For the Love of the Land

Pat McArdle, Chief Economist, Ulster Bank

9th Nov 2006

Pat McArdle is our guest blogger, analysing the Quarter 3 2006 figures.

We Irish have a love affair with property. Before the famine we split up the land amongst the children with ultimately disastrous results. Then we switched to the eldest son or, in the case of numerous bachelors, held on to it to the bitter end leaving various sundry relatives to squabble over the remains.

In time, the dispossessed children migrated from the countryside into the cities. They still, however, had a 'gra' for the land and, to this day, insist on buying a piece of suburbia with a garden patch at the rear. Combine this with avaricious developers and corrupt planners and you get urban sprawl, row after row of uninteresting identical boxes, frequently without the amenities that are taken for granted in other countries. The geographically constrained nature of our capital city and the virtual absence of high-rise-accommodation are the main reason for the elevated and ever-increasing level of house prices in Dublin.

Our newfound wealth has now enabled us to take our love of the land overseas. In this manifestation it is property rather than land, per se, that is sought after. An over-enthusiastic approach to buying has earned us a reputation as easy marks in some parts of Eastern Europe. But we don't care as long as we climb another rung on the property ladder.

We hear less about Irish forays into the overseas commercial property world. For the most part, this activity is still concentrated in the UK although purchases as far apart as the US, South Africa and even Russia are no longer uncommon. I was surprised recently to be told that the Irish were the largest source of foreign inflows into the UK commercial property market last year.

The Irish property market is unusual in that it is confined, almost exclusively, to the Irish. Leaving aside the Germans who moved in a quarter of a century ago, and the occasional Englander, it is rare to find a foreign owner. At least it was until recently. It is still the case that commercial property is snapped up by the locals - we buy commercial property abroad but foreigners do not reciprocate given our low yields and high stamp duty. In the residential market, however, things are changing.

The housing market slowed nicely in the first half of 2005 but to the dismay of many economists, myself included, re-accelerated strongly thereafter. The Minister for Housing is wont to attribute this to the effects of competition between lending institutions. An important explanation, which is seldom mentioned, was the surge in demand from immigrants. For a start, the level of net immigration was much higher than predicted. Second, the expectation was that non-nationals would rent accommodation. While many do rent, increasingly we hear that immigrants account for anything up to one-quarter of sales at new launches around Dublin.

The experience in 2006 has been the reverse, as the latest Daft.ie Report shows. Asking prices for residential property were rising at a 14% annual rate at the beginning of the year. By September, they were down to 6%.

The reason is straightforward. Higher interest rates have sapped the purchasing power of the first-time buyer. Since last December ECB rates and, by extension, mortgage rates have risen by 1.25% with another quarter-point rise pencilled in for early December. The main objective of the ECB is to curb economic activity so as to keep inflation below 2%. As they have not yet achieved this objective, it is likely that interest rates will be further increased next year. If this results in a slower housing market, so much the better in the eyes of the ECB.

This is cold comfort for the first-time buyer who, having inherited the genes of his/her ancestors is now struggling to get onto the property ladder. However, the situation has improved in many respects. A quarter of a century ago, the banks were not engaged in mortgage lending at all and one had to establish a regular savings record with a building society before they would even consider you for a loan. The standard annuity period was 20 years and multiples above 2.5 times income, 100% loans and interest only mortgages were unheard of. The banks are doing their utmost to assist, not for any altruistic motive but because competition is keener than ever-before and, indeed, keener than in most other EU countries.

Outsiders looking at the Irish market frequently look no further than the loan to income multiple and recoil in horror when they learn that it is now five or more. However, this fails to take into account the more sophisticated affordability measures now employed by Irish lenders. Monthly outgoings as a percentage of after-tax income are now the standard measure. This allows for the dramatic fall in interest rates that accompanied EMU entry as well as lower taxes and longer annuities. In addition, lending is stress-tested to allow for a further 2% increase in mortgage rates.

Prudent application of these principles should ensure that the slowdown in house price inflation evident in the latest Daft.ie Report continues but also that the housing market should experience a soft, rather than a hard, landing. A soft landing does not rule out some, temporary, fall in prices. A hard landing, on the other hand, would be associated with significant and sustained falls in prices. The way to avoid the latter is to ensure that as demand eases, supply is simultaneously curtailed.

Discuss This Article

  • Re: The Daft Report Q3 2006

    Posted By: Hugh Date: Thursday November 9, 2006 @10:33AM

    Why should supply be curtailed in the housing market?

