What part of cheap land does the Green Party not understand? The Green Party values the land we walk on, not in the way Fianna Fail does, not for its price but for its value. And the cheaper our land is, the more value it has for the collective good. The more expensive the land is, the more value it has for individual owners.
If the Green Party is really interested in the collective good, it would never support a proposition which prevents land from falling in value.
This goes to the core of the NAMA debate. In Ireland today, we have an opportunity to “lock in” the huge competitive gains that falling land prices give us. Cheap land, commensurate with our sparse population density, is the one thing that will ensure that we never blow the resources of the State on property speculation again.
The Greens are trying to impose a windfall tax on property speculation in order to dissuade people from speculating. However, the best way to prevent people from speculating on land again is to make sure that the collective memory of the land bust is so agonisingly painful that we never touch the stuff again.
If the Greens walked away from NAMA now, the price of land would fall quickly and dramatically and, in the process, we would achieve huge competitive gains which otherwise will have to come from higher unemployment or less capital investment.
And this is the issue. If we are to build a ‘green economy’ as the Greens say they want, then we have to be attractive to outside investors. We have to reduce or eliminate any impediments to investment in Ireland’s brainpower. This means that we should be trying to make permanent the falls in land prices because every percent fall in the fixed cost that is land and the variable cost that is rent is one extra euro to be spent investing in our people.
By supporting NAMA, the Green Party is supporting the land and banking oligarchy whose interests are anathema to practically every Green voter that ever donned bicycle clips.
The Greenest policy that the party could follow would be to see the fall in land prices and the collapse of the old regime as a brilliant, once-in-a-generation opportunity to achieve a real change in the way Ireland runs. This is something that they have always purported to believe in. The way the leadership is going, they risk losing not only the general electorate but their own members as well.
The best gift any middle-aged politician could give the young of this country — the generation coming now into the labour force, looking for work and accommodation — is cheap land and houses. Interestingly for the Greens, this is the way the market is going,, so why put NAMA in the middle and try to stop this and in the process bail out the oligarchy?
Think about where the property market is heading now. We have a credit crunch and there’s a property tax on the horizon, as well as rising unemployment and falling tax revenue, which will only be plugged by more taxes and a reduction in government spending. So house prices are heading only downwards. Not only are the Greens supporting the reflation of the property market through NAMA, the party is guaranteeing that we overpay for the assets no matter what the haircut, because we clearly are nowhere near the bottom. Let’s do a little calculation to see how far house prices have yet to go and, consequentially, how much NAMA is likely to overpay for land and give us the bill.
So how low are prices likely to go? The best way to answer this crucial question is to start with the premise that the age of property speculation is over. There can be no more ‘hope value’. There can be no more belief in the notion that there will be a big capital gain in buying a property, any more than there will be capital gain in buying a sofa.
The value of the asset will have some relation to the yield the asset returns. In houses, the yield is the rent. So let’s take a yield of 7pc as being a reasonable return on an asset that costs money to update and is not generating a significant capital gain. This 7pc would be a long-run average yield, particularly as government bonds which form the benchmark for yield of other assets are on their way back up to that figure.
Using this 7pc yield idea we can value a house at some multiple of the rent it generates. Typically, the value of a house was calculated at 12 to 14 times its annual rent. (The 12 to 14 times equates to a yield of around 7pc.) This relationship has held in the US for over 100 years. There is no reason to believe that this shouldn’t be the way to value Irish houses.
This is a normal price/earning ratio that we would use in the stock markets to assess value. What the US valuation model is saying is that, over time, property should trade on a price/earnings (P/E) ratio of 14 times.
So, let’s see where Irish houses will end up. Take a typical house in a commuter town. On daft.ie there are hundreds of them. Let’s take Newbridge in Co Kildare, a typical deckland suburb where unemployment has tripled in the past year. You can buy a new three-bed house for €335,000. This is a steal, according to the ad. Beside the house is yet another predatory ad from AIB saying that it will finance the house for €995 per month.
