My Indo article: It is time to integrate home ownership into our pension savings scheme

Sophrosyne said:
Almost 90% of Singapore’s residents live in public housing.
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Hi Sop

I don't think that this is correct. They live in private housing which was built by the Housing Development Board.

They can sell it if they want to, so it's private housing.

As I said in the article:

Integrating pensions and home ownership was a key component of that strategy.

They did lots more as well.

They key point is that they went from 25% home ownership to 90% home ownership over 20 years. We are going in the opposite direction and it does not have to be that way.

Brendan
 
ryaner said:
Things have gotten so bad that I've heard multiple people go into house buying with a whatever it takes mentality as they had gotten so tired of the lack of stability from the rental market and it affecting their kids.
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When i moved from rural ireland back to Dublin last year the only option was to purchase. I went all in (and more) with mortgage. There was no possibility of renting. People mentioned to me about looking into HAP but I needed security. Id spent years getting things in place. I honestly dont know how people are expected to do it now. I have years of mortgage payments ahead right into pension age, but at least if something goes wrong there are options. No long term security with private renting, unlike years ago when local authorities were building public housing.
 
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Brendan Burgess said:
I don't think that this is correct. They live in private housing which was built by the Housing Development Board.

They can sell it if they want to, so it's private housing.
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It is true!

The reason Singapore achieved what it did was not solely because residents could borrow from their pension pot. It was also about affordability.

The Government owns the land on which the properties were built in perpetuity. It either built the properties or contracted it out to private contractors under Government supervision and subject to detailed precinct housing, amenity and environmental design.

Public properties are sold under a 99-year lease, there are re-sale restrictions on the seller and perspective buyers of new and re-sales must meet HDB conditions.

Because its government owns most of the land, it can readily increase the supply of public housing when necessary, thereby controlling costs, which was the main key to its success.

You cannot cherry pick parts of the Singapore model and expect the same outcome.
 
Hi Sop

To most people, "public housing" means social housing.

It is generally accepted that 90% of people in Singapore own their own homes.

If you wish to redefine owning a home with a 99 year lease as "public housing" that is fine, but it's not what most people think it means.

I am not cherry picking. I am highlighting that the decline in home ownership in Ireland is not something we have to accept. Singapore has done the opposite. And integrating pensions and home ownership was a key component of that. That was not the whole reason.


Brendan Burgess said:
Integrating pensions and home ownership was a key component of that strategy.
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Brendan Burgess said:
If you wish to redefine owning a home with a 99 year lease as "public housing" that is fine, but it's not what most people think it means.
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I am not going to argue the toss on whether it is public or private. Most global commentators and Singaporeans themselves refer to it as subsidized public housing.

I agree that use of pension funds to help fund house purchase is one component of Singapore’s housing success.

It is not the most important element and it does not work by itself.

By mentioning Singapore’s housing achievements, you are over egging the potential benefits of your suggestion to use pension funds as a means to alleviate the Irish home ownership problem.
 
Brendan Burgess said:
The Swiss system is not what I am proposing.

They allow the house buyer to cash their pension early but it is subject to taxation.
I am proposing that the first time buyer borrows the money from the pension fund.

Brendan
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IORPS II has banned borrowing from company pension schemes. So unless the person has a personal pension or a PRSA, they won't be allowed to borrow under this legislation.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Brendan Burgess said:
Interesting variation Gordon.

Allow the lender to give a FTB a 100% mortgage with the pension fund acting as a guarantor.

I would go for that, but I would prefer my solution as the buyer effectively pays interest to themselves rather than to the mortgage lender.

Brendan
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Also not allowed for company pension schemes which are written under trust for the benefit of the member. The person who is looking for the loan does not actually own the asset that they are looking to borrow against.
 
Hi Steven

It's important to work out what the right approach to housing and pensions is.

If there are rules in place which prevent the right solutions to be implemented, then those rules should be changed.

Brendan
 
You would be changing the fundamentals of trust law, allowing a beneficiary to borrow from an asset that they are not the owner of.

IORPS II is only in in the last year. If any of it was not going to be adopted, it would have been done.

So while you may propose this solutions, if we look at the barriers that are already there and what new legislation has come in, it is very unlikely that this is going to become a reality.
 
MrViking said:
Why bother save……since we’ll all have free houses, healthcare, and whatever else we want once Sinn Fein are elected. Roll on the populist agenda baby!
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It's strange that so many threads will have a go at SF while discussing a problem that has come about while FF & FG are in power (and implementing many shortsighted populist policies of their own).

And for the record I'm not and probably will never be a SF voter.
 
Brendan Burgess said:
In today's paper based on my Pre-Budget submission
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Really like this Brendan. Reusing an existing mechanism rather than a new complicated one involving a lot more administration. Getting people into the habit of pension contributions as a method of saving for their first house would also be an easier habit to continue after the homeloan is paid down. Two-pronged simple approach to general pension provisions. And a two-pronged approach to stopping the export of young talent, tax breaks on saving for a house and then being in your own home are incentives to stay.

However, as was pointed out Singapore applied other changes was the homebuilder and probably set the house prices at reasonable levels. It could be a big positive change in Ireland but if it was done in isolation I think it would cause house prices to spike up to the short - medium term with new demand. Until builders got supply in place to take advantage and stall the inevitable price rises, there would likely be a backlash.

While I think this should be done, it also comes back to supply being the broader fix and whether the state should get back into building houses.
 