    Are you really saying that - in the event of a house price crash - it is up to government to restrict supply in order to make people who have not yet bought a house bale out those who have bought a house by keeping the price artificially high? That just punishes those who did not participate in the housing bubble and would be unjust and nothing else.

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous Poster Date: Thursday November 9, 2006 @02:30PM

    How do you restrict supply though? I really dont see any way of doing this without having repurcussions. Remember there is 1 in 8 people employed in construction in this country. If builders start only building 30/40K units a year, thats is a serious amount of redundancies a lot of who are immigrants. It is quite possible that these people could start looking elsewhere in Europe for work eg a strengthening Germany. This will reduce demand for rental accomodation and house prices could potentially drop further!! Also how do you stop panicing investors selling off their properties. Remember also there are approx 275K empty properties in this country (approx 4 years of building). I think we have reached the stage where we have left it too late to do anything and just have to cross our fingers and hope for the best!

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  • Re: The Daft Report Q3 2006

    Posted By: The Unwelcome Guest Date: Thursday November 9, 2006 @03:18PM

    The logic also ignores what happens to all those poor construction workers that Mr. McArdle wants to put on the dole.

    Oh, it's a vicious circle! ;O)

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  • Re: The Daft Report Q3 2006

    Posted By: claudio Date: Thursday November 9, 2006 @04:55PM

    The house price its artificially pushed up by fiew interested bodys like the government, for the stamp duty,and the estate agents for the high comision they make and at last the very generous bank who will offer very sun 120% mortgages.They will find fiew bad investors like the first time buyers (mostly forigners)who will keep the house price up.But whit all eforts,the house price will slip down to reality,the buyers have to get real and remember that always can make a under asking price offer.I hope my mesege its accsepted ... Thanks

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  • Re: The Daft Report Q3 2006

    Posted By: Excelsior Date: Thursday March 15, 2007 @01:41PM

    Thanks Claudio. That was very Clear. Are you sure that you found the right webpage.

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  • Re: The Daft Report Q3 2006

    Posted By: laura farrell Date: Thursday November 9, 2006 @04:57PM

    It would be interesting to get an accurate breakdown on levels of empty housing relative to local house prices, the impact on local communities etc. Also to differentiate between differing reasons for high vacancy levels in an area - for example if its due to a high concentration of holiday homes, or if its down to predatory purchasing techniques used by short-term investors for capital gain. It would appear that despite huge demand for housing there is a disproportionate level of unused housing in the country at present.

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  • Re: The Daft Report Q3 2006

    Posted By: Richard Date: Thursday November 9, 2006 @08:19PM

    The government tax take will eventually start to fall, in part due to a housing slow down and also due to the inevitable economic slow down. When this happens then both direct and indirect taxes will have to rise to feed the insatiable public sector capital and wage demands. This will reduce the disposable income of all and make the borrowing from banks of over five times salary, as horrific to us as it is to foreigners. Rents and house prices will collapse. The much vaunted 'Development Plan' to build infastructure will not substitute for the fat stamp duty charges associated with house sales. The only way out will be increased government borrowing. Reduced consumer spending will further affect government revenues and hence the vicious cycle of the 80's and 90's will loom once more and I'm an optimist!

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL.property economics student,yr 3. Date: Saturday November 11, 2006 @02:25AM

    Always the optimist I see Richard,the glass is half empty I see.You read 3 editions of magill or the FT and suddenly you are Ricardo.I bet you were preaching the same gospel in the mid 90,s.You were wrong then and you are still wrong now.Your first point states that the the govt tax take is going to fall due to a cooling housing market and economy while the reality is that for the past 4 yrs the govt has underestimated its tax take from the housing/construction industry by 25% or more.They can absorb any downfall comfortably at this stage.Your second point in relation to taxation is spoken like a true labour party activist.We have one of the lowest and best taxation systems in the world,which is due in no small part to the wage agreements which are agreed and set out for the next 4 years and are budgeted for.
    The house price collapse which you have so bravely predicted is not going to happen.What will hapen is house price moderation,prices may drop 10% max,this would only take them back to last octobers value,nothing too mad there.As for rents falling,not a hope!They will moderate also,and why,because there are 80,000 people entering the country every year who don,t have €50,000 in their arse pocket to buy an apartment.
    As for an increase in govt borrowings the answer is no,they don,t need too,the national debt has been reduced for the last 6 years in a row,if it all goes pear shaped they will just go back to making interest rather than interest and capital repayments.
    And finally we will never see a return to the bad old days that you ssem so quick to talk up.The reality is that we are in a great position economically with everything going for us,but there remains the unbelievers who it seems won,tbe happy untill they see us back in the mire just so they can say "I was right all along",even though they were wrong for 15 years or more

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous Poster Date: Sunday November 12, 2006 @09:35PM

    Interesting, for someone with a vested interest in property to rain distain on the 'half empty' brigade! Most economists with the major banks or auctions houses remain illogically resolute that property investment is a one way street. Ask investors in the US property market about nay sayers, prices have fallen year on year across the US and typically in a falling property market one can expect another two years of falling sales and prices before turning.