According to the same website, the average rent for a three-bed in Newbridge is between €950 and €1,000 a month. This house, if it can be rented, will yield €11,400 a year. This implies that, applying the US valuation to the asset, the house should be valued at €159,600. However, in Ireland, we are expecting the house to sell at €335,000.
The Irish house, at a “bargain” price of €335,000, is still way overvalued. It will have to fall by almost half again to make the sums add up.
The real fair value means that, in a world where house-price speculation is over, Irish house prices in commuter land will have to fall on average by 50pc from where they are today to be worth buying. Madly, even after a year of house price contraction, the P/E for the average Irish house stands at over 29 times — twice the historical average for property — and the yield at just over 3pc, which is still far too expensive. And this is before the likely property tax is slammed on houses at a rate of 1pc of the average value of the house.
So, let’s snap out of it. Why can’t we just mark down prices to where they should get to, take the bankruptcies and move on? Why should we be any different in coming to terms with the new reality?
The Greens could help achieve this competitive bonanza and protect future generations from being conned by the land and banking oligarchy again. It is their decision.
As an Estate agent , I would agree with you David, I would much rather we hit bottom fast rather that die slowly. I had an idea of putting a house in the paper with and asking Price of €200k however the owner will sell at €300k because of the long term economic value maybe it would enlighten people re: NAMA.
David,
Your latest edict is accurate but slightly late.
All of the above is both known, understood and in the process of enactment.
Watch this space!
wills et el, please don’t jump on me again but appreciate that major NAMA change is well underway. It looks nothing like it did at inception.
Have a great day on Saturday….would strongly recommend the hugfest over the protest. The former at least will have positive outcomes.
If there was sale price transparency in the market here like in the UK I believe it would solve a lot of issues. First of all the true value of property would become clear which would entice first time buyers back into the market and secondly it would provide a system whereby if there was a housing tax in the future it could be implemented more fairly. This won’t happen however because the Greens got a whiff of power and it went to their heads. Now they will do anything FF tell them to stay in power a bit longer… Read more »
I think this edict is perfectly timed; the greens are having their meeting on NAMA this week.
Ignore the spin from people who claim NAMA is being changed, that all this is understood…. This is just bullshit to fob people off but let NAMA slip through. There is no need for NAMA, it will help a very small number of rich people at the expense of everyone else.
Turn up and protest! Let your voice be heard….
No to NAMA!
No bailouts for the billionaires!
David – your point about yields is extremely pertinent, but even in the US, and especially in the UK, there is a huge question over whether or not yields themselves are realistic. In the UK a couple of years ago yields had dropped to as little as 3%, and one of the assumptions above is that rents will hold steady at 1000k for the 3 bedroomed house. Of course, what this depends on is what the “bottom line” for rents is and that is – once more – down to the state – or what the maximum level of rent… Read more »
Lets also see if this NAMA farce opens up a legal can of worms, that way ‘developers’ can drag out the process over valuation etc, solicitors and barristers can charge huge fees on both sides of the argument, politicans get away with not making a decision and once again we will see yet another transfer of financial resources from the taxpayer to the so called ‘professions’ and banksters See Financial Times: Bankers sue for €33m in unpaid bonuses Seventy-two City bankers are suing Dresdner Kleinwort and Commerzbank for €33m ($47.8m) worth of unpaid bonuses in the biggest case of its… Read more »
David, in the US, houses are built from timber, not blocks, and the durability of the fabric and structure is significantly less than typical construction here. Also, you should consider the value as related to the earnings of occupants, and mortgages as a multiple of earnings, which are 14 times earnings rather than 4 to 6. The amount of money now required for payment of accommodation by owners is significantly greater as a percentage of income than ever before and that is with historically low interest rates. Research of property throughout Europe indicated rents of 600euro per month on properties… Read more »
