Dan O’Brien: ‘Housing is still gobbling up our cash – but food and clothing are getting cheaper all the time’
We are what we consume. Such a materialistic view of the world will not be shared by most people, nor is it shared by this writer. But how people spend their money reveals many things.
Thanks to the wonders of modern data, we know a lot not only about what the nation’s households spend their money on, but also on how spending patterns have changed over time and how we compare to our peers across Europe.
Putting roofs over our heads is one of the basics in life. In some parts of the country that has become increasingly challenging, and costly, in recent years. The much discussed housing shortage in urban areas, combined with a fast-growing population, means house prices and, in particular, rents are rising far above inflation and pay growth. As such, accommodation is gobbling up ever more of people’s cash.
Last year, according to Europe-wide Eurostat figures (used throughout this column), Irish households allotted almost a quarter of total spending to housing costs – including rents, mortgages, heating and water (incidentally, and unsurprisingly, Irish households spend only a fraction of the European average on water given the unique absence of water charges).
The amount allocated to running homes has been on an upward trend since Eurostat records began in the mid-1990s. Back in the 1995, Irish households were spending only 15pc of their total spend on running their homes.
This is in keeping with a general trend across the developed world. Cold comfort perhaps, but the cost of housing almost everywhere has been on the up in recent decades. One reason for this has been credit – household debt has trended upwards over the past half century in developed countries. So strong is the desire to own one’s own home that many people are prepared to borrow heavily to do so, and greater ‘financialisation’ of economies is allowing that to happen.
Another reason for rising housing costs in Ireland, and one which afflicts many other countries, is inadequate supply. From Stockholm to Seville, the building of new homes is not matching demand.
These factors mean, on average, housing now accounts for a quarter of Europeans’ household spending, which is, for what it’s worth, slightly above Ireland’s share.
Even more basic than accommodation is sustenance. Here, there is a much better news. Reflecting the sustained decline of grocery prices, thanks to increased competition in the supermarkets sector, Irish households’ spending on food and non-alcoholic drinks was just over 9pc of their total spend in 2017. That is a third less than in the mid-1990s and one of the lowest shares in Europe. Despite the greater interest in food and cooking, and despite a much more diverse and exotic range of food and drink on supermarket shelves, there has been no sign that households are reversing their spending priorities.
The biggest falls in prices recorded over recent times of any of the essentials have been those of clothing and footwear. Today shoes and clothes cost almost half what they did 15 years ago.
Competition is at the root of this development too, although it is competition on a global level that has been the most important factor. Automation and the shifting of textile jobs to developing countries have caused clothing prices to fall across the world. As the chart shows, the share of household budgets going on clothing and footwear has almost halved over the past two decades, to only 4pc of total spending.
Yet another good news story is what has happened to furniture and household goods prices. In Ireland, they have fallen even more rapidly than those for food in recent years. The role of just one company – Ikea – has been central to these consumer-friendly trends. Last year Irish households’ spending on fitting out their homes accounted for €4 out of every hundred spent, not far off half the share of the 1990s.
In areas where competition is lacking, the news is not so good. Healthcare costs have been rising faster than most other prices. As of last year households were spending one euro in every 20 on healthcare products and services. That is double the share of 20 years ago. Then, Ireland was below the European average. Now healthcare spend takes up more of households’ budgets than the average.
What about the demon drink? It will not come as a surprise that we Irish spend more of our household budgets on alcohol than most of the countries. Last year for every €100 spent, €2.40 went on booze. The average across the EU was almost a third lower.
This, however, need not alarm the anti-drink brigade, for a number of reasons. Other figures show that the number of units of alcohol consumed per person has been falling since the first half of the last decade. Another explanatory factor in the higher than average spend on alcohol is price. Taxes on drink in Ireland are the highest in Europe.
As we enter the festive season it might surprise people to know that, after housing, Irish households spend more on recreation than any other item. Restaurants, hotels, sporting events and the like now account for a fifth of all spending. Less surprising, given the nation’s fun-loving reputation, is that this one of the highest shares in Europe. With this morning’s KBC consumer survey showing a bounce in confidence, this Christmas could see the biggest recreational spending splurge ever.