Have we learnt nothing? The most depressing – and I mean depressing – news last week was that useless, unproductive houses in upmarket Dublin are now making well over the guide prices at auctions, at a time when useful, productive SMEs are going to the wall for want of credit and working capital. After everything we have been through, this is pathetic. It means that the same banking and property cabal that got us into this mess is flexing its dangerous muscles again.
Houses in this upper-end bracket are nothing but unproductive, useless status trophies. But worse still, if banks start funnelling what limited cash they have into the smarter end of the property market, we are goosed. At the core of lending to swanky property at a time when small businesses are starved of cash is a form of kamikaze capitalism, a get-rich-quick scheme which may favour the individual who gets in on the scam, but is detrimental for the community.
It is a kamikaze form of capitalism because it is ultimately self-destructive and unproductive. This type of asset only has value because other people put a value on it. You want it because other people want it and that’s what drives up the price. It creates no economic value, no jobs, no enterprise, no patents, no creative industry.
In fact, by stoking up the property game again in Dublin, the banks and the property sharks will again preside over a feudal system where the scarce capital of the country is sucked into the social pit of trophy houses, while working capital to small business is strangled.
Right now, the Central Bank should move to stop this so that we never, ever have a property pyramid again. It could do this by limiting the value of the collateral against which the banks can lend. When you look at all property markets, they are driven, not by supply and demand, but by excessive lending against collateral. As soon as prices rise, the ‘equity’ in the houses rises and banks feel that they have permission to lend more and more cash because they have the buffer of equity. But this only insures that yesterday’s rising prices leads to tomorrow’s increased lending.
A suggestion to stop this price/lending spiral was tabled by Israeli economist Amos Rubin. Imagine that regulators instructed lenders that the combined maximum loan amount should not exceed 70 per cent of the moving-average value of a property, offered as collateral, over the preceding 20 years.
This would wipe out any future house price nonsense at a stroke, and the socially insecure would need to find another asset through which to display their endemic inadequacies.
By preventing money going into property, we liberate that money to go into other investments, which have the potential to create jobs and opportunities for Irish talent, particularly young talent.
For years now (actually, since the publication of The Generation Game in 2007), this column has been highlighting the generational divide in Ireland – whereby young people have been disproportionately penalised and the middle-aged and the old have been favoured.
Last week, the ESRI – a bastion, ironically, of the middle aged, feather-bedded economist – finally agreed with a note that said the under-45s were being hammered, while the over-45s were doing OK. Better late than never, I suppose.
Ireland needs jobs for young people because we know that unemployment at a young age has a permanent impact on people’s prospects throughout their life. The warning sign for a recession that penalises the young over the old comes from Japan.
There, we see the phenomenon of the ‘freeter’. Freeters are young people who are either freelancing or working way below their education level, living a hand-to-mouth existence. Real jobs have been replaced by temporary, badly-paid jobs. Since the 1990s recession, millions of young Japanese workers have been finding themselves in this position.
In 1992, 80 per cent of young Japanese workers were in regular jobs. By 2006, over half were temp workers in one form or another. This remains the case today and scarily, the Japanese economy of 2013 is actually smaller than the same economy in 1992.
In Japan’s depressed system, there is no clear path to prosperity for young people. They have only two choices: stay and take whatever subsistence-level job they can find or leave and take their chances elsewhere.
Now, look at Ireland today. As of 2010, Ireland’s temp work rate was 22.4 per cent of the total, and this is rising and concentrated in the younger age group. Probably the most damaging statistic is that our young population is actually dropping.
In the 2008 census, the Irish population between the ages of 15-24 was 669,200. In 2012, it had fallen to 553,500. In 2008, the population between 25-29 was 408,300. In 2012, it had fallen to 341,200.
In 2011, the total population between the ages of 25-44 was 1.405 million. It was 1.4335 million in 2012 – a small drop. We know that migration is on the rise. Emigration rose from 80,600 in April 2011 to 87,100 by April 2012 – of which 46,500 were Irish nationals: your brother, sisters, sons and daughters. The highest proportion was aged between 25-44.