Another point, the yield of 3% allowing for inflation is historically the average during the last 100 years, across asset classes. Basically, if you expect more than 3%, you are unrealistic and greedy, and inevitably will lose. The unrealistic expectations of earning more than this has driven western capitalism for centuries, without regard for society, and glorification of the exceptional and lucky individual. May I remind you that even Warren Buffet invested heavily in two Irish banks, and last year lost 24billion dollars. He is now moving out of equities and to government bonds, and I daresay, Irish bonds denominated… Read more »
I have been passing on this message for years to my friends and in spite of my protests several friends have bought property within the last 2 years >>> Before buying they knew prices could fall but they figured with the same ‘sound reasoning’ as Nama will, that in the long run they will make money or at least ‘not lose anything’. This perpetuated lie runs deep from the top to the bottom of this country. David – Please Please Please get on TV soon and start spreading the ”CALCULATE THE REAL VALUE OF YOUR HOUSE” equation. It needs to… Read more »
Hi David, I agree that the Greens have “lost the plot” (pin intended!) and a lot of their core supporters. Having spoken recently with one of their TD’s their ‘strategy’ (although not stated) is to gain new supporters (from FF and FG ranks) and move towards the middle ground with non-eco policies. Akin to the first steps of the PD’s, I fear that they are just at the start of their demise – time will tell. As for the PE simplification, it is not that straightforward. Yes, markets, if the actors were automotons and logical, would steer towards fixed ratio… Read more »
David…not meaning to be condescending…but there is something you should know….the Greens are a shower of fruitcakes….the moment that captured the Green economics philosophy for me was the moment in the wake of the Dell announcement, when Dan Boyle told the news reports that the banks were more important than the factories. In essence, the Greens don’t get economics, production, or the generation of wealth. The Greens are the political wing of your very own description – The Yummy Mummy. They are all right for teaching kids drama, but for Pete’s sake don’t put the idiots in charge of country.… Read more »
David, a timely reminder of this particular discrepancy. What on earth are the Greens thinking?
The purchase price of a 2 bed flat on Langton Cross, Newbridge would get you an average 2 bedroom flat in all but the most exclusive parts of Tokyo (and a proper house out in Kanagawa, Chiba, or Saitama, commuter-hell equivalents to Co. Kildare or Meath), even at today’s exchange rates. That’s an equally interesting comparison to draw.
Hi Deco, Deco> There is a massive problem with waste and corruption in this country. And it is greatly impairing our ability to compete. Agreed. But waste of resources, peoples lack of willingnes to work hard etc is endemic from the lazy bus driver, to the lad behind the counter that doesnt give a toss, to the decision making board of XYZ and public sector management and workers, etc. I didnt see any of those 1000 HSE staff that didnt have a function come out of the woodwork and line up to volunteer to do real work. People are lazy… Read more »
Its a good article and hopefully will be read by most greens before their NAMA debate… What do the greens stand for? Taking 60billion and giving it to banksters and other crooks, isn’t going to fund their policies on climate change… It will set it back….We need that money…. Introducing a windfall tax on developer profits is worthwhile but 10 years too late… The boom is gone and there’ll be very little in the way of profits on land speculation for years. Maybe for those who buy at the bottom now but not for quite a few years yet…In 3… Read more »
David, well structured argument but it all depends on your ratio of 14/1. This is a major failing. You state: “Typically, the value of a house was calculated at 12 to 14 times its annual rent. (The 12 to 14 times equates to a yield of around 7pc.) This relationship has held in the US for over 100 years. There is no reason to believe that this shouldn’t be the way to value Irish houses.” Unfortunately there is every reason to believe that this calculation won’t hold true in Ireland. 1) Population Density (Apples and Oranges) Population density in the… Read more »
David, it’s too late. The greens are as much FF lapdogs as FF are the lapdogs of the bankers and developers. They don’t care if the beggar the country to bale themselves out. It’s the same attitude as shown in the 80’s when the banks helped their rich clients to evade tax, and the revenue could do nothing as the government of the time turned a blind eye. Nothing changes here David. The PAYE worker gets screwed and the rich get away with it.
