Years ago, as a much younger man, I had the opportunity to interview the much older English socialist Tony Benn. We sat for an afternoon in the basement of his London home, lined with books and campaign posters, a montage to British 20th-century political activism.
Looking back at his lengthy career, the erudite Benn quipped: “One thing you must understand about politics, young man, is that the young and the old have one thing in common: we are both bullied by the middle-aged.”
This expression has stayed with me. When seen from this perspective, policy is simple: the middle-aged set the agenda, feathering their retirement nests while the young pay on the basis they have time to make up their early losses and while the old, well, they pass away.
In the end, middle-aged concerns govern and the society adjusts to their short-term trepidations, whatever the cost.
The Department of Finance’s Future Forty report bears out Benn’s succinct generational interoperation of politics.
This is obviously a big piece of economic research, but it can be summed up quite easily: we are getting old, running out of people and won’t have money to pay for our standard of living, so we must get in loads of new workers to pay for everything.
And who will pay? Well, the young of course, via higher and higher house prices. The Department of Finance says that Ireland’s housing crisis is likely to persist until at least 2040. So if you are an Irish person in your 20s who didn’t feel like emigrating until now, this forecast may change your mind.
The middle-aged who run the State are warning the young that most of your income will go on rent, meaning you’ll live precariously and won’t have a real stake in the society, but please stick around to pay my pension.
Essentially the report is saying immigration is the solution at a time when survey after survey shows Irish people are concerned about the rate of immigration. It is not that Irish people do not have a heart, but we also have a head. Our head is worried about whether we have the capacity to absorb more people.
In economic terms, we understand supply constraints. Yet officialdom responds to these apprehensions by amplifying them. The report states that “immigration has the potential to offset some of these demographic challenges by boosting the working-age population”.
In economic terms, this is a straightforward demand-side remedy: add workers (and consumers) via migration, then tax revenues swell to pay pensions and care for the middle-aged when they get older.
When you stand back, it is obvious that officialdom places the stability of the State’s balance sheet ahead of the stability of society itself because more immigration means more capacity problems across all services – housing, transport, schools, health, etc – potentially undermining societal coherence.
In effect the department is saying: “Yes, the housing crisis will persist for decades. And, yes, this is politically, socially and economically destabilising. But to fund the pension system, that is the price we must pay.”
This is not just economically questionable. It is politically reckless.
Maybe a better approach would be to acknowledge that population growth will slow down and instead of trying to drive the economy faster and faster we might decide to take a breath and slow down a bit.
[ What went wrong with the reits that allowed people invest in property?Opens in new window ]
This would mean explaining to the middle-aged that there won’t be so much left in the tank when they get older, but we have a responsibility to our younger people to allow them some sense of predictable progress.
By predictable progress, I mean that there is a chance if you do the right thing then you can live and work in Ireland, get a home, have some stability, move in with your partner, maybe have a child and in so doing begin to solve the population dilemma gently and gradually.
We are having fewer children later; from an economic perspective, an obvious reason for this is precariousness. Young people don’t have sufficient stake in the society in order for them to be comfortable having a child in the first place.
The crucial target for a stable society should not be the pensions of the old but the prices of homes for the young. After all, what’s the point of having a big pension if your grandchildren live more than 17,000km away in Melbourne, Australia?
So what to do?
As much as we would love for the State to drastically ramp up housing supply via the direct and incentivised construction of new homes (as this column has long advocated), we must recognise that under current conditions there are supply constraints which put a ceiling on how much we can realistically deliver.
Let’s say we have a hard constraint of 35,000 new houses a year, moving up slowly in the years ahead.
The sensible thing to do is stabilise demand while supply catches up, recognising that crudely importing foreign workers to balance the demographic books might fund pensions, but is also going to exacerbate the housing crisis and the real quality of living for young people.
Let’s see how many homes we have and how many we need and how many immigrants can we absorb before house prices rise? We are starting with 35,000 new homes.
A number of factors affect housing demand. First is the natural increase in the population, which is about 20,000 more births than deaths a year. The second is the size of households. In Ireland about 2.5 people live in each home. With a natural increase of 20,000 divided by 2.5, that means we need about 8,000 new homes to cover the natural increase. The third factor is obsolescence – the amount of housing stock that is old and falling down. There are around 2.1 million houses in Ireland, about 0.5 per cent fall down every year, which implies an additional 10,000 units annually.
So 18,000 of our 35,000 homes are already used up by the natural increase and obsolescence. So we have 17,000 left for new migrants.
At an average house size of 2.5, the implication is that to keep house prices stable and keep supply and demand in line, the maximum number of immigrants the Irish housing market can sustain is about 42,500 (which 2.5 times 17,000). Net migration has been running above this rate in recent years. It was 59,700 over the 12 months to last April.
Something must give.
The latest forecast from the Department of Finance is that we will absorb tens of thousands of new workers who will pay for the pension of today’s middle-aged.
Bear in mind the department failed to forecast the three big turning points in the economy over the past few decades. It missed the original Celtic Tiger boom, missed the 2008 crash and failed to foresee the subsequent rapid recovery. Therefore, we should not take the department literally, but, given its position, we should take it seriously.
If the official solution to Ireland’s dilemma is more immigration to pay future pensions, and the cost of that policy is a housing crisis until 2040, then the words of Benn will resonate in your ears, too.