistance, and the reasons why they should not get any assistance. This gets us nowhere. CSO figures tell us the economy is substantially smaller than it was in 2008 (by about 13%). In simple terms this means that there is 13% less to go around in terms of paying for things (be it mortgages, childcare or retail items). The decrease in the money supply is exacerbated by three things; banks acting as collection agencies and… Read more »
Interest rates since the introduction of the EU have been too low. Keeping them low is not sustaining people, it is sustaining their delusions. And this is across the society. Low interest rates have acted as a subsidy towards speculation. Both causing increased speculation, and bailing out speculation. I have to wonder what exactly were these people thinking when they bought expensive property – were they thinking at all, or were they just reading absurd Irish media commentary frmo the likes of Austin Hughes and Dan McLaughlin concerning house prices going up forever. The unavoidabe answer is partial default and… Read more »
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The Troika kills. First the pensioners, the suicides of able workers, then the children.
To bury the nation state, the only idea we have, is their objective. That idea is determined by our future, a future. The future is the kids. They do not want this breakdown now.
The kids will, and make no mistake about this, measure you. What kind of anti-idea mentality brought this destruction? What insane mental disease?
Hubris has met it’s Nemesis and cant man up
Know thy self, know thy enemy…. your enemy may you
Caveat emptor
If you bought your PC to write this blog, you are contributing to the destruction of the nation state. If you bought anything internationally because it is cheaper than local production and you exported because you are cheaper than their local production….you have aided and abetted in the destruction of the nation state and the ability to sustain itself. Now, on the law of averages, it was hoped that this would even out as nation states scavenged one another, but the sudden arrival of Asia and her massive ability to export low interest rates (and this is an important point)… Read more »
http://www.independent.ie/national-news/childcare-costing-more-than-mortgage-bills-survey-finds-3190912.html
Also from the Indo 120807 on childcare costs…. €1,113/mth to have a small child minded in Swords? Wow
David, you appear to be equating falling house prices “negative equity” with mortgage areas. { “WHAT do you think will happen to this generation, caught between huge childcare costs, negative equity and falling incomes, if the monthly mortgage bill were to rise.” } It has also always been the case with mortgage’s that interest was never stable they were at 17% 80s A baby born at the time of the crash of 2008 is now in school and some of those born in the 00s boom some are now twelve. Hopefully they will be educated on the risk associated with… Read more »
David, do you only want debt forgiveness for those that have mortgage’s
Monti’s Attack on Parliaments Draws Prominent Criticism in Austria and Germany In a harshly-worded statement issued in Vienna yesterday, Ewald Podgorschek, financial policy spokesman of the Freedom Party of Austria (FPOE), denounced Mario Monti’s disrespectful remarks on national parliaments, in a newspaper interview, as an attack on democracy. The division of power, giving parliaments political control over governments, is a core aspect of democracy; therefore, Monti’s remarks have to be rejected in the most categoric terms, Podgorschek said, adding that one may pose the question of whether Monti’s loyalty still is more with his former employer, Goldman Sachs, than with… Read more »
Below is an opening paragraph from The Irish Times – Comment-Friday, August 10, 2012 Germany’s euro debate A NECESSARY, welcome but belated public debate is opening up in Germany about the future of the euro and that state’s role in preserving it. The discussion engages different members of the conservative coalition between the Christian Democrats, Free Democrats and the Christian Social Union, the opposition Social Democrats, Greens and Left parties as well as dividing economists, lawyers, philosophers and other intellectuals, the media and the country’s wider public opinion. Since Germany is the central player in this drama it is essential… Read more »
