A house is the most valuable asset a person can ever own. Consequently housing matters to economic development. While it can improve economic performance and competitiveness, it can also lead to segregation and poverty. As housing is closely linked to consumer spending, a rise in house prices makes homeowners feel more confident and wealthy. This is known as the ‘wealth effect’. The rapid rise in property prices in Ireland has led to an increase in spending on home improvements, holidays and high-value household goods.
There is an increase in spending spree
According to the latest statistics, the price of apartments and houses is rising at €50 a day. The wealth effect and consumer confidence can be seen in the increase in spending sprees. A study done by Sunday Independent reveals that more homeowners are investing in home improvements, such as extensions and new kitchens. According to the Revenue Commission, 9,478 homes have been extended at a cost of €402m in 2017, as compared to €326 in 2016. This figure is expected to increase dramatically in 2018. The improvements were performed by the Government’s Home Renovation Incentive (HRI) scheme.
People are spending more on foreign holidays
Research shows that people are spending more on foreign holidays. Furthermore, they are choosing five-star travel and exotic locations instead of traditional package holidays. This phenomenon is also fuelled by near full employment and promised salary raise. The Chief Executive of the Irish Travel Agents Association (ITAA) reveals that holiday bookings have increased in the past 12 months.
Full employment encourages the wealth effect
Alan McQuaid, Chief Economist at Merrion Capital believes that full employment is one of the main drivers of the wealth effect. According to CSO figures, the employment rate in Ireland has dropped significantly for the past 18 months. Today more people have a fixed income as compared to the situation during the crisis. When people have a job, they feel more confident as they are able to pay their debts. Consequently, they are able to spend a bit more on other things, such as home improvements and leisure activities. However, Pat Dawson is worried about the impact of the high cost of living. Even though employment rate is stable, the level of salaries doesn’t match the high living costs. Thankfully, Irish Small and Medium Enterprises Association (ISME) reveals that most of its members are planning to offer salary increases in 2018.
Irish people are feeling more confident to spend
Ever since the recession has ended, people feel more confident about their financial status. The Chief Economist at KBC Bank says that people are grateful for their situation – they could go through the recession successfully. During the recession, consumers spent less and consequently, retail sales dropped. However today, they feel inclined to spend more. According to the Chief Economist, it is not seen as squandering money. Consumers are still being careful about their spending, but they can afford to buy better gifts for Christmas, for example.
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