Yesterday, housing starts fell by 70pc compared to the same month last year. This is the biggest annual decline on record. Other data provided by the website Daft.ie showed that house prices fell in South Dublin by 6pc in the first quarter. This suggests a possible 24pc annualised fall for Ireland’s most expensive area.
Anyone who still doubts that we have got an imploding housing market on our hands had better snap out of it. We are seeing the Irish version of a phenomenon which is playing out all over the English-speaking world.
Worldwide, there is a palpable sense of the end of an era. In the US, the Federal Reserve is bailing out bankrupt banks and the White House is contemplating a huge housing bail-out; in the UK, Northern Rock has been nationalised and here, yesterday, the board of Waterford Wedgewood is going cap in hand to the Government to keep the gates open.
What is happening? One answer, particularly for the banks, is that the global tide of cheap money is receding, and as it does it is exposing, in the words of the investor Warren Buffet, those who are “swimming in the nude”.
The Waterford episode is related to these banking difficulties. However, in the case of the crystal maker, the fall in the dollar is the real problem. But it is important to realise that the plummeting greenback is merely the flipside of the end of cheap credit which made the US look stronger than it was.
As the US’s frailty becomes more and more evident, the dollar falls. This makes manufacturing in this country prohibitively expensive.
On top of currency movements is the fact that Ireland has priced itself out of the export market in the past few years as costs, driven by inflation, accelerated way above productivity.
We are facing a vicious combination of falling houses prices, which beget falling credit demand which in turn begets further house price reductions.
Equally, the international environment has turned sour precisely at the wrong moment for us.
Normally, when the domestic side of the economy shudders, the exporting side takes up the slack. This is not happening this time because (1) the dollar is pricing us out of the market, (2) the US is in recession and (3) we have become so expensive that Irish wages will have to drop or Irish productivity will have to rise dramatically for our companies to be profitable.
The productivity point is the most worrying of the above three because by investing so much in property we have exhausted our capital base. And now, when we should be investing in productive capital to increase the productivity of our workforce, we don’t have the wedge.
An increase in productivity could justify some of our wage demands. Without this, real wages (adjusted for inflation) are likely to fall along with property prices.
Such an outcome, if it were to come to pass, would present Brian Cowen with an entirely different political script from the one which underpinned Bertie Ahern’s era.
The reason we can be reasonably confident of such an assertion is because history tells that this is what happens. After huge booms, whether it was the 1990s Japanese property boom, the USA’s “Roaring Twenties” or indeed, the Thatcher boom of the late 1980s, the Government is left to carry the can.
In most cases, this financial process also leads to a dramatic political change. In the US, the 1920s gave way to the New Deal of the 1930s. Implicit in the New Deal was a government commitment to reign in the power of the oligarchs who had made enormous fortunes in the boom.
All booms lead to a concentration of wealth in the upper echelons of society. Such inequality rarely survives the subsequent recession because the State concludes that the quid pro quo for a government safety net is higher taxation of extreme wealth, more regulation and more control.
In a downturn, there is a political tailwind behind such moves — something FDR used to great effect in the US of the 1930s.
In the boom of the 1920s, the oligarchs — such as Scott Fitzgerald’s fictional Jay Gatsby — were seen as emblematic of the “can do, positive, go-getting” culture of the possible.
In a slump, these former heroes become villains and their attributes become liabilities. Their great wealth becomes a focus of envy and a signal of everything that was wrong with the excesses of the boom and the State moves against its former wealthy allies to cheers from the public gallery.
The figures on wealth distribution are truly startling. While the country on an income basis is quite equal, the wealth story is different. The EU suggests that Ireland is smack in the middle of the European average when it comes to income but when it comes to wealth, Ireland resembles America of the 1920s.
The Bank of Ireland estimated last year in a publication called The Wealth of the Nation that the “top 1pc in Ireland own 20pc of the wealth, the top 2pc own 30pc and the top 5pc hold 40pc of the wealth”.
This is not healthy. If you take houses out of that equation and calculate only financial wealth, then the top 1pc of the population owns 34pc of the financial wealth.
Other figures about the Irish oligarchs are equally arresting, both in terms of how rich they are and how recent this wealth is.
For example, the top 1pc of the population has assets of €92bn — that’s close to half of our national GDP. In the past 10 years, Irish wealth has increased by 350pc, but at the very top the increases have been much more fantastical. In a country that was almost bankrupt 20 years ago, it is estimated that there are at least half a dozen billionaires in Ireland.
Again, according to Bank of Ireland, there could be as many as 100,000 millionaires in the country or 2.5pc of the population.