Japan shows us that these trends don’t reverse themselves on their own. In Japan, we can see the future for young Ireland. Many of these young people are also trapped in mortgages and/or in arrears – meaning they can’t up and leave, but are finding themselves in ever more frightening domestic circumstances, which have obvious social and economic knock-on consequences for the country as a whole.
The eclipse of the young by the middle-aged means we have not only a lost generation, but such a dangerous process could set off a cycle of national decline.
How do you reverse it? Well, the first thing we know from the US is that most jobs are now being created by young, small companies. In fact, old big companies are net job destroyers. So, at the very least, giving small businesses credit should be the number one priority for government and the state’s industrial banking complex.
The last thing we should be doing is championing trophy house sales to the middle-aged when the future of a generation is at stake.
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Property , shame on it , I hearby curse it !!! Anyone who reads the comments at this site (a good interesting read, I’d say), knows my views on PROPERTY. It’s just salvery re-branded.
Surely we must introduce a link between the property and the mortgage. Pay the mortgage or return the property to the the bank without leaving any debt overhang. Perhaps this would prevent reckless lending from the banks and another property bubble. Banks would have to look at generating profit from the SMEs.
As the old adage goes, the more you’ve got, the more you get. The Government is complicit in this because they get a windfall benefit from every house sale, the higher the prices the more their coffers are filled. So we can’t expect them to step up and address the issue, it isn’t in their immediate short term interest – and it appears that governments are increasingly taking short term perspectives rather than planning for future generations. Probably because most of the politicians are in the 45+ bracket that benefit from all this, and their retirement plans hinge on a… Read more »
Blood is Thicker than Water
Original word usage determines its purpose and nothing will change that . The word ‘Bank’as used in its ancient form came from ‘Wolof’ in West Africa .
It means ‘ to bend’.
So banksters are benders and will always abuse the social fabric of the community .
Its time to outlaw the word ‘Bank’.
Yes and why are these fools bidding up the price of property. It’s not just because of insecurity.
David you need to get your analysis around the double income household as opposed to the single income household vis a vis the property stupidity.
It is good to see the focus here on property in the context of competitiveness. Our western economies need to get our heads around how, structurally, we will continue to compete in an increasingly globalised world when we insist on playing the property ponzi construct game.
What exactly are you relying on for the statement that ‘news last week was that useless, unproductive houses in upmarket Dublin are now making well over the guide prices at auctions’?
David, in all the years that I’ve read your articles, this must be one of your most clear, true and best articulated post. It is crucial to understand this article correctly and not read anything in between the lines. It is a truly a sad development that our society is falling into “get-rich-quick schemes “again. And so soon after the first fall. I was expecting at least one generation pass by before it will flare up again. I guess there was some hope that our society was clearing out the cobwebs of our brains. This development is clearly putting a… Read more »
Banks will run with this because they are not using there own money.
When there play money is running out the very people who played no part in this madness will be forced to cough up,with there savings like a thief in the night.
