Housing: In the eye of the storm?

Emer O'Siochru, BArch RIAI, Director of Smart Taxes

1st Oct 2009

Emer O'Siochru BArch RIAI, Director of Smart Taxes, commenting on the latest Daft research on the Irish property market.

The first anniversary of the bank guarantee is nearing, and while the Irish housing market shows signs of less volatility it is still on a downward trend, albeit marginally less precipitously. Asking prices fell by 4.6% over the last three months, a smaller fall than the preceding quarter. The number of houses available for sale on the market is holding remarkably steady at around 60,000 at any one time. The most recent drop is probably the result of more realism by sellers, especially in the Dublin area, where asking prices have dropped by 30% from the peak in 2007 compared to only 25% outside the capital.

The graphs in the current Daft report show that houses in urban areas generally took a shorter time to find a buyer than in rural areas. Whether this was due to price cuts, wider demand (more investor interest) or deeper demand (more first time buyers) is difficult to say. It is interesting that the highest falls in value are in Dublin city centre (-33.7%), where the highest number of rented/investment properties might be expected. It would be useful to compare falls in rent levels to falls in asking prices in particular areas to see if one is influencing the other.

When we turn to Munster, we find a different picture - the region has experienced the smallest drops in asking prices, which are typically 20% lower than at the peak. The other side of this story is increasing time to sell, from 3 months in late 2007 to over nine months now, and unlike elsewhere the overall stock of properties for sale is still increasing. This could be simple psychological denial, but may more prosaically be accounted for by the more discretionary nature of much of the Munster housing market. Cork and Kerry are established second home, holiday and retirement home areas.

House prices in Connacht & Ulster (excluding Galway city) are already the lowest in the country, typically €182,000 - €220,000, but they are still remaining unsold for over a year. We do not have breakdown by construction date, but from what one sees driving around the West, most are new. As rural houses are generally larger than urban, these prices must be approaching construction costs, meaning that their site value has eroded to very little. These areas enjoyed the longest lived and most generous tax relief in the country and are the heart of Namaland. Not only are they worth next to nothing, many have already cost the exchequer considerable sums.

Meanwhile, the Leinster commuter belt around Dublin shows similar trends. It has some of the largest falls in asking prices, more than 30% in Meath, Louth and Westmeath, but unlike the urban areas, not matched by shorter time to sale.

One can well imagine the family desperation that these figures represent; two parents with one job between them; in negative equity, certainly; their home nestling in a forest of fading for-sale signs.

The self reinforcing cycle of housing-needing construction workers-needing housing has reversed as CSO figures show net emigration of the very kind of people that buy and rent houses. Economist Brendan Walsh estimates that the number of individuals aged under 45 years (who might loosely be identified as potential 'first time buyers') will collapse from 24,000 a year in 2002-06 to minus 6,000 in 2016-21.

The bankers are unprepared for the next great wave of personal debt that is swelling up and will hit them in 18-24 months time. The current NAMA deal leaves their balance sheets so perilously weak that they will have little choice but to cut jobs and raise rates and fees. None of this augurs well for families in debt.

It is Dickensian that the totally inadequate Mortgage Interest Supplement Scheme is all that stands between many Irish families and the debtors prison. The Law Reform Commission report on personal debt is very welcome and should be immediately acted upon, but it makes no recommendations to address the root problem of crippling mortgage and other personal debt. The government should do more for indebted homeowners than offer an earnings attachment or a rental lease of their own home. Substantial write-down of the original loan capital owed must be part of the solution.

Another mechanism is the 'Equity Partnership' proposed by the Urban Forum which is a clever way to swap debt for equity. Families in serious mortgage arrears can transfer their home to an Equity Partnership and stay put paying a cheap rent with the option to pay more when they can afford, to regain ownership. Equity Partnerships also offer social housing providers a better economic deal than leasing under the new 'Rental Accommodation Scheme' (RAS), a way of resolving the perennial estate management problem as well as dissolving distinctions of tenure and income in housing schemes.

Demographic change and global recession has put a stop to the gallop of land speculators and politically connected developers for the time being but the final solution will come only when unearned upswings in land value are taken out of the property profit equation - permanently. There is no better way to do that than an annual land value tax (LVT). LVT removes 'hope value' leaving developers and builders to profit only from the quality and efficiency of the design and construction of their product - like any normal business. When the Building energy Rating (BER) of houses listed in the Daft Report becomes a reliable predictor of house value, we will know we are getting there.

Under LVT, the 'hope value' of the land is collected by local and central government and used to build and maintain the services and infrastructure that added most of the value in the first place, and which is needed as communities expand. LVT short-circuits the natural boom-bust cycle generated by economic and population growth, holding property prices steady and affordable, and business competitive. The surplus generated in these conditions can be given back as a citizens' allowance or dividend. In this way LVT can be very progressive; a fact that was recognized by Union Representative Brendan Hayes on the Taxation Commission who dissented from many aspect of the final report because of their effect on ordinary working people and the poor.

Emer O'Siochru BArch RIAI, is an Architect and Planning and Development Surveyor, currently Director of Smart Taxes, a policy development network funded by the Department of the Environment; a founding member of Feasta the Foundation for the Economics of Sustainability and through the new Environmental Partnership, a member of the Housing Forum. Emer is also principal of EOS Future Design, a sustainable systems and settlements developer.


