It is hard to believe that we are at it again, but we are and it’s kind of surreal. I was walking past a small end-of-estate, three-bedroomed semi the other day. It is for sale, and it is going for auction – a sure sign that the mania is upon us again. The “for auction” sign is enough to torpedo the spirits of even the most optimistic first-time buyer.
Once you see “for auction” you know the estate agent plans a bidding war, where the winner takes all. The winner is likely to be a cash buyer, who will elbow out the first-time buyer and hope that the same first-time buyer will become his tenant.
This particular auction sign bragged that the “site” had potential for another house. The “site” in this case is the smallish back garden in a run-of-the-mill 1960s estate in Dublin – the type I was brought up in at a time when a decent back garden meant room for a 20-a-side soccer match. (The days when we had jumpers as nets, defining the size of the plot, not estate agents’ sales patter.) So yes, maybe there is just about room for a house – but we are talking a Wendy House or a Leprechaun house, a place for the little people to live.
Across the road from where I am writing, there is another telltale sign of the panic, this time fomented by another estate agent. The photo here reveals the state of mind of the estate agent as he goads renters to get in quick and pay up pronto, otherwise they haven’t a hope of getting a place to live.
The “sorry too late” taunt truly sums up the sense of hysteria that some estate agents are obviously happy to stir up in the minds of renters.
The truth, for me at least, is that this sign suggests that he is not sorry at all, but is in fact delighted because the more panicked are renters, the higher the rent he can get. The higher the price he can get, the more cash buyers he will attract into the market (to become “tuppence-ha’penny” landlords) and the more cash buyers, the more auctions the estate agent can preside over. And what does all this mean? It means big juicy fees.
Now you can hardly blame the estate agent for maximizing his profit. After all, that is what he is paid to do.
But should the Irish State yet again stand idly by and allow its citizens be mortgaged again in what is likely to be another monumental transfer of wealth from young workers to older landlords and landowners? Should we allow the housing market – the market for that most basic of human needs, accommodation – be used as a “get-rich-quick-scheme” for the already wealthy?
Forget for a minute the self-evident equality issues at stake here and let’s consider the economy, which has to compete in the real world.
If you take a bit of altitude from the streets of Dublin, and think about the impact of unnecessarily high house prices on the competitiveness of our economy, you can see the inconsistency at the heart of economic policy here.
Ireland has to pay its way in this world. This means that our living standards are ultimately determined by whether we can sell stuff to the rest of the world at a profit and the extent of that profit determines our standard of living. Therefore, all prices in the country matter.
The first thing to appreciate is that cheap accommodation, like cheap energy, is a huge positive to the ability of the economy to compete. Countries with expensive housing are automatically at a competitive disadvantage.
Consider how can a country with high costs for housing compete with a country with lower housing costs? Either it is better at producing stuff, or it has smarter people, or better systems or a massive inherited stock of capital that means it is already rich. In the absence of any or all of the above, a country with high costs of housing must possess lower costs elsewhere to compensate.
Given that the biggest costs in any economy are wages, if property prices are high, either wages will have to be lower or, if they are not, unemployment is likely to be higher.
Do you begin to see the picture? Expensive property in a highly open economy is not a sign of wealth but an indicator of likely future poverty!
Ireland is the least densely populated country in Western Europe and yet we have now the fastest-rising house prices.
So what can be done about it?
The key is to get more and more houses built and in the time that it takes to build them to ensure that people don’t panic and drive prices upwards. The worst thing that we could do is allow prices to spike up now and then allow supply to come on stream too late. This is what happened in the 2000-2007 period when we ended up building far too many houses, too late and in the wrong places!
The way to stop house prices rising dramatically from here is to stop credit going to housing, because ultimately credit drives asset prices. This can be achieved by preventing banks from lending excessively against property. If we were to lend against the average house price over the past 20 years, rather than the last price rise, it would prevent the inbuilt dynamic which links banks to credit to house prices kicking off again.
One other move could be to introduce “use it or lose” it rezoning, so that developers can’t sit on land banks and have to build within a certain timeframe.
This would accelerate building because they’d have the incentive to build.
Both of these moves are part of an arsenal that could be deployed to prevent us making the same mistakes again.