It’s all to do with the social construct, which manifests itself more so in South County Dublin, but exists thru’ out the country. It revolves around the professional classes and how they see themselves and their worth. Still we see the professionals continue to be overpaid and is not confined to just doctors, solicitors, accountants… the professional classes are wider than that. Along with their professional position must come the house, it’s location etc. This is a big debate, which needs to happen fast. You can’t live a rewarding life Ireland unless you have position, you are quietly pitied, you… Read more »
They’ll keep on doing the same shit over and over again and things will never change until Leinster House is burned to the ground with everyone in it. Mirroring Japan, the next thing you’ll be hearing suggested is multi-generational mortgages. This is the land of the incompetent and corrupt and they hide in plain view because they know their will never be any consequences for them – negative effects get passed onto the ‘normal’ citizen in a perpetual fashion. It’s yet another version of “Only the little people pay taxes”. Sure doesn’t everyone love the Irish? Ole, Ole, Ole, Ole.… Read more »
I like the idea of “smoothing” as possibly applied to mortgage lending. It is widely used by actuaries e.g. in pension schemes. It forces the long view and prevents (by smoothing out) short-term swings. Wherever used it reduces “gaming” of the numbers for short-term artificial gain, which is essentially the “game” into which modern Irish banking has degenerated. Of all the things you have suggested here while I have been following you, this has the most potential. At the risk of becoming another bonbon with Glass-Steagall perhaps you should restate this idea as often as you can. After all even… Read more »
David is telling us something that badly, desperately needs to be said. Especially in the context of Australia now heading for a crash, as a result of Australia doing the one thing that Australia is spectacularly good at doing – mismanaging the good times, so that they are completely skint for the bad times. (kind of like us really). As a result, there will be returning Irish coming back onto the labour market. I did not follow the auction. But, a cursory look at daft.ie (well named indeed considering what happened) at the suburban Dublin real estate valuations, indicates that… Read more »
As a person who has tried to start up several ventures over the years, with moderate success I can say it’s not easy. The system is geared that way. In the US, as David pointed out they get it. They grasp the fact that start ups have more potential to grow, established business on the other hand has the potential to either stagnate, or once the inevitable happens, (the arrival of the “suits” aka accountants), the process of downsizing, out sourcing, rationalisation, and any other number of soft terms the bean counters put on destroying livelihoods in the search for… Read more »
Young people who do manage to scrape and save will be the nemesis of the Irish establishment some day. Though the social mores are designed that they will not get to that point.
Last weeks article was a superb offering. Watershed stuff. This one is too one dimensioned and typical of your hatred (sincerely felt in your case) of the allocation of capital to housing. Let me explain. The most obvious omission is you haven’t differentiated between existing stock (newly built or centuries old) with housing to be built or under construction. Houses that have to be designed and built need a whole plethora of creative kill and application to bring them from vision to reality. A simple way to stop the type of price spiralling you correctly point out and given the… Read more »
David – an interesting topic, might be the current valuation of the ISEQ.
It is currently at 25% it standing 12 months ago. There are stock market bubbles all over the place. Some members have P/E ratios that are creeping upward, and might be vulnerable.
Another depressing but necessary article. I am not a financial person, but I’ve always liked the idea of the you-cut-and-i-pick style of fair mortgage lending, whereby the lendee can simply return ownership of the house to the bank if they are no longer able to make repayments. As suggested above it seems to me that this would ensure that the banks would lend a little more carefully, to say the least.
But how do we translate the many good ideas that emerge here into political action? The “news” is dominated by the eternal abortion debate and Wallace/Shatter school playground style wrangles.
It would be interesting to know the age profile of the people who are bidding the properties up.
I’m guessing “Generation George hook”; many on massive pensions, no negative equity and totally oblivious to how good they have it.
1st point: I dont think these expensive houses are being bought using bank loans. I think they are being bought for cash by people who cant get a return on their savings in any other investment and and are gambling that weve hit the bottom´on property prices.
2nd point: ´´They have only two choices: stay and take whatever subsistence-level job they can find or leave and take their chances elsewhere.´´ At least I now now what the Irish have in common with the Japanese.
http://www.france3.fr/emissions/pieces-a-conviction/diffusions/15-05-2013_51397>BANQUIERS : ILS AVAIENT PROMIS DE CHANGER Bankers : They promised to Change, on France3. This is an excellent expose of the failure to do anything at all about the banking system by Sarkozy to Hollande. A good lesson for Dublin.
Why DMcW expects something different to happen when nothing was done to change banking, is beyond me. See the video – promises and morality pantomines, fake legislation are for the birds. Only splitting the banks will work.
Excellent article and I am really glad you raised it. Recently the Central Bank published a paper backing up what you say about small firms being identified as the job creators – it can be read at http://www.centralbank.ie/publications/Documents/02RT13.pdf
David your important article is missing some questions/answers…
Are those now living in houses in up market Dublin in financial trouble and need to sell-trading down?