    Regarding taxes, indeed revenues have been greater than expected for VAT and stamp duty but behind on PAYE and corporate tax. 80,000 more imigrants a year has failed to increase payroll taxes but these citizens will need services ie health, social welfare, transport. The next benchmarking deal should secure another 6% increase for the public sector (€1 billion). If numbers of house sales fall (not prices) this will be enough to halve stamp duty. Anyway, Ireland has low direct taxes but high indirect taxes (VAT 21%) we rank in the middle of the OECD regarding taxes overall but we have some of the lowest levels of investment in health, education, R&D etc (ask kids in Naas that can't get primary school places). Our infastructure needs no comment. Massive investment is needed to improve productivity, competitiveness and quality of life. What looks good now could change very quickly in terms of tax revenue.

    Re house prices; 200000 houses lie empty, 100,000 new houses built this year. I rent, and I have noticed a large increase in the numbers to rent on DAFT, furthermore prices have slipped back from last year. I rented a two bed appt for 1100 2 years ago I could get the same price today!
    Its not about being right, its about the facts. While not as volatile as stockmarkets, housing markets go in two directions also and all the pointers argue for a large correction (lenders lowering rates -NIB; 40 yr terms; massive increase in interest only uptake; and still their mortgages take up 35-40% of dual income)-Nuts! Worth considering without bias?

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL Date: Wednesday November 15, 2006 @08:26PM

    Interesting indeed,the facts are that 'housing demand is projected to run at between 40,000 and 75,000 units per annum for the next 15 years depending on the pace of immigration,building of second homes and trends in household size.on our central population projection,allowing for falling household size,we put the pace of demand at 65,000 per annum to 2015 and 55,000 thereafter.In the years up to 2010,the pace of housebuilding could be higher if immigration continues to rise.'Thats quote from NCB,S 2020 report,well worth a read.
    Back to the present,there is a glut of properties on the market at the minute,but a lot of potential purchasers are holding off untill after Decembers budget,to see if there will be any changes re stampduty.
    As regards rents,in Dublin they are growing circa 6% per annum,check out rents for grand canal dock,€1800 for a 2 bed,rathmines,€1450 for a 2 bed,city centre €1000 for a 1 bed.These are facts not fiction.
    As for the brilliant economic theory of all that goes up must come down,pure fiction.Take stocks as a simple example,can you see aib,s or microsofts stock returning to levels they were at even 3 years ago?Not a chance,thats that myth dispelled.

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  • Re: The Daft Report Q3 2006

    Posted By: John DeBurgh Date: Tuesday February 24, 2009 @04:46PM

    Don't these comments make facinating reading in 2009. At least some folk were calling it like it was back then. As regards the main article by Mr McArdle - "soft landing" - what planet was he on? Mind you in 2009 he's still offering his opinions. A pity the papers that reproduce them don't reference some of his earlier work. It might put his views in context.

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  • Re: The Daft Report Q3 2006

    Posted By: Corkboy Date: Friday September 4, 2009 @08:27PM

    Indeed very amusing, I wonder where Paul, the 3rd Year property economics student in 2006, is working now. Also, hope he didn't follows his own advice on bank shares. LOL

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  • Re: The Daft Report Q3 2006

    Posted By: Corkboy Date: Friday September 4, 2009 @08:27PM

    Indeed very amusing, I wonder where Paul, the 3rd Year property economics student in 2006, is working now. Also, hope he didn't follow his own advice on bank shares. LOL

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  • Re: The Daft Report Q3 2006

    Posted By: Joe Walshe Date: Thursday November 9, 2006 @09:59PM

    We all expected the property prices to eventually level off. It's good news for the many young people who just want to buy a home and are not necessarily interested in profiterring on the property market.

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous Poster Date: Friday November 10, 2006 @04:24AM

    In response to your remark about restricting supply, I would say that in the event of a fall off in demand, supply should indeed be curtailed proportionally. A stable property market with modest price growth each year (say 2%-5%)is in everyone's interest (Government, Banks, current homeowners and prospective purchasers).