This dwarfs the figure of 0.7pc of the population in the allegedly plutocratic US.
However, at the very top, it’s estimated that there are at least 300 people with net assets of over €30m, close to 3,000 with assets of between €5m and €30m and at least 27,000 worth between €1m and €5m. This is a Kremlin-style concentration of wealth.
As the feel good factor for the average Joe evaporates with ongoing house price falls, the temptation to see the mega rich as culprits rather than heroes will increase.
Rightly or wrongly, this might set a dramatically new tone for Irish politics where the little man reasserts his position.
Fianna Fail always suggested that it was a Republican Party, the party of the little man, the small farmer and, as my mother described it “the people who don’t know anyone who ever got an obituary in a newspaper”.
If Brian Cowen is truthful about going back to Fianna Fail’s core values or if he is forced there by events, the high rollers and Ice Bar aficionados of the Bertie era should be afraid, very afraid.
Just what needs to happen in this country, I hope we take a really good look at ourselves and realise how foolish we were.
Ireland should go back to the state of Moral Responsibility that it was honored for years ago, hopefully FF and other Parties will go back to the core values of what is more important than living in a Overdraft.
The Irish Peoples Welfare and Wishes.
Good article David, Just want to pick up on something you said as regarding, “All booms lead to a concentration of wealth in the upper echelons of society”. If I were to add to this, and with this comes power and influence over the government from this section (which you have spoken about before). I am not an economist, but it seems the lessons of the boom are the same of any other; booms need to be controlled requiring state intervention (equity control etc) through good leadership who realise of the pitfalls ahead, and have the guts to act and… Read more »
To my mind I think there is both a ‘poverty’ and perhaps ‘fear’ aspect in the Irish psyche which has never been adequately explained or debated. This may be in some part due to our impoverished past/oppression etc. Put it another way, the creation of wealth and the management of it is some as a people we have little or no experience of. An intelligent, confident society would have immediately pushed for a world-class rail system to link up around Ireland (or maybe that was just me!). Instead we wanted v costly roads to drive our bright shiny cars around… Read more »
The New Deal in the US was about far more than “reign in the power of the oligarchs who had made enormous fortunes in the boom.” It was about putting people back to work with schemes like the Tennessee Valley Authority, highway construction, national parks and the Hoover Dam. The shock of recession will free up the rheumatic restraints of the planning system and enable government to progress with major infrastructure projects. It can also help Irish farmers by dispersing meat packing plants to local communities right across the country and emphasizing organic quality of the produce. Too much emphasis… Read more »
Malcolm, i agree with excellent posting but one question I have is where will the govt get the revenue for major infrastructural projects given vastly depleted exchequer funds?
That’s very well put Malcolm. <>. I have asked many times why do things like Agriculture and Food “feel” so ordinary? We all go gah gah looking at a couple of computer whiz kids creating websites that might draw a few bob on ad revenue…even the term whiz kids is such a stupid term. Designing Websites or working in IT is not exactly Hi Tech…not really rocket science. However, a new type of seeder or wormery or manure digestor – that’s real science and tech…a bit smelly, but hard science that needs real PhD material and where Ireland’s very elegant… Read more »
Rob said “one question I have is where will the govt get the revenue for major infrastructural projects given vastly depleted exchequer funds?”
Don’t antagonize the oligarchs but tempt them with ‘Square Deal’ government 15 year bonds at an attractive interest rate.
Even the canny old boys with cash in the mattress would buy them if ‘No questions asked’.
If the government try taxing the rich then the rich will leave Ireland,mobility has never been easier,large amounts of money give you this freedom.