You may say that it is all a bit too early to be getting worried about this again, especially when in lots of parts of the country the property market is moribund.
That’s a fairly understandable position, but we Irish have a bizarre psychological relationship with land and houses and you can never be too early.
The only way of preventing bubbles is to be early, when everyone else is nonchalant. If we wait until people get into a frenzy again, it will be too late.
David McWilliams hosts the Dalkey Book Festival from June 19 to 22. dalkeybookfestival.org
ZZZZZZZ Adam
Houses in South Dublin same street, one with double garden and 2 floors and 175square meters for 4300 euro per meter, the other a cottage without garden one floor (bungalow maybe) and 115 square meters for 5200 per meter… and for sure people will buy both…
This article is very important in that it raises the issue of Ireland’s competitiveness and by extension how, when and where it’s economic recovery is to take place. The Government believes OR at least the boffins in the Dept.of Finance and their “ass covering “external consultants believe that a recovery is dependent on the “banks” lending back into the economy, making credit available to where a sound business case can be made for its use ( at least that’s where they should be targeting it). The boffins talk about the banks recognizing their losses from previous bad lending (mainly property)… Read more »
“The way to stop house prices rising dramatically from here is to stop credit going to housing, because ultimately credit drives asset prices. This can be achieved by preventing banks from lending excessively against property.” Judging by the billboards and boom style ads on every corner in Dublin telling us that “we are lending” it seems this is exactly the opposite of what is already happening? At the very least the banks should be made to publicly explain why they are lending like this again, giving mortgages to people 6 / 7 times what their yearly salary is, while those… Read more »
A couple of things. Dave is totally ignoring the effect our zero repossessions policy is having on the market. It’s happening in parts of the US too and is called “foreclosure stuffing”. Basically, instead of being forced to sell, distressed mortgage holders are not put any pressure to sell and are effectively holding the market to ransom. The government is constantly meddling in the market. First there was the mortgage interest relief extension. Currently, it’s the capital gains tax exemption that is seeing cash pour into the market as it seeks yield that is not available anywhere else. Dave is… Read more »
A palm tree… That’s just priceless delusion right there.
I’ve been at a couple of these property circuses recently and cannot believe the insanity that’s unfolding…The cash buyer as you’ve said is skewing the whole thing and to see young couples leaving bitterly disappointed having been outbid by friends of their parents is heartbreaking. These same young couples are being out bid in private treaty sales as well as the estate leeches phone around all the prospective buyers to squeeze the last possible drop out of the golden goose. A simple change in the system to charge the seller a fixed fee to sell the property rather than a… Read more »
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[…] got me thinking of another popular myth: that Ireland doesn’t do planning very well, just today David McWilliams is writing ‘we Irish have a bizarre psychological relationship with land and hous…. I don’t quite buy that. Though there can be a certain antipathy towards planning and land use […]
As several people have noted, the government will not do anything to stop the crazy rise of house prices, because those rises can make the balance sheets of the banks, Nama, bondholders etc. look good, and *temporarily* make Ireland look successful. At least until the next election, which is the maximum planning timeframe of every government.
The disincentive trend. I was recently at a former work colleague’s farewell night, meeting a few old colleagues, past and present, from a well known Irish tech company. What struck me was that three former ‘star’ colleagues (mid-late 30’s males, ridiculously talented creative technicians who are the real deal) and fully expecting to hear that they’d been promoted I was gobsmacked that they had not only jacked in their jobs but by extension their careers. Their young families had been renting, riding out the decade of boom-bust till they could afford a Dublin home, and they’d simply lost patience. With… Read more »
As there’s no credit bubble, who are the cash buyers? Pensioners? Foreign investment?. Could this be covered in a future article David? Pensioners as cash buyers probably means they are holding on to the belief “safe as houses”, as there’s nowhere else “safe” to put pensions. If this is the case properties should level once the cash runs out. However non resident foreign investment would be far more insidious (and I’ve heard from tradesmen that this might be the case).