Given that the average deposit required is 30% and the average mortgage multiple is three times income does the average new home buyer in Newbridge:
1. Have a deposit of €100K.
2. Earn an annual income of €80K.
“The best gift any middle-aged politician could give the young of this country – the generation coming now into the labour force, looking for work and accommodation – is cheap land and houses” Could we not also add office blocks and commercial factory units / business parks to that statement? If PD-virus infected FF (the Republican Party) developers can offer 2-year’s free rent to clients who avail of their new business parks (a number of references countrywide), then surely our government could do the same? Wrap this into a free or reduced banking fee scenario (as a sop to promising… Read more »
I can well imagine the following conversation taking place during the boom Developer X ” I need 50million euro for land and 50million for building costs” Bankster X “sounds good to me what will you build, and what price will it sell for” Developer X “I want to build one and two bedroom shoeboxes the smallest houses in the world, the one beds will sell at 250k and the two beds at 350k. but I’m not sure if the people will have the money to buy them” Bankster X “Don’t worry they will be able to buy them, cos I… Read more »
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David Peter Kelly, the foremost legal mind on commercial law, sitting on the Irish bench gave a ruling, upheld by the Surpreme Court in relation to companies controlled by Liam Carroll. We now seem to be awaiting a ruling from the High Court relating to the protection of the public good, as stated by lead council for Mr. Carroll. I pose this question, Is the public good so intrinsically linked to the survival of developers and the safety net of NAMA that the separation of powers between the law makers and the interpreters of these laws, is becoming closer? It… Read more »
I think of David McWilliams as a comedian more than an economist these days. I don’t know if I am right to think that or not, but I did see the Leviathan cabaret and he is funny. Is David McWilliams too funny to be taken seriously? Even if David McWilliams is a comedian does that mean he can’t have valuable contributions? Is he like a national court economic jester who pokes fun at our follies? He has to more than that, would a court jester have come up with the idea of harnessing the Irish diaspora? I don’t think so.… Read more »
David, an excellent and timely reminder, thank you. On the value of houses, I look at two things other than the P/E: 1) Household insurance; Highly paid mathematical-savant actuaries calculate the cost of rebuilding the house in the event of disaster (perhaps a fire). These actuaries list this cost on your notice of insurance. On mine, it lists the replacement cost at almost exactly half its “value” at the height of the boom, so you are onto something with your P/E calculation, alright. However, the actuarial figure includes an extra cost: site clearance (the cost of fully demolishing the ruined… Read more »
Again, pure wisdom from David.However such logic-if followed- means the IMF guys pack their suitcases and head for Ireland-at least improving Aer Lingus’s waning seat occupancy stats.! Nama is a quagmire.It is a bottomless swamp. How many people have thought through the numerous injustices and complexities of interfering as never before in the world of banking and bankrupt builders Fianna Fail have destroyed this country.The Health srvice is in tatters. People are dying for want of enough money to see a specialist.The privatization of health-co-location schemes etc.- now following the same road, with thousands abandoning private health insurance. There is… Read more »
The Greens are the milli vanilli of politics.
Indeed the Greens need to be aware they are widely seen as:
1) Politically naive
&
2) Financially illiterate
Given the critical position the country faces, coupled with their own very marked flaws: Green Party remedial action is needed & fast .
They will not be forgiven for facilitating any more of this ~
Pull out or be wiped out.
David, Enjoyed your article. The Greens could do so much, but are capable of so little. At least with the PDs, they stood firm to their nasty free market principles to the end in spite of vilification in the media and hatred from most of the public. The Greens just couldn’t take it at all when the going got tough, and seem determined to do almost anything to postpone the inevitable electoral wipe out. Mary Harney may outlive them all. Of the 6 Green TDs and 2 senators who originally enlisted in the Apocalypse Now that is the Irish State,… Read more »
The cabinet have signed off on NAMA with the approval of the Green Ministers.
Whatever happened to the Green Conference this weekend to discuss NAMA? It seems that Ryan & Gormless are “doing a FF” and treating their members as useless cannon fodder who will just up and do as they’re told.
Constantin Gurdgiev seems to think that the Greens have traded NAMA for their Carbon Tax:
http://trueeconomics.blogspot.com/2009/09/economics-09092009-has-green-party.html
Cowen has said that the NAMA legislation has been signed off on by the Cabinet today.
HIgh Court decisoin on ACC v Zoe Group tomorrow.