Malcolm, The real pie in the sky is a belief that farming can carry this country – it had every opportunity in the past, but failed to deliver on either jobs or wealth. Last night’s programme “ the importance of being Irish” spelled it out – an island necessitates high transport costs for exports, so the ideal exports for are low weight, high density and high value products. Shipping an organic heads of lettuce to mainland Europe doesn’t make much sense. Microchips fit very nicely into this category and software even better. Pharms. and all other forms of hi-tech products… Read more »
Is anybody worried about the few hundred thousand foreigners we have here? Will they at last be a talking point now that the economy is dipping or even worse going into recession or will we keep pretending they don’t pose a problem. How many of them will be entitled to the dole and can we afford it? I’m also sure that many MNC’s here could change their workforce to foreigners willing to work for a lot less money. I see a lot of conflict in my crystal ball for this country. We might be looking back in five or ten… Read more »
David, young people especially who are ‘suffering’ due to forces beyond their control will righfully look for someone to blame ! Should our politicians not be trying to put the ‘infrastructure’ in place for these vast amounts of personal wealth generated over the boom period to be diverted into ‘productive’ businesses which use ‘innovation’ (in the widest sense) to grow in tougher market conditions ? Many have accumulated this wealth through ‘deal making’ on bricks and mortar so should be open to invest if they see posible returns. Do we need some of the ‘trusted advisers’ (whose incomes from the… Read more »
Reading DMW’s latest article had me digging ‘Affluenza’ by Oliver James from the bookshelf, regarding income disparity and healthy societies. In particular, Oliver James singles out Denmark where the gap between the richest and poorest members of society is staggeringly less than America, UK and Ireland. Yet is seems to function as a very successful market economy. Whilst Ireland might not want to got to the Danish level of Government taxation and spending: There’s surely a mid-point between America and Denmark which will allow a tax redistribution of windfall boom profits from the last 10 years to cushion the downturn… Read more »
AndrewG, i think the Danish model you describe is more of an evolved society, where a balance is struck and it is accepted that the binman gets a good wage along with the bank manager. In turn this leads to a pride in one’s work whatever position you hold and not a denigratory ‘he’s only a binman’ attitude. Such a society though does not have ‘a winner takes all’ mentality but recognises that some sort of trade-off is required for a healthy balance. This would require a major shift in our own thinking. Look at the points race. I knew… Read more »
“we have become so expensive that Irish wages will have to drop or Irish productivity will have to rise dramatically for our companies to be profitable” Just a quick comment about the famous sentence that is quite widely used , about our famously high wages why the hell shouldn’t we have high wages , we work long enough and struggle long enough to get to those positions where we can enjoy good money. The trouble is that in this country there are too many institutions who are greedy and want vast profits hence putting up the prices for the rest… Read more »
I think Brian Cowen could start the whole process by canceling the pay increases awarded (but then delayed) under the previous leadership… Sure it’ll be slagged as a political stunt but it would send a message that times have changed, particularly going into the pay talks and that and EVERYONE needs to work together to get through the next few years. Fianna Fail leaders last an average of 14 years; this one coincides with a definite shift in our economy… we need the new leader to plan for the next 14 years….. Bertie’s style or patient consensus building worked brilliantly… Read more »
Free flow of cash my man, penalise them and they will go. Why stick around to let the more socially minded get all Opus Dei on their ass?
I am sitting here at 9pm on Thursday, Sydney, Australia reading today’s Irish Times.
I am no Fianna Fail’er but I say this…let’s hope Brian Cowen makes a break with the old, rotten FF past and has the guts to now LEAD and make the harsh decisions now required of an Irish head of Govt. They say he is a smart, intelligent guy…well, come the hour, come the man.
So good luck and god speed but for God’s sake LEAD on Mr Cowen. History is watching.
To John Q. Public.
I am foreigner, I got a 7% raise yesterday, my boss looks to be very happy to work with me, and I know they got trouble to find someone with my skills.
My landlord is happy I am paying every month my rent since two landlords in the estate are trying to sell their house.
To be honnest. If you want to take my job, pay my rent, I am happy with that, I will go back to my country and hope you will do well.
Marc, good for you but you would probably still work for 7% less. I don’t want to take your job or house but others might in the future. You forgot to mention weather your wages were the same as your Irish work mates wages when you started. Everybody knows that payrises like that are not sustainable, something has to go pop. Why do you think infation is at 5% here? My main worry is the huge numbers of immigrants here and the fact that there is not enough debate. When there is a scramble for jobs, I hope you don’t… Read more »
Come on David, even the very first paragraph is inaccurate – and the real picture supports your argument even better! The DAFT report said ASKING PRICES fell 6% in South Dublin, not sales prices. (The increase in supply indicates that the asking prices aren’t dropping quickly enough.) No one in Ireland outside the Revenue (via stamp duty numbers) and the estate agents (because they’re making the deals) knows how much sales prices fall or rise. Why? Because there’s no centralised state-run publicly available dataset. This is incredibly frustrating for anyone trying to get a clear picture of the state of… Read more »
kevin, I agree, over in the UK since 2000 its possible to see the actual sale prices of all properties sold, as stored in the land registry. So you know exactly how much places in a certain area sold for. Its gives a much more accurrate picture and you can see what the neighbours place went for!