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  • Re: The Daft Report Q3 2006

    Posted By: Jack Date: Saturday November 11, 2006 @01:39PM

    Anonymous poster's idea (above) that house prices continuing to grow from their current levels is best for prospective purchasers indicates he/she is either an idiot or is trying to sell a house.

    Let's see, would it be better for prospective purchasers to pay €400k or €200k? Answers on a postcard please to Anonymous poster.

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  • Re: The Daft Report Q3 2006

    Posted By: Cee Date: Saturday November 11, 2006 @06:29PM

    Pat McArdle is living in dreamland and he probably knows it - but he is paid by his bank to hype up the market and we now have a bit if inverted prudence to attempt to show that they are responsible after all.

    The sad reality is that there will be no curtailment of supply because Ulster Bank along with all other banks have been falling over themselves to lend to developers who are building almost 100,000 units per annum when there is no market. Of the 275,000 units sold in the last few years, about 100,000 of these are unoccupied as the banks duped thousands of suckers to invest is the very bubble they themselves were creating with these developers.

    The banks KNEW this would all end in tears but they kept the craze going on salaries and bonuses worth over half million a year to senior management. So what if you have to retire when the party is over as they will also get golden handshakes and pensions that will be related to these ridiculous salaries! These senior managers put their staff under extreme pressure to sell mortgages - to the exclusion of all other activity. Small businesses could not get a penny from the banks.

    Fair play to DAFT - they are the only people calling it as it is. I heard one of their guys on NEWSTALK today saying that there are now 30,000 properties on the market compared to 15,000 a few month ago. I can see another 15,000 by January and the collapse will then be inevitable.

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  • Re: The Daft Report Q3 2006

    Posted By: Donn Date: Sunday November 12, 2006 @11:07PM

    The government has up to now pushed supply and the government ultimately controls this process.I think for sustainable development its not a good idea to flood houses on the market, because of the resources required to build them and the assoicated infrastructure. Also there is a need to have a sustainable level of house building for future generations. So Government isnt going to push over supply.

    In fact, in my opinion, there is alot more and bigger fish to fry where government needs to step in. The need to secure future energy needs and develop transport infrastructure. The only problem with this is that the Government will be the main paymaster or new construction activity rather than the ordinary house purchaser. This inevitably will lead to greater taxation and a slowdown in prices.

    So the question is will there be a collapse? I was looking for a house with my girlfriend in February this year and the volumes of buyers in the market was astonishing. 20 people would come to a viewing and bids would be accepted during the viewing and in the next house that the group went to view.

    I cant imagine that this level of interest has simply disappeared - its just sitting back and waiting. In fact thinking back, if I knew that house prices could stay relatively stable I could suit myself alot more as to when and what to buy. I could pick and chose my moment and house. I think this is what the majority of people want.

    Perhaps people want prices to fall back to sensible levels to be affordable like a car. And in some ways I agree. Howver, this creates as much misery in people as joy in others. I dont know they say fortune favours the brave.

    Interest rate rises actually drive up inflation and will start to drive up wages. A few years later interest rate fall and wages are higher and everybodys mortgage has shrunk a bit. Maybe the ECB is doing us a favour this way, who knows?

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL Date: Tuesday January 30, 2007 @09:43AM

    Well Cee,its now the end of January and the collapse you predicted has not materialised!The market has picked up again and prices are on the up again

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  • Re: The Daft Report Q3 2006

    Posted By: Cee Date: Thursday November 29, 2007 @09:52PM

    PAUL - I got it right after all!!

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  • Re: The Daft Report Q3 2006

    Posted By: Paul Date: Saturday November 18, 2006 @05:09PM

    Why does everyone want to knck the country for its great success. I bought my house in 1994 and it has gone up by 1000%
    Wouldn't it be great for the country to see it go up by another 1000% in the next ten years.
    We are the richest country in Europe. Houses in UK are dirt cheap and as for countries like Greece, we are miles ahead of them.
    Isn't it fantastic that the young people can afford houses and keep the prices rising. They should be congragulated for behaving in the national interest and keeping all the public sector pay awards going.
    Well done I say to all you aspiring buyers.

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  • Re: The Daft Report Q3 2006

    Posted By: phil1147 Date: Monday December 18, 2006 @06:42PM

    Responding to your comment saying well done to all you aspiring young buyers out there keeping demand up and increasing the price of houses rising. Thats a nice statement coming from the guy who's house price has risen 1000% but what about these young aspiring buyers that need to buy. These "young aspiring buyers" see the need in having to buy to secure a future for themselves rather than renting for the rest of there lives.