“Money exists not by nature but by law.” Aristotle (Ethics, 1133)
Was listening to Emmett Oliver (Sunday Tribune Business Editor) give his reaction to the Green’s input into NAMA. Oliver described it as “window dressing”. The Green Ministers wanted a PR stunt to ‘sell NAMA’. The Green Party policy has the primary objective of preventing further defections, especially defections to McKenna. Oliver rightly detects that there is no economics objective in the Green Party amendments. There is already an oversupply of residential property. And because NAMA is already created, and staffed, trying to prevent cronyism will be impossible. Bear in mind that it is impossible to prove cronyism. It has not… Read more »
The following is a very interesting extract from a weighty Paul Krugman article in the NY Times; http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=1 “”VIII. RE-EMBRACING KEYNES So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit ……………….. that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics. Many economists will… Read more »
“NEVER HAVE SO MANY OWED SO MUCH TO SO FEW”
A girl I know recently paid 380,000 for a two bed apt in Dublin and has now lost her job.Massive neg equity. Cant walk away as parents went guarantor.Went to Social welfare who agreed to pay half only the interest element of the loan and insisted that as the parents (one of whom has also recently lost her job) are guarantors that they pay the other half!
Any more stories out there.Somebody should start a new web site for all the real life horror stories :victims of Fianna Fail/NAMA dot com.?
Why did some many people believe to such an extent, all the nonsense about this boom that would last forever ? I still cannot understand why people had no scepticism that anything in this country would not be influenced by market rigging ? Eddie Hobbs told us as much in the Rip Off Republic series in 2003. And he got shafted. Clear thinking was kept off the airwaves. People have to learn that you can never be naive in this country, with respect to what you get yourself into. The lies that were issued in the period 1997-2007 were horrendous,… Read more »
Newstalk reporting ACC victory over Zoe Group – no Examinership protection from the courts.
The Greens amending NAMA , God what a joke this is from the party who gave us €1,000.00 to buy bikes for work yet in Mary Whites own counties of Kilkenny and Carlow they had no deals done with the bike shops there !….Ireland is loosing the plot by day day , if I heard right we are presently borrowing 44 million each day just to maintain this circus and just heard on line here about FAS and it’s over spend on advertising and to think this was spent when we had ‘full employment’ , it really is time we… Read more »
Hi David,
I read and like your articles – a lot!
Though I don’t always agree with them, this one I do.
However, do you not think it polite to give credit to Jill Kirby, Sunday Times?
Plagarism, that is, the final few paragraphs should be accredited to her.
Keep up the good copying..
Ah Ya..
Tim – I wish you success in Dublin on the 12th Sept .I will not be there as I see no reason to because the Gov have it all rigged up to become enacted either way.I am in France till 19th …and near Aould Fitzy’s haunt .I think if I retrain to be a good bread maker I might have a better lifestyle than being an Irish Professional driving down a deep bottomless black Irish Vortex and watching everyone bleed to skeletals like as seen near Custom House Dublin alongside the quay. There is a new Moon Wobble ( and… Read more »
David: Now you are back in top form and the quality of the comments has responded in kind. Back in the 1850s in the days of Griffiths Valuation, land had an inherent recognized value that depended upon the quantity and quality of the crops or livestock that it could support. or upon the turbary benefit or on the dwellings or other buildings it contained. These days, farmers income depends on subsidies or licences for dairy and other stock and setaside for crops, REPs, marginal land, AONBs, SSIs, etc etc. The land’s productive capacity has little or no bearing upon the… Read more »
24hours!
NAMA starting to look very respectable but still room for improvement.
Zoe slammed finally by our courts.
Prof Lucey now talking utter crap as against crap.
Richard Bruton seriously faltering.
Eamon Gilmore secretly wants to bed down with FF
All that is now missing is a come back from “soft landing” experts Jim Power and Dan McLaughlin!
SCRAP NAMA SCRAP NAMA SCRAP NAMA SCRAP NAMA
NAMA IS A CRONY CAPITALIST BLACK OPERATION
NAMA IS A DIRECT FULL BLOWN ATTACK ON THE IRISH PEOPLE
wills
I’m getting very close to transporting the “s” back to its rightful place!