To John Q. Public. I am foreigner too. So is my fiance. So far very few local people are willing to replace our jobs. Engineer and supervisor in a hotel… As of today there are almost no science students in Ireland. Without extensive pool of Polish, Spanish and French students/graduates a tech company that I used to work for in wouldn’t manage to hire ANY young engineers and would end up with workforce collapse leading to yet another MNC moving out from Ireland. Shifting to hotelling and tourism – Irish manager of the Irish hotel couldn’t find ANY Irish workers… Read more »
John Q. Public, your ideas about immigration are a little bit of the mark. In a booming economy (as Ireland was) many immigrants are attracted, particularly well-qualified ones or even if that not well-qualified they tend to be dynamic as there are looking for opportunities. This introduces a large amount of young, enthusiastic, willing to work people which boosts the economy. My own personal experience is that the Eastern European worker you find in Ireland actually works harder and is better presented than their Irish counterpart. In a downturn it is these workers who will actually replace their ‘inferior’ Irish… Read more »
Rob, you are bang on in your 2nd and 3rd paragraphs. The question is will it cause conflict in years to come if things get really tough again? I’m sure foreigners do a great job, pick up the slack, turn up on time, drink less etc. A ‘certain number and certain type’ as MadMax points out is fine but as the economic tide shifts how will things pan out socially/economically long term with our huge influx?
I’m not sure. I mean who can answer that one. Irish people living in Birmingham in their seventies? You are assuming that all ‘foreigners’ will stay? Many have already gone to London for olympic construction work. Many have good jobs and will probably stay, the very same as for example an Irish guy who settles in Boston. Many will probably fly back and forth on Ryanair over the next few years. The immigrants are a mixed and varied bunch. Will there be resentment? From who and about what? I won’t be jealous of a Polish engineer who lives next door,… Read more »
When it comes to immigrants from Eastern Europe I think those of us who lose jobs will go back or move somewhere else, e.g. Germany is booming these days. There is very little intention among Poles and Lithuanians in staying on a dole here. Construction workers are already leaving, services sector employees would try to get another similar job, technical professionals wouldn’t waste time on a dole and rather get hired in on the continent. There is also a group among us that will be loyal to our new country. Some of immigrants will stay and participate to transformation of… Read more »
Immigration has its benefits as many of you have pointed out. The biggest disadvantage of mass immigration is that it discourages integration with the host community because people naturally gravitate towards their own ethnic group when they come to a new country. The more immigrants the less attractive it is for newcomers to integrate with the host community unless absolutely necessary. If there were more integration between immigrants and the Irish there might not be as much resentment and misunderstanding between us. Without integration how can the Irish and immigrants understand each other or appreciate each others cultures? A worst… Read more »
“My own personal experience is that the Eastern European worker you find in Ireland actually works harder and is better presented than their Irish counterpart. In a downturn it is these workers who will actually replace their ‘inferior’ Irish counterparts.”
I can see the signs in shopfront windows now! “Irish Need Not Apply”!
If I had your attitude, then I might as well top myself rather than waste time competing with our Eastern European supermen.
Spinsta, the integration of immigrants probably takes a lot of time. Also it was reckoned that when the sikhs for example moved to Britain after WW2 they integrated easier at first and adopted local conventions, blended in and became more western/british. However as more of them arrived their own community (now strengthened) began to exerted a more conservative pull on them. Sikhs were chastised by their own for failing to observe traditional customs. These greater numbers in effect resulted in less integration. It may be that there is not only a duty on the host country citizens re. integration but… Read more »
Too be honest Rob, the sikhs might be more law abiding citizens in the UK compared to their Muslim & Hindu counterparts but one little known fact is that they are percievied as very arrogant and in your face. I went to school in the UK with Sikhs, Muslims, Hindus, Buddhists, Jews and of course the dominant Protestant population: This house near where I lived…. which is owned by a Sikh family is beyond any word of description due to its size. The Front door was literally right smack in front of the ginnel they had left for a driveway… Read more »
Observer, a quick look at the current England cricket squad features: Michael Vaughan (capt) 29/10/1974 Manchester RHB OB James Anderson 30/07/1982 Burnley LHB RFM Ian Bell 11/04/1982 Walsgrave RHB RM Ravi Bopara 04/05/1985 Forest Gate RHB RM Stuart Broad 24/06/1986 Nottingham LHB RFM Paul Collingwood 26/05/1976 Shotley Bridge RHB RM Alastair Cook 25/12/1984 Gloucester LHB James Dalrymple 21/01/1981 Nairobi, Ken RHB OB Andrew Flintoff 06/12/1977 Preston RHB RFM Steve Harmison 23/10/1978 Ashington RHB RF Matthew Hoggard 31/12/1976 Leeds RHB RFM Simon Jones 25/12/1978 Swansea LHB RFM Edmund Joyce 22/09/1978 Dublin, Ire LHB Jonathan Lewis 26/08/1975 Aylesbury RHB RMF Sajid Mahmood… Read more »