OK ,where to begin. My understanding is there is not much data to make much assertions about supply and demand issues etc. Have a read of Simon Jenkins article in the guardian about this…http://www.theguardian.com/commentisfree/2014/may/21/no-housing-crisis-just-very-british-sickness Even in Britain, with 70 odd million people, it doesn’t appear to be so much about supply and demand, but rather distribution. The fact that the majority of houses being purchased are for cash suggests mostly pensioners or inherited wealth buyers. Again, this feeds into Thomas Piketty’s argument regarding inequality etc. And as many people on this site are pointing out governments are happy to go… Read more »
Re: “sorry it’s too late”
Have you seen posters around of “house wanted in this area”? Please call this number.
These posters are usually put randomly in an area especially on trees. That is what I see in the big cities in Asia. This is clearly to show how you can boost up your area.
I am surprised I don’t see it in Ireland.
BARTHOLOMEW???? please tell me there is not someone with signs that say BARTHOLOMEW as their first name on them.
This guy is desperate and needs every penny.
Bet he never gets laid unless its paid for. A hooker in the vernacular.
Bart.
One Solution:
50% Stamp Duty for Non Owner-Occupiers.
Rebate of extra Stamp Duty over Owner-Occupier Level over 20 years, if signed over on long term agreement to Local Authority for Social Housing, at pre-determined fixed rents.
That should allow the 1st Time Buyers to compete and draw the sting of the Cash bidders.
Oh, and castrate all greedy Estate Agents while you’re at it !!!!!!!!!!
Whats with all the hate on cash buyers? At the bottom of the cycle in 2013, I bought a (rare) repo rental property a stones throw over the dublin county line, about 20 minutes from my tech job on the outskirts of Dublin. I was early 30’s, single, didn’t need a family home but grabbed one now so I would have it for when I do. I was a cash buyer and I a outbid a couple in their 50’s. Whats wrong with that? What is the profile of a cash buyer? All those “kiddults” mocked on RTE for staying… Read more »
“Whats with all the hate on cash buyers”
Nothing. The problem with collapsed prices is that a property is being sold for less than the cost of production. This means the previous owner will have losses with state owned banks. Those losses will be recouped from you and everyone alse through higer taxes and bank transaction fes. There is no such thing as a free lunch. You have the good fortune to be in the right place at the right time and that’s it.
Take care,
Michael.
I am really sure that a significant proportion of cash buyers are just the swings and roundabouts of kiddults (a huge sector) with a good sense of timing – the collapse of the ponsi economy was just the break they needed. What do people think, they only represent 0.1% of cash buyers? What do ye think happened to their wages?
Well the kiddults who had graduated by say 2003-5 would have been well established before the recession hit, and these are the one soaking up the insufficient supply by paying cash. Sure those who graduated therefter had to emigrate (by definition never became kiddults), but the supply of new housing completions reduced in proportion too. So don’t rule out that it is genuine young-ish pent-up irish people (like me) buying with cash. Maybe David should do an article on where are the kiddults now! Coz there is a lot of jumping to conclusions about who the cash buyers are.
There was a sign (perhaps still is) on the N7 Dublin to Limerick road, on the Limerick bound side of the road, as you approached the outskirts of Roscrea. It read ‘You have just passed Timmy Phelan’s Furniture store’. One day I rang the store, telling them that I was sorry I passed it the last time, and enquired about them maybe putting up a second sign ahead of the approach to the junction from the Dublin side, alerting me to the hidden right turn I would need to take to get there. They told me that they had no… Read more »
As I understand it, economic crashes occur in three waves: first the normal people lose their money; then the smart people lose their money; and finally the very smart people lose their money.
We’ve cleared phase one, and are starting towards phase two.
There is,even today,little worthwhiile regulation governing these ‘yaaahh-hooooers’,who often see their clients as prey and have seriously dubious standards of professional practise and with no sheriff in town enforcing the LAW,criminal,yes criminal gazumping is widespread! Fact!One can almost expect that one’s Rights will be dishonestly violated! We’re talking about possibly the single biggest and scariest purchase, maybe in one’s lifetime and yet the citizen is forced [by Gov’t INACTION]to fearfully swim the property waters with piranha and sharks! Where’s our Consumer Protection ?! I can’t see LOST TRUST in this profession being re-earned,until they are more heavily regulated and until… Read more »