    House prices have risen because demand has risen, its as simple as that. You make it sound like young buyers actually want to pay 1000% more than you paid for your house but the fact is that they are forced into such actions because of the greed of the standard Irish auctioneering companies relishing the idea of getting way over the odds for a house.

    Besides the point but still a worthy one would be that people should by-cot auctioneering companies as nobody really needs them. You pay them around 1-1.5% of the seling price for doing what you could have easily done youself, which is to place an add in the paper. Think about it, Auctioneers have addmitted to fictitious bids on houses so maybe we should look at alternatives.

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  • The Daft Report Q3 2006

    Posted By: A.J.Cotter Date: Wednesday November 22, 2006 @07:05PM

    WEll done Daft for the impartial views, there has been a plethora of hype for some time in the market. We have 200,000 plus empty homes here with Manhattan prices prevailing in many quarters. Property is hugely overvalued and a dramatic correction is inevitable. Earlier this year in Greystones there were 56 properties to rent and 32 to buy, today those figures have altered to 9 for rent and 74 for sale, enough said.

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  • Re: The Daft Report Q3 2006

    Posted By: Paul Date: Thursday November 23, 2006 @08:20PM

    I think we are in the middle of a mild correction. By the end of March it will be business as usual for the price of Irish houses and we should see 12-15% growth next year.

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  • Re: The Daft Report Q3 2006

    Posted By: Seamus USA Date: Monday November 27, 2006 @09:04PM

    Having recently returned after 10 years in the American real estate market, I find the irish property market at an interesting crossroads.

    The 10 year run up in irish property prices is easily explained by

    1. built up demand (both local and imigrant).
    2. the implosion of interest rates.
    3. economic expansion (jobs, infrastructure build out etc).
    4. Easing of lending practices (larger income multiples, longer term loans etc).

    What happens next is really anybodies guess but I really dont see any stimulus which will result in significant future appreciation of the order of 10% yearly or more. At best I see house prices on a plateau, maybe getting 5% appreciation per year (until the rebalancing of rental income to price ratios).

    The downside risks are significant

    1. Where do interest rate go ?, probably up which means downward pressure on house prices.
    2. What effect globalization has on ireland's industry ?, probably many high tech/call center etc jobs going to eastern europe/india/china which means downward pressure on house prices. keep an eye on intel in leixlip.

    The party seems to be over, time to sober up a little !.

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  • Re: The Daft Report Q3 2006

    Posted By: Cee Date: Thursday November 30, 2006 @12:07AM

    I agree with Paul. Just today, there are 154 houses for sale here in Castleknock which is more than double the number we had in May. Interestingly, near where I live, a 3 bed terraced house went on the market in May at €575K and the property was taken off the market last week even though the asking price had been reduced to €525K. This is more than a mild correction and it is just starting.

    Not surprisingly, the Irish Banking Federation issued a statement today saying that the present situation is the "soft landing" they "predicted". This is the new hype but it won't buck the market. This has been tried without success in every crash from the South Sea Bubble to Wall Street and more recently, in Japan. Even with negative interest rates, the market there collapsed. The big falls will happen here in the New Year following a budget that will do nothing to restore confidence coupled with an enormous overhang of unsold properties from 2006.

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous Poster Date: Saturday December 30, 2006 @02:51AM

    I AGREE. HOUSE PRICES HAVE COME DOWN . I LIVE IN GREYSTONES AND MY 4 BR HOUSE WAS SELLING FOR 850000 AT THE BEGINING OF THE YEAR. NOW THERE ARE SELLING FOR 750000

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  • Re: The Daft Report Q3 2006

    Posted By: KSA Date: Monday December 4, 2006 @06:12PM

    Two points, first the unscrupolus, self interested carry-on of the banks has driven prices to such a state that every family now needs two incomes to survive, whereas the family of the sixties was equally well off with one. Mr and Mrs Fool, or more to the point their children are the big loosers.
    Second, as to restricting housing supply it is probably already too late. Something like 40% of housing over the past years was bought and left empty by people who already have a home. Any sign of a cooling in the market will bring pressure these people to realise their equity and avoid being wiped out. Also, the gestation period of new developments guarantees that demand will always drop well in advance of supply.
    If buyers would only hold off for a few months they could bring this tulip market to its knees!