Rob, I happen to know the De Valera Family. The Spanish were celts in the area where the De Valeras hail from which neighbours closely to the Basque region, you need only look back to before the romans conquered Spain. I am very aware of the fact he wasn’t born in Ireland…… What really matters is the blood descendance not the location of birth. James Larkin was born in Liverpool but does that make him a scouser or James Connolly just a Scot. I doubt it…… As for the those in the england team with Anglo names who were born… Read more »
Observer, If you read my original posting I stated that as an immigration community grows it intermingles less, i think that is the same point you are making? As for sport well just look at the mix of the English soccer team, its awash with all backgrounds, Rooney (Irish), Lampard (French?), Ferdinand (Carribean/Anglo-Irish – his mother was a Lavender), Walcott (Carribean) Look at the no. of immigrants playing in the Premiership. I don’t have the stats but i think the ‘flood’ of immigration is over. There was an enormous decline in asylum claims in the last 2/3 years. In reality… Read more »
Until very lately, there was 150,000+ of the Irish population, unemployed. And none gave much of a shit about it. Large areas of the big cities and large towns were in exactly the same position as in the eighties, seventies or for that matter the sixties. And the reason nothing was done about this situation was the terror of wage inflation. Much better to get agency workers from the eastern states, and keep those considered scum in their reserves. That were the exact reverse of gated communities. But the vast majority were held in the smaller towns and villages where… Read more »
I cannot wait to see these greedy investors sweating under the pressure and lose it all, it is going to be delightful. My partner and I are 30 year old, no debt, some savings! no mortgage; could not buy because of the people mentioned above and the lack of regulation leading to unreasonable speculation. I am delighted! No mercy, bring on the downturn!!! I think I will save a bit more money and buy a nice flat in Paris in 2 or 3 years. Good luck to these idiots. What goes around then definitely comes around, even in economics! That… Read more »
Many of the immigrants here are having children now. Let’s hope that the children of immigrant couples, Irish-immigrant parents and Irish parents can integrate, work and socialise together. The Irish have always integrated well abroad and are known worldwide as a welcoming people. Integration is particularly important for a country with a relatively small indigenous population (<4m before immigration) where the birthrate of the indigenous population is falling. It appears to me that some immigrant groups have stronger family values and have more children than the indigenous Irish. How do they afford it? Most Irish people nowadays can only afford… Read more »
Many of the immigrants here are having children now. Let’s hope that the children of immigrant parents, Irish-immigrant parents and Irish parents can integrate, work and socialise together. The Irish have always integrated well abroad and are known worldwide as a welcoming people. Integration is particularly important for a country with a relatively small indigenous population (<4m before immigration) where the birthrate of the indigenous population is falling. It appears to me that some immigrant groups have stronger family values and have more children than the indigenous Irish. How do they afford it? Most Irish people nowadays can only afford… Read more »
“Observer, If you read my original posting I stated that as an immigration community grows it intermingles less, i think that is the same point you are making? As for sport well just look at the mix of the English soccer team, its awash with all backgrounds, Rooney (Irish), Lampard (French?), Ferdinand (Carribean/Anglo-Irish – his mother was a Lavender), Walcott (Carribean) Look at the no. of immigrants playing in the Premiership. I don’t have the stats but i think the ‘flood’ of immigration is over. There was an enormous decline in asylum claims in the last 2/3 years. In reality… Read more »
David, Why should the current situation be about FF having to refloat itself. Politics in Ireland has grown stale since FF was elected on a semi-permanent basis since 1932. Perhaps it’s time somebody else took centre-stage in Irish politics. We have tried out FF on many an occassion which ultimately ends in disaster whether in terms of corruption or pandering to one sectional interest or the other. We have tried out FG/Labour or ‘anti-FF’, but essentially the same for all intents and puurposes, with the end-result being embittered in-fighting and childishness – even ‘Garret the Good’ could not break the… Read more »
“As the feel good factor for the average Joe evaporates with ongoing house price falls, the temptation to see the mega rich as culprits rather than heroes will increase.”
We (the Irish masses – include me out) didn’t see the money-grabbing Catholic Church and its FF cohorts for what they are (the first time around) which is precisely why your Average Joe & Mary were so easily deluded by the Celtic Tiger. The sins of the parents fall on their children…
Excellent article, David.
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