Deutsche Welle, the official international broadcasting agency of the German government, runs a lengthy article announcing boldly that Glass-Steagall “is on the table in the United States and Germany.” Accompanied throughout by captioned pictures : “Senator Carter Glass and Rep. Henry B. Steagall wanted to help end the Great Depression” American statesman Lyndon LaRouche called the article significant, noting that a number of opponents of Glass-Steagall have recently turned to endorse it, such as the Financial Times and The New York Times, and in Germany, the debate has been joined by Handelsblatt, Der Spiegel, and the Constitutional Court. LaRouche characterized… Read more »
London Financial Investigator: There’s a Reason Why Almost Every Major Financial Scandal Has a London Connection Rowan Bosworth-Davies, a former London Metropolitan Police (New Scotland Yard) Fraud Squad detective and the former head of investigations for City regulator FIMRA, the predecessor to the FSA, has denounced the cries of ‘unfair’ coming from sections of the City after the announcements from New York State’s Department of Financial Services on Standard Charter Bank’s money laundering. He states on Aug. 9 on his website, “They don’t seem to understand that the American authorities are growing very concerned with the way that just about… Read more »
This is how to do it : Perth Amboy, New Jersey City Council Demands, Pass H.R. 1489! Aug. 10, 2010 (LPAC)–The Perth Amboy, N.J., City Council passed the resolution below calling on Congress to pass H.R. 1489, the bill to reenact Glass-Steagall, on Aug. 8: RESOLUTION URGING CONGRESS TO ENACT H.R. 1489, “THE RETURN TO PRUDENT BANKING ACT.” WHEREAS, the current weight of trillions of dollars in gambling debts, foisted on the U.S. taxpayers in the 2008-2011 bailout of Wall Street and the City of London is currently obliterating and destroying the economy of the United States and its people;… Read more »
The IT opinion piece posted above, firstly does not show the harsh response to Monti’s outburst posted here, nor is it up to date. Guns of August Drumbeat: Some Hope for the Great `Carl Schmitt Moment’ {Sueddeutsche Zeitugn} journalist Thomas Kirchner, Aug 10, writes an ominous feuilleton essay with the headline: “The attack is imminent. We should therefore finally approach the crisis realistically.” He cites Fred Bergsten and Jacob Kirkegard, who said that the situation in the eurozone is comparable to what in former times would have been “an imminent military attack” on a territory. In such extraordinary times, countries… Read more »
Some are calculating wrongly : Asian banks prepare for BRIXIT :
http://blogs.telegraph.co.uk/finance/author/ambroseevans-pritchard/
Everyone knws austerity cannot work, either here or in the USA. But billionaires apparently think it must. ROMNEY PICKS AUSTERITY FREAK PAUL RYAN AS VP RUNNING MATE Aug. 11 (LPAC)–Putative Republican Party presidential nominee Mitt Romney has picked uber-austerity fanatic Rep. Paul Ryan (R-Wisc.), the 42 year old chairman of the House Budget Committee, as his vice presidential running mate. At an appearance at a rally in Virginia this morning, Romney introduced his pick. Ryan was first elected to Congress in 1998, when the Democratic incumbent sought the U.S. Senate seat. Prior to his election, Ryan worked for Empower America,… Read more »
As Griffith said, political independence would be meaningless without economic independence. http://laroucheirishbrigade.wordpress.com/2012/08/11/time-to-remember-griffiths-role-in-pursuit-of-irish-liberty/ Griffiths economics, well published in the United Irishman with explicit reference to Friedrich List’s writings, are here : http://american_almanac.tripod.com/sinnfein.htm http://american_almanac.tripod.com/listlieb.htm http://american_almanac.tripod.com/hammanuf.htm Here we have a point for point refutation of Adam Smith, a full exposition of Hamilton’s economics and finance. Telling is the IT essay this week not mentioning a single economic reference. It is high time to put Hamilton’s, List’s and Griffith’s policies on the agenda immediately, with 100 years of experience including Lincoln’s, FDR’s and JFK’s examples. Thus the economic recovery of Ireland for today is… Read more »
Arthur Griffith acknowledged Friedrich List’s economics, developed from the American System. That none of this is taught today is a telling epitaph of a dying financial casino. What is `American System’ Economics? PHYSICAL ECONOMY — Part I http://american_almanac.tripod.com/nbs1.htm The ‘American System’ Means Sovereignty, Not Free Trade PHYSICAL ECONOMY — Part II The ‘American System’ Requires That A Nation Control Its Own Currency PHYSICAL ECONOMY — Part III The ‘American System’ Requires a National Bank PHYSICAL ECONOMY — Part IV Considering what Wall Street and London have foisted on the world, it is time for Griffith’s approach again. Step aside from… Read more »
Rename this blog!
I suggest this blog to be renamed into LarouchePac dot ie instead of David Mc Williams dot ie.