PGF2016 said:
It's strange that so many threads will have a go at SF while discussing a problem that has come about while FF & FG are in power (and implementing many shortsighted populist policies of their own).

And for the record I'm not and probably will never be a SF voter.
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Because our housing shortage is fundamentally a problem caused by the success of other parts of the economy and society, because almost every country in the developed world is having the same problem, and because there's no easy or fast solution despite the Shinner lies that say there is.
 
It's a nice article Brendan but I quibble with a few points:

Brendan Burgess said:
The ESRI projects that, on current trends, only 50% of people who are currently aged between 25 and 34, will own their own homes when they retire. That means that 50% of these people will be renting either from the state or from private landlords.
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The ESRI paper assumes no inheritance of either property or financial wealth which is absurd!

The wealthiest generation ever seen in Ireland is going to die off over the next 20 years. The beneficiaries are going to be their children, and a lot of this will be retained as or converted into owner-occupied housing.

That's not to say that there isn't an issue, but this is more down to the Central Bank rules which - under current interest rates - limit a 25 year old on a solid career track to mortgage payments of about 25% of their net income. This is silly. They have 40 working years ahead of them and most likely increases in earnings and potentially an inheritance too.

Brendan Burgess said:
Saving the €30,000 or so for the deposit is the biggest barrier to getting on the housing ladder.
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Is it? I mean it's €500 each a month for couple for two-and-a-half years. This doesn't seem terribly onerous for people who wants to take on a mortgage for half of their remaining life. The bigger impediment is the 3.5 LTI multiple, particularly in urban areas.
 
NoRegretsCoyote said:
The bigger impediment is the 3.5 LTI multiple, particularly in urban areas.
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That just limits what the person at the top of the queue will pay. It doesn't make the house any more affordable for the person behind them.
Every house and apartment in the country that goes on sale is sold and it is sold to the person who can access the most capital. If the lending multiple in increased from 3.5 to 4.5 it just means that the same person who ends up buying it borrows more money and so pays more.
 
Which is the riskier for a young family, investing in a pension or buying a domestic property? When they buy, first-time buyers take on a significant leveraged holding of an illiquid asset relative to their net worth. While there may be or should be a high return in the future, it’s not guaranteed, and unlike a pension, they are buying in an unregulated environment, as recent housing standards scandals in Ireland demonstrate.

By moving assets from their pension, i.e. a regulated unleveraged investment environment, to domestic property in Ireland, first-time buyers would move some of their portfolio from a relatively low risk environment to leveraged riskier assets. Does such a swap make sense? And monthly repayments must now increase to repay not only the mortgage but to increase their pension contributions. (Or bet that the value of their house would increase sufficiently to top-up their pension if / when they dispose of the house in the future.)

This really is more like a ‘reverse endowment mortgage’, except instead of investing in equities with the aim to pay off a mortgage in the future, first time buyers would invest in property with the expectation of recouping the deposit to top up their pension in the future.

Why not just let those with spare cash contribute to or pay the deposit? I’ve suggested elsewhere How do we deal with the inequalities due to falling home ownership rates? | Askaboutmoney.com - the Irish consumer forum that CAT thresholds be adjusted to encourage inter-generational donation of cash from grandparents/parents with spare cash to ‘savings poor’ family members to fund the deposit/purchase of housing.

Gordon Gekko said:
There are other variations where the fund could take a share in the house. Or other people’s funds could take shares in people’s houses and earn a modest but predictable return.
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A great idea. Why not encourage those with spare cash to provide the deposit in return for the right to participate in a percentage of any future profit on the sale of the house? This has the benefit of moving risk to those better placed to hold it. Financial institutions could bundle up the participation rights and sell them on as collective products to those wishing to invest in domestic property as an asset class.

Or if you believe incomes will increase in the future, treat it as car finance (i.e. PCP); buy with a low (or no?) deposit and pay a tail payment at the end of the mortgage, either out of your savings, a gift from your parents, or from the capital gain on the property.
 
PMU said:
Which is the riskier for a young family, investing in a pension or buying a domestic property?
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No contest at all.

Buying a property is simply paying for their housing costs in advance. It is by far the least risky option.

The problem is the compartmenatlised thinking. That is my home and mortgage in that corner and my pension is over there.

This is how people should look at it.

House value: €300k
Pension fund: €100k
Mortgage: (€250k)
Net assets : €150k

Effectively anyone with a mortgage and pension fund is borrowing to invest in that pension fund.

Think of it another way. If the tax reliefs on pension funds were abolished in the morning, what would the right strategy be? Very simply.
1. Save the deposit for the house
2. Buy a house with a mortgage and the deposit
3. Pay off the mortgage
4. After the mortgage is paid off, start building up savings to live off in retirement.

We only break the rule of not borrowing to invest, because of the tax advantages of pension investing.

Brendan
 
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PMU said:
Which is the riskier for a young family, investing in a pension or buying a domestic property?
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You can't live in your pension fund.

Saving for the future is all well and good, but it's more important that they have security in the here and now.
 
In theory, with a house and a mortgage you do not really have security until the mortgage is paid off

In reality, because it is more or less impossible for the lender to enforce repossession in case of default, you do have some level of seciruty. Ths is paid for by the whole community of borrowers who have to pay higher interest charges becaus eof the difficulty in re-possessing properties where the mortgage is not being paid
 
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