Please help prevent such an occurrence and look long and hard at where we are at.
Tim,
You are blinded by Luceydom as is the man himself. He has now attained the same self admiring status as our fallen heros JP, DmcL et al.
I am in awe of your tolerance of such recycled nonsense and simultaneously I am fascinated by the media attention to same.
David, good article. Unfortunately how NAMA GOES ABOUT BUYING TOXIC ASSETS is a red herring. NAMA is all about the vested interests taking over the running of this country beyond their wildest dreams. To sit around debating NAMA’s calculus is a waste of time. NAMA is a trojan horse for more centralisation and more control and more gov involvement in all our lives. NAMA is nothing else but the laizy greedy piggies getting their trotters into more of our lives. SCRAP NAMA it is a vested interest black operation. Let the free market reign and wipe out rotten and bring… Read more »
Lads, It’s time to open your eyes.The IDIOTS running this little island are in the pockets of the banksters,the banksters are in the pockets of the developers and so on….none of them can get us out of this MESS.At this stage it would probably better to invite the IMF TO COME IN now before NAMA makes a complete joke of the Irish economy. Sack the IDIOTS and jail them for robbing us…..Keep every pension cent they they think they deserve and put it into a new efficient health service then vote NO ,it is undemocratic to vote yes….Yes lost …get… Read more »
Cowern on Primetime………………… “the context of our position in EU has changed” >>>>>>>>>>>>>>>>>>>> yep,. your party permitted a bubble to destroy our country. “it’s terribly important that people recognise” >>>>>>>>>>>>>>>>>>>>>>>> mammyish verbals “of course people want , blah, recognise, blah” >>>>>>>>>>>>>>>>>>>>>> mammyish nosense “we’ve go to get real miriam in this country” .>>>>>>>>>>>>>>>>>>>>>> unreal “what influence are we goin to bring to EU” >>>>>>>>>>>>>>>>>>>>>>>> 60 billion euro debt “voting yes sends the right signal externally blah blah” >>>>>>>>>>>>>>>>>>>>>>>>> chr1st “we’re stronger in europe, working together ” >>>>>>>>>>>>>>>>>>>>>>> have we not been doing that “what were talking here is fundamental to… Read more »
wills, excellent! Lol! I love your “verbatim” postings with commentary!
The question that Miriam did not ask him (nor did Mr Tubridy) is:
“Taoiseach, what legislative provision have you made in the Bill whereby NAMA’s acceptance of a toxic asset from a bank “ensures” that said bank then “Will” release credit to support business and jobs?
That question has not been asked; has not been answered; and, from what I can see, has not been included in NAMA negotiations.
That is another one of the many “issues” that I have with NAMA.
There is no difference between a bubble and a wedge (NAMA) too stop the market imposing it’s truth.
Fergal73, “He’s conflicted? Everyone is to some extent. See Tim on this page who’s leader of his local FF cumman who thinks FF leaderhip are corrupt and pursuing wrong policies, but he’ll still lead their cumman.” Interesting spin on my position. The possibility that I hold before me, however, is directly related to the wording of your post (and may, indeed, answer the question that so many new contibutors here are asking {most of the long-standing-posters have already either understood or dropped the question – apart from BrendanW} “Why does he persist?”), and it is this: Hope. What if it… Read more »
RIGGS + NAMA = GAS RAN MIG
GAS RAN MIG bringing socialism to the bourgeoisie in their hour of need. Comrade Riggs loves to shout down to the great unwashed, he thinks they won’t be able to hear him if he doesn’t.
Colin_in_exile, It is entirely possible that some of your posts are “a bit harsh”, as Fergall73 accuses; However, you are usually correct, though harsh. Fergal73 does not know that yet. I sense an urgency, a vehemence in posts recently. Not just the already familiar panic/anger of new posters, as they wake-up and arrive here; something more. I sense an uncertainty, a “self-check”, a nervousness, a re-invigoration amongst us all. It is probably because NAMA is so nebulous (on purpose) that we cannot totally get to grips with it. I have chosen to oppose NAMA so that we can try and… Read more »