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL,property economics student(yr3) Date: Tuesday December 5, 2006 @02:44PM

    Another self proffessed "expert" talking nonsense above I see.So the people who have took the risk and been rewarded with huge capital appreciation are fools,are they?There's only one fool in this equation and its the individuals who have missed the boat and then proceed to talk absolute rubbish re the property market,and would actually welcome a house price collapse with glee,typical of the begrudgery which as a nation we are famous for.
    Let me fill you in on some important "facts".In the four-year period that ends in December 07,net employment growth has averaged 80,000 per annum.At the same time, 350,000 people will increase our population to 4.4 million by December 08.With 2.7 people for every residential unit in the country,we are substantially undersupplied when compared with the UK and EU average of 2.25.What this means is that with no population growth,if we continue to build houses at the current level,it will take 4 years to reach the EU average.
    When net migration is counted,it means that we will need to build 85,000 units per annum for the next 14 years.Yes it is true that these must be built in the right location,i.e. the GDA,and not in the likes of Liatrim and Roscommon where 3 units for every 1 new inhabitant since 1996 have been built.
    Since 1996,Dublin has only averaged 21.5% of the states new housing while its population has increased by 29%,leaving it undersupplied. You only need to look at the rents attainable in Dublin to know this,€1400 for a 2 bed in Rathmines,€1100 for a 1 bed in the city centre,€1800 for a 2 bed in the docklands.
    The present lull is a mild correction in the market,and will just about bring prices back to levels they were at in march,nothing too serious there. As for interest rates they are still at historrically low levels, and our counterparts in the UK are paying a full 1.5% more without any major reprecussions.We ourselves payed rates over 5% in the nineties at the height of the boom.
    Tulip market?I THINK NOT!

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  • Re: The Daft Report Q3 2006

    Posted By: Eoghan Date: Tuesday December 5, 2006 @08:22PM

    Paul's kind words about those "Fools" who "missed the boat" are really startling.

    I hope he might consider the meaning of his words on people who were too young to get on the boat, or those that had a job that moved them around and couldn't get a mortgage, or a thousand other reasons that people couldn't buy a house? Are they to be permanently disadvantaged in order to protect the "investment" of the people who did have the opportunity to buy? Is everyone to be disadvantaged to try to keep lining the pockets of the landowners and their politician friends?

    Worse, if interest rates do keep going up and prices start to come down, will Paul be advocating Govt action to "protect the innocent homeowner" by taxing those who don't own a home or those who don't owe money? (it wouldn't be the first time there was a tax on savers)

    Irish property proce rises are a scandal. Prices at the current levels are lunatic and will become a generational social issue soon enough if they don't fall. Ireland's (particularly Dublin's) planning incompetence and corruption are a serious issue.

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL,property econom Date: Wednesday December 6, 2006 @02:51PM

    Eoghan,I was merely replying to the comments of KSA(ABOVE MY COMMENT),where he called people who had bought a second property as fools.
    Yes property prices are a scandal,but we are not going to see a crash/collapse.The points in my previous point reinforce that viewpoint.
    You are right to question the innappropriate choice of wording,but it was only directed at individuals who could have bought property in the mid 90's(and there a a lot of them)but decided not to because they felt that the capital appreciation which was evident then was unsustainable.These individuals have been predicting the famous "collapse" since then and would actually welcome it with a smug I told you so attitude. It is these indiiduals I was referring to,who are simply bitter about having missed out on the bonanza,and continually comment on the property market,the fundamentals of which they know nothing about.

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  • Re: The Daft Report Q3 2006

    Posted By: Jane Date: Tuesday December 5, 2006 @08:34PM

    Paul - the economics student - also fails to notice that a rent of 1400 Euro per month on a 2 bed in Rathmines would have to cover mortgage payments of nearly 3000 euro per month for a typical rathmines 2 bed on a 20 year mortgage at current (historically low) interest rates or about 2300 Euro per month even on a 35 year mortgage.

    That seems like a good basis for a long term business - NOT.

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL,property economics student(yr3) Date: Wednesday December 6, 2006 @02:54PM

    I noticed allright,it does depend on when the property was purchased however.Property bought in Rathmines in 2000 would be yielding 8/9% now.Good Business,I THINK SO

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  • Re: The Daft Report Q3 2006

    Posted By: Cee Date: Friday December 8, 2006 @08:09PM

    Paul, the economics student, is correct in his analysis of the housing shortage but he fails to recognise that the convergence to EU dnesity norms will ultimately lead to Ireland having roughly the same prices as other EU countries. Currently,EU house prices average about 65% of prices here.

    It is this very shortage of housing which drove up prices in the first instance Then this price increase was followed by the classic overshoot that happens in all booms. Therefore, there are at least two components comprising the premium in Irish house prices. The overshoot was fuelled by sentiment which is now gone from the market and this will quickly cause a sharp drop of equal intensity to the overshoot itself. This will be followed by a sustained period of smaller drops as supply increases to meet demand. Irish house prices will then be the same as the EU average.

