Ciarán Nugent: Increasing spending on Housing Assistance Payment is a bad sign

'We need both wage increases and serious efforts to bring down the cost of housing,' writes Ciarán Nugent

Mon, 06 Feb, 2023 - 16:51

Ciarán Nugent

Some new figures on the State-supported Housing Assistance Payment (Hap) were recently published for 2021 by electoral division. They showed that between 2019 and 2021 there was an increase of support for an additional 10,000 households, or 20%, to 60,000.

In 2021, the number of recipient households in the capital grew fastest. The top 18 electoral divisions, out of 167, were all in Dublin. The south-east inner city saw an increase of 49% in a year.

That same year, Irish employment rebounded strongly from pandemic lockdowns, with about 150,000 new jobs compared to the end of 2019. Some of the highest numbers we’ve ever seen.

Employment growth around this time was driven by highly paid sectors too. A fifth of the growth alone, about 30,000, was in the computer programming sector, which makes up less than 8% of Irish jobs. It is the third highest paid sector in Ireland out of 55.

Recently, the Government announced an increase in the maximum earnings threshold to €40,000 for workers to be eligible for social housing and Hap in Dublin and surrounding areas, Cork and Galway.

A survey by UCD showed 85% of all full-time workers under the age of 35 earn less than that as do 82% of all third-level graduates under 35 working full-time.

Every figure I have just referred to pre-dates the unprecedented inflation we have seen over the past year and a half. Real wages are down by about 6% on average since, with public sector workers down even more. In education, they are down 10% in a year.

The minimum wage increase of 80 cents in January has already been eaten up by inflation and, at €11.30, it is lower in real terms than in 2020.

In 2022, there was a 60% rise in workers who were unable to cover basic costs. It now applies to one in eight workers and to over one in three renters.

More and more people will need Hap and payments will have to go up and it is already highly inflationary.

To pay for this, we are increasingly relying on precarious flows of corporation tax (most of which comes from a handful of tech companies) to cover over the cracks of this imbalance.

There are storms on the horizon. Fearing a wage-inflation spiral, policymakers across Europe and the US have been overly conservative in wage increases.

Income and wage growth below inflation eventually leads to demand problems in the economy, akin to the effect of austerity post-financial crisis.

Prices go up, people cut back on non-essentials and start missing rent payments. Growth stalls.

Many commentators believe we are in tech bubble similar to the dot-com boom in the late nineties. We have already seen layoffs in tech. Twitter, Google, Meta have all laid off staff because they’ve downgraded their forecasts of future demand.

What happens to Irish tax receipts when more and more people and businesses across the world put off upgrading their iPhone or updating their Windows operating system?

The chickens will come home to roost. It undermines productivity in the real economy by sucking disproportionate levels of capital in, which in other high-income countries might be used towards something useful and high value added, like an app or a prototype for tidal energy.

Instead, we’re creating a market where one group with the financial wherewithal to borrow to buy property extracts from another group that can’t.

Now that wages are increasingly not covering their expected returns, the State steps in to keep them up. With this plan, the cost to the State will continue to rise but it is money down the drain with no return.

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We need both wage increases and serious efforts to bring down the cost of housing.

The current approach is bad for the economy. Bad for society. Bad for workers. Bad for business.