Average private rents almost double their 2012 level, but income inequality at new record low

Average private rents rose from €589 to €1,084 per month between 2012 and 2021 in real terms, an increase of 84 per cent. These rising rents have led to a substantial decline in the affordability of housing for young and low-income private renters. For example, average housing cost to income ratios – a common measure of housing affordability – rose from 0.226 to 0.304 for private renters in the lowest income quintile (fifth of the distribution) between 2007 and 2021. This is despite the continuation of broad-based income growth over the course of the pandemic which has left income inequality at a new record low, with the Gini coefficient – a common measure of income inequality – now around a fifth below its historic high (in 1987) or pre-financial crisis peak (in 2006).

These are among the key findings of a new ESRI report published today as part of an ongoing programme of research funded by the Community Foundation for Ireland. Other key findings of the research, which develops new measures of after housing cost income poverty and inequality, include:

• While after housing cost measures of income poverty and inequality are higher than before housing cost measures, both have declined substantially in recent years. We estimate that the at risk of poverty (AROP) rate in 2021 was 15.6 per cent on an after housing cost basis (amounting to 785,000 individuals) compared to 12.4 per cent on a before housing cost basis (625,000 individuals). Similarly, the Gini coefficient in 2021 was 0.286 on an after housing cost basis compared to 0.265 on a before housing cost basis. However, all these measures of income poverty and inequality have seen sustained declines in recent years, reversing the rise experienced in the years following the financial crisis.
• These (perhaps surprising) declines in after housing cost income poverty and inequality are largely driven by patterns of housing tenure and mortgage interest rates. Most of the population live in owner-occupied accommodation, with just 12 per cent of even the lowest income fifth living in the unsupported private rental sector. Historically low interest rates and the expansion of the supported rental sector have therefore acted to insulate most lower-income households from rapidly rising rents.
• However, there is a large group of individuals who report being materially deprived but who are not classified as being at risk of poverty (AROP). We estimate that in 2021, 69 per cent of the 695,000 people experiencing material deprivation – not being able to afford 2 or more items from a list of 11 essentials – had incomes above the poverty line on an after housing cost basis. Of these, almost half lived in a household where someone reported having a disability, with most of these less than €100 per week above the poverty line after accounting for household size.
• Although they are at much lower risk of poverty, those living in households where someone of working age is in paid work still make up over one-third of those below the poverty line. Individuals in such ‘working poor’ households make up approximately 220,000 of the 625,000 below the before housing cost poverty line and 333,000 of the 740,000 below the after housing cost poverty line. This is despite their much lower AROP rates and reflects the fact that households with someone in paid work make up the bulk of the working-age population.

Barra Roantree, an economist at the ESRI and an author of the report said:

“Addressing the challenges of housing affordability highlighted in our report will require a sustained increase in supply, particularly of social and cost rental housing. Until that is achieved, and despite the large costs involved, supports like HAP will continue to play a key role. Given this, more regular review of the income and rent limits governing the scheme will be needed if the exposure of more households to unaffordable housing costs is to be avoided.” 

Michelle Barrett, another author of the report said:

“Our report finds that the way poverty is officially measured potentially excludes many individuals in households affected by a disability. This is because it does not account for the substantial extra costs of living faced by this group, and suggests that there may be a case for revisiting the way the income-related component of the official poverty indicator is measured.”

Paul Redmond, an economist at the ESRI and another author of the report said:

“In work-poverty is an area of concern as it is linked to lower well-being and social exclusion. In 2019, approximately 220,000 people were affected by in-work poverty in Ireland. This was particularly prevalent among supported renters and lone parents. The working poor were also disproportionately reliant on someone earning the minimum wage. However, increasing the minimum wage will have a limited impact on overall poverty reduction, as most people at risk of poverty do not work. This highlights the need for other policies to tackle poverty, such as affordable, quality childcare to allow full-time work by at least one adult in a household.”

Denise Charlton, Chief Executive of The Community Foundation for Ireland who funded this research said:

“Despite the progress in reducing income inequality, this report highlights significant challenges in relation to poverty, something the 5,000 voluntary, community and charitable partners of The Community Foundation for Ireland respond to each day. The identification of key at risk groups like renters, people with disabilities, lone parents as well as the ‘working poor’ will help inform that work.”