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL,property economics student(yr3) Date: Tuesday December 12, 2006 @12:04AM

    A 35% drop in house prices CEE,I don't think its Pat McCardle living in dreamland,I think its you!Whats this "classic overshoot" and "bubble" nonsense all about,buzz words re the property market allright,but not applicable here.The fundamentals remain in place,80,000 entering the country every year and this is forecast to continue.Job creation continueing unabated,wages increasing and smaller family units.The net result of this is that we need more houses,80,000 a year for the next 14 years to be precise.Convergance towards EU density norms actually means that we need more units CEE not less.What a ridulous argument,EU prices 65% of ours therefore our house prices are 35% overpriced.A pint of coke is €8 in Paris,should we be paying the same???Get over it and accept that all your "bubble and overshoot" talk is wearing thin at this stage

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous Poster Date: Saturday December 9, 2006 @06:50PM

    Some interesting points have been made above but it should be kept in mind that while Ireland is still relatively undersupplied (specifically in the GDA) it is not substantially so. Trying to compare to the UK/EU average only works if the average household size in Ireland is similar to that in the UK/EU, which due to Ireland’s much younger population is not the case (albeit this is rapidly changing). In other words Ireland currently needs less housing per head of population than the EU/UK average, a figure of around 2.5 is probably more appropriate. Also with the housing stock set to increase circa 110,000 units in 2006 (the majority of which will be in the GDA) and with developers tending to be locked in for several years in advance, even with a downturn in the housing market it’s still likely 80,000+ units will be built for the next few years, so the supply side shouldn’t be a large issue (albeit certain locations will always be in demand). When people like Pat McArdle start to argue for restrictions on supply you know this isn’t a huge issue.

    In terms of interest rates, this has always been an indirect factor, the main issue is affordability (in terms of the percentage of net income going on mortgage repayments). While Ireland has previously experienced interest rates of 5% this was during a time when affordability was much greater, therefore if ECB rates were to reach 5% this would have a much larger impact than anything experienced in the past. The impact of rising interest rates can already be seen as an increasing proportion of household income is being absorbed by mortgage repayments (which increases the risk of mortgage default / lowers rent yields etc and so encourages house sales). With ECB rates continuing to rise and more people coming off low fixed rate mortgages this is likely to get worse in 2007. These factors can only encourage first time buyers to delay any purchase which will also have a downward impact on prices

    I think its now inevitable a correction will take place but it’s in everyone’s interest that house prices experience an orderly correction, say 10% fall in 2007 after which they stay relatively constant (so in real terms they fall and affordability begins to increase). A large fall in prices is in nobody’s interests (including first time buyers) simply because of the wider economic impact this would have for the Irish economy.

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  • Re: The Daft Report Q3 2006

    Posted By: Jane Date: Wednesday December 13, 2006 @06:30PM

    No Paul, it wouldn't be yelding 8 or 9%. As with stocks, you should consider the current price, not the historical price. Back to Economics 101 with you! [You escape punishment if you're actually an accounting student as they are not supposed to understand finance.]

    If looking at the present you have to consider the sell or rent option. At these prices and rents, renting is a nice way for the owner to subsidise the renter. Owners should sell, or raise rents. Rents are not (yet and possibly ever) rising to match the elevated house prices. If that continues, it's a nice way for owners to continue subsidising renters - unless prices continue to rise and they get capital appreciation. This seems unlikely.

    Jane

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  • Re: The Daft Report Q3 2006

    Posted By: Old and Grey - Bray. Date: Wednesday January 10, 2007 @09:53AM

    Paul speaks with the arrogance of youth ! He speaks about our land of saints and scolars as being the richest in Europe. Paul my dear boy, Its all an illusion ! The so-called wealth in our homes is only there if we had the good sense to cash in our bricks and mortar and flee to a country like France where it is possible to buy 3 houses for the price of a former council semi-D in Finglas. The quality of life there (even without the benefit of perfectly spoken french) is far superior to the money-grabbing builder and developer driven economy which prevails in Ireland. I intend to get out and leave the place to up-start "property economic students" builders, so-called developers (aided and abetted by the Fianna Fail Party) and the rest of the neuvo riche of this sad little island. And when I`m gone the vested interests i.e. banks, mortgage brokers, auctioneers, ECONOMISTS (they did`nt see the boom coming and now that its over they are in denial) will no doubt fall on their swords for encouraging people to buy overprices property which they will be paying for into their retirement ! Not me - SLAN

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  • Re: The Daft Report Q3 2006

    Posted By: PAUL Date: Sunday January 14, 2007 @12:19AM

    Another begrudger here i see,away to france with you asap so,and if you could take a few more of the begrudgers with you that would be great.If France is so attractive and idyllic ,why is social integration and racism such a magor issue there at the moment,or have you forgot about the weeks of rioting in 2006.