Are banks lending for these properties?
Is it not conceivable that some with savings are fearful that there saving will be used to bail in?
Since money sitting in bank accounts is dead money has the Cyprus
effect worked as savings money may be moving and gold is dying etc.?
I would be more concerned if this was happening in ‘down market’ Dublin but it certainly needs watching and analysis.
Etc….
Shout it from the rooftops David – somebody with the microphone needs too.
NAMA and blanket guarantee the two card stroke now showing its real agenda – Ponzi Rep mark II.
I agree, truly depressing. As a tenant, I live in terror of the kind of extreme rent hikes that crippled me & left me penniless during the last so-called “boom.” Its also not just youth that gets squeezed, its the arts that gets squeezed, its incubating small upstart companies being smothered to death. You’re right about temping: the big lie about the current so-called “IT boom” is much of it is in short term, temporary 6-month contract jobs where everybody (including the state with its crippling VAT on services) creams off you. At least though, we IT workers have the… Read more »
“It’s all a matter of Psychology” – I agree
“””””””The UK has spent almost £2bn housing vulnerable homeless families in short-term temporary accommodation, according to figures that demonstrate the scale of Britain’s housing crisis.
Rising private rents, a shortage of affordable housing and benefit cuts have forced local authorities, particularly in London, to place increasing numbers of households in bed and breakfast accommodation, hostels and shelters.””””””””””””
Same here in the emerald isle and all this while empty ghost estates- lay empty- we pay twice in bank bailouts and rent allowances! and who is protected by this ?
– Eireannach.
Btw Bonbon looks like a classic case of “flight of ideas”
if ya know what i mean…
David, good article, nice follow on from last week, with stock markets going up, driven by worldwide quantitative easing now going into overdrive. This is driving up property prices in Dublin, Germany, London (average price now over £500k) & nearly all of first phase at ex. Treasury Holdings Battersea power station sold out – 824 units out of 866. It is part of a medium term reflation trade / financial repression (for those that don’t have exposure to inflation linked assets). It may well end in a slump / massive bubble at some point, but right now given high unemployment… Read more »
– The start of Von Mises’s “crack up boom”???
100th Comment?
Interest rates are still very low and so too is the level of money available for lending. I’d love to know who is buying? Are banks really lending to property? OR are savings going into property because people fear for their deposits? Could this be the run to “Gold” like assets except instead we are talking about land and property? Indeed it could be seen as a way for the banks to hover up more assets.
Theres a lot of people out there who sold there house at the good time to sell under advisement and rented so that’s where the cash comes in.
I was advised to sell my house in 2007 and rent because the market was going to crash and I would be able to but the same type of house for a third of the price.
No Country For Young Lovers
Ponder This: Fact: More adult diapers are sold in Japan than baby diapers.
‘Shamrock Diapers For Shysters’, anyone? An Irish start-up with great future prospects in the domestic market?
What is Big in Japan?
Suicide Warning Signs at Public Forests,
the return of Arranged Marriages
Feeter homelessness as an accepted form of ‘lifestyle’
Feeter ‘Communal Renting’ as an accepted ‘term’ for overcrowding
exploitation of Feeters as forms of TV entertainment.
I’m sure the young there can echo David Sylvian’s chorus, “The Ghost of my Life”.
Adelaide, Are you in Japan at the moment?
I was working there in the early 90’s. Absolutely enjoyed the culture and people. The overwhelming humbleness of the people is something you won’t forget that easy. Japanese Language seems to be an issue among the Japanese as the interpretation of words and sounds can be so different.
Have no idea how it is now.