HIGHLIGHTS:

Asking Prices
Asking Prices, Residential Sales

Stock and Flow of Properties
Stock and Flow of Properties


SNAPSHOT:

Average asking prices across Ireland in Q3 2009
Snapshot of Asking Prices in Q3, 2009

Discuss This Article

  • Re: The Daft House Price Report Q3 2009

    Posted By: Anonymous Poster Date: Thursday October 1, 2009 @07:21AM

    Land Value Tax is a very promissing idea. Dr Gurdgiev of TCD authored several papers in the topic and at least one of these papers was considered by the Taxation Commission. Sadly, the Commission opted for an unenforceable and counter-productive, from economy perspective, self-assessment property tax. This, along with Nama, will lead to poorly functioning property markets. Grey cash-under-the-table transactions, tax avoidance, uncertainty in new developments, and reluctance to invest in new construction - all will become a feature of Irish property markets in the future. Meanwhile, Nama risks leaving the mess left by our unsustainable development in place for years to come. This is a bleak prospect. But it is compounded, as Gurdgiev, Lucey and Lyons have argued, by the effects of Nama debt and costs on our households. The next wave - of defaulting households and corporate debt - is coming.

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Anonymous Poster Date: Thursday October 1, 2009 @04:57PM

    Property/land value/wealth taxes are unconstitutional. Bunreacht na hÉireann gives us the right to own private property outright not simply at the whim of whichever government needs to tap us for cash. How can you ever be free if you indefinately owe? Even to attempt introducing such measures will wipe out alot of people sitting in negative equity with inadequate cashflow. NAMA is going to kill this country, the deflationary effect of the repayments will be like nothing seen before as national debt has always been invested (badly often) in the country to spur economic growth ( i.e sufficient inflation/debasement to repay interest). NAMA will simply be an exercise in taking money out of the economy. This borrowing will not fund roads/schools/hospitals but has already been spent on concrete shoeboxes in the middle of nowhere!

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Anonymous Poster Date: Friday October 30, 2009 @04:14PM

    This report details the asking prices, fair enough - why is there not a report on the actual selling prices (not necessarily from daft of course)? This difference between the two I expect is quite large ....

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Damian Date: Friday November 6, 2009 @10:22PM

    What can I add to that? An honest and frightening report. I was lucky enough not to follow the trend and buy property when times were good. Many of my friends were not and now some have lost their jobs with mortgages of 300k+. Stressful times indeed............looks like its back to bloody Oz again.

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Mark Date: Monday November 9, 2009 @06:07AM

    The shortage of new houses in Co Kildare is because there has been no spare capacity in the Osberstown sewage plant for some time and the problem is not expected to be sorted until 2011 at the very earliest.

    Even when the difficulty has been resolved, many developers have either been burned by the property market or have made big profits and won't risk everything, in the hope of securing small gains, to engage in new developments. Either way, new houses are unlikely to come onstream in the near future in Co Kildare.

    I too have noticed that the drop in prices does not seem to be as exaggerated in Co Kildare as in Co Dublin and maybe this is due to the decreasing supply of new homes?

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Anonymous Poster Date: Saturday November 7, 2009 @02:02PM

    I follow the asking prices of new homes in the kildare area for the last year. From April onwards most of the developments did not change their asking price anymore. Wonder if this anything got to do with Nama, developers are waiting on the outcome of that before they gone lower their asking prices any further.

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Anne Date: Wednesday November 11, 2009 @05:14PM

    The prices in Kildare have not dropped, or very very little. If you look particularly in villages like Clane, Maynooth, Sallins and Naas, houses and apartments are really overpriced both for sale and rent. It seems to a lot o people I talk to that if there is a train station nearby, prices soar... the 'easy' commute is the main seller. Not easy and not cheap at all. A church! and a shop selling overpriced basic and bad quality products and a shabby cafe/hotel are called amenities. Prices should reflect the reality of living in these places. You pay for parking at the train station (when you can find parking there) buy an overpriced train tickets, have to bear the bad service, walk miles when you to dublin in our god cursed weather... etc etc also, the appearances are great, but the quality of most apartments around kildare is horrendus. Sink/toilet pipes connected is a very common issue. Skinny walls. Bedroons the size of a bed. No insulation between floors. cracks around doors and windows (weight from flat upstairs). It is great to see so many empty now!! why pay for the mortgage of greedy people who bought these paper boxes when they could not afford them in the first place? They are inflating the market because of their greed. I have been renting 2/3 bed houses only in the towns mentioned above, and whenever I find and advertise a good property for rent at a fair price, you can hardly make it to the phone. A lot of people I talk to are actually leaving their overpriced rented boxed and moving into bigger houses and paying less. I think everything has to be taken into consideration when determining the price for rent/sale of properties.
    Just to let you know I have been working in the rental market since 8 months ago - word of mouth service, and have been doing well for my clients and myself. Educating them about what I talked about here and working from there. All the best.

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  • Re: The Daft House Price Report Q3 2009

    Posted By: Patricia Downey Date: Monday November 16, 2009 @03:56PM

    1. has there been a decrease in private rental for bedsits in Dublin City Central South.

    2. If si what %.

    3.What is the average monthly rental for bedsits in Dublin City Central South.

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