You may remember the joke of the middle-aged. They all went Ski-ing. Spending the Kids Inheritance. Many of this group had some extra cash and spent it abroad on properties along the Mediterranean coasts, with some extra loans (push) from Irish Banks. Banks were not interested in why you need that extra cash. These properties are supposed to be enjoyed by the children as well. But usually children have better things to do then going to these places that mum and dad have chosen. Asia and Australia were more popular then the Mediterranean. Then things went absolutely bonkers and Bulgaria… Read more »
I think I heard in the Mariane Finucane’s Show of few weeks ago, that the head of a US hedge fund is here in Ireland, with a budget of few billion, to buy all the property that would be good investment at a good price. Can this something to do with it? . Anyway it seems that this absurd or kamikaze form of capitalism without any safety net, to preserve the structures of civilised societies came home to roost. It seems that took more than five hundred years but the perverse nature of a system in control of the Banks,… Read more »
Few days ago at three o’clock in the morning, I had to bring a friend of mine to a small town, to take a bus to the airport. And who do you think was offering the service? A private bus operator, well managed from the top! Do I need to say more? . The town in itself had an eerie feeling, as one of this desolated towns you see in the movies, from the far west of the USA. All of the small shops where boarded up, except that in the main cross where the bus stop is, there are… Read more »
Just back from the UK on a job. I was staying with an English couple who’s jaws dropped when I told them there are only 6 million people on the whole island of Ireland. It once again brings me back to something I’ve posted here before, there can’t be a supply & demand problem in Ireland, which see a shortage, unless of course it suits someone…… We are very much tied into a UK narrative, because of the amount of British media we consume and that narrative dictates that property should be expensive. It’s time to knock this on the… Read more »
We don’t live in an economy any more (let alone a society).
We live in a Ponzi scheme. A ponzi scheme propped up by dodgy bankers, compromised media outlets, and controlled politicians.
Money is in charge. And that is the order of the age.
When will the Money Bubble pop? The Daddy Bubble of all Bubbles. This decade, sooner, never-infinite kicking of cans in slow-mo, a wheeze rather than a pop?
Ghost Towns
Imagine some day soon while you are walking accross OConnell Bridge Dublin you see at intervals various poor beggers that you once knew …like….Pat Kenny…..Marion Finnucan ….Gay Byrne …..while not drunk they are discrepit ….and you are on your way to work in a sweat shop run by either eastern europeans , chinese or africans ….and they own your passport.
What is the real agenda of an elected Irish politician who is Jewish and releases a book with million shades of grey and call it Laura ?
How I wish http://www.rte.ie/live/ can get their server working properly.
What do the nutjob goldbugs think of this?
https://www.youtube.com/watch?v=pBOLhvuGcPE
I heart Marina Portnaya and Satoshi Nakamoto.
So the government seizes account used by people to non-coercively buy electrons. Seems to me that the nuttiest nutjob goldbug may have a point.
When it comes to leaving anything in a bank, reality is, If you don’t hold it you don’t own it!
As for bitcoins, wouldnt they prove that glass-steagal is a false choice, and it merely keeps the cancer of corrupt banking alive. Poor bonbon, fighting the last war!
Why Does John Bruton Cite Glass-Steagall in the Irish Independent?
John Bruton of the IFSC cannot avoid it, whether he likes it or not.
Glass Steagall Will Stop Bail–In Banking Union In Its Tracks!
IS GOOGLE DOWN? DOES ANYBODY KNOW?
Having THE DOUBLE IRISH and eating the Apple cake too
Ireland an inshore off shore “tax haven” Irish “ghost companies”
Ireland the land of ghost and ghouls
“”””””””The double Irish arrangement is a tax avoidance strategy that multinational corporations use to lower their corporate tax liability. The strategy uses payments between related entities in a corporate structure to shift income from a higher-tax country to a lower-tax country. It relies on the fact that Irish tax law does not include U.S. transfer pricing rules.[1] Specifically, Ireland uses territorial taxation, and hence does not levy taxes on income booked at subsidiaries of Irish companies that are outside of the state. In the late 1980s, Apple Inc. was among the pioneers in creating this tax structure.”””””” Caution the above… Read more »