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  • Re: The Daft Report Q3 2006

    Posted By: Dec Date: Monday January 15, 2007 @05:38PM

    Just one small point that would suggest that a sharp correction is in progress. I challange you to go to any bank website, select the mortgage calculator and enter a salary of €70,000 (ie the average industrial wages is approx 35K so 2*35K). See what the banks are willing to lend to a couple.

    Now with this in mind, every time interest rates rise the value that the banks are willing to lend decreases.

    This year we will potentially will have 2-3 more interest rate rises, and salary inflation is flat and not increasing at the same rate as houses have in the past. It just becomes next to impossible for FTB to buy a house at current prices.

    Many of the bank are not pushing FTB's packages any more, most have moved to the LTV product option as they are more lucrative and less risky. Even the major players in Financial Services have voted with their feet.

    FTB's in the past I believe accounted for about 20-25% of the market. I could be corrected on this. So if they can't fuel the market further and rental yields are not as jucy as before who will keep it going??

    just a thought!

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  • Re: The Daft Report Q3 2006

    Posted By: John Date: Monday December 11, 2006 @12:56PM

    I agree with Paul's comment. my house went up in value by abou 900% over the last nine years. I feel really good about that as indeed does everyone who has owned a house for a significant amount of time.

    Also, I think the first time buyers are a credit to the country, keeping the tax take high, to ensure that there are much needed services provided by the government.

    It is a win win for everyone and those who would talk the house market down, quite clearly did not live during the dark times of the eighties when whole senior club football teams emigrated together or within a few months of each other to New York, Boston and Chicago.

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous 2 Date: Monday December 11, 2006 @10:25PM

    The Ulster Bank Purchasing Managers Index for housing construction published today shows a fall from 53.3 in October 2006 to 47.6 in November 2006. Pat McArdle is quoted as saying that this shows an easing in both supply and demand. Can anybody explain what this Index means? Maybe Pat McArdle himself could elaborate.

    The report says that a figure above 50 indicates growth - so, presumably, a figure below 50 shows decline. As the decline is in the region of 11% in just one month, it seems pretty startling.

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  • The Daft Report Q3 2006

    Posted By: Owen O'Leary Date: Wednesday December 20, 2006 @11:43AM

    I've just sold my second home for €30,000 less than what my neighbour got for an identical property in May, 18 people viewed but only one bid. Sell early in 2007 or suffer, there is a plethora of so called experts out there yet the reality is far fewer and significantly lower bids. The slow down will get slower, the investors are shopping abroad &my non-native colleagues have no intention of staying here for longer than a few years. Reality is returning & though I wished I sold earlier I'm glad my kids will be able to put a roof over their heads. I sat around a table with friends over the weekend, all in their fifties and was struck by one comment when someone said that after a cursory enquiry about a property to an auctioneer he had received 8 phone calls advising of price drops, sales falling through and if he wanted to see the house a second time, he siad it was just like the late seventies.

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  • Re: The Daft Report Q3 2006

    Posted By: Carol Date: Saturday January 27, 2007 @12:43PM

    I have like many others a huge interest in the Irish property market. I have just sold my home on the Northside of Dublin with a asking price of 500,000 for 534,500. Who said the property market is on a downturn. I had 28 viewers and 10 bidders within 18 days. I would also like to point out that the average rent for a house in the Dublin 13 area has gone from 1100 euros in 2005 to 1450 euros in early 2007. I am also currently selling my second home in the Ballyfermot area and have bids in way above the asking price. Their is a surge in first time house buyers trying to get a house before the market rises once again. Regards.

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  • Re: The Daft Report Q3 2006

    Posted By: opty Date: Wednesday January 17, 2007 @07:38PM

    Cue. Prices have fallen in US
    Prices have fallen in UK
    Prices have fallen in Spain
    Prices are falling in Ireland

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  • Re: The Daft Report Q3 2006

    Posted By: Carol Date: Saturday January 27, 2007 @12:50PM

    I have just sold my property on the northside of Dublin for 34,500 above its asking price. Their was a slowdown in the market in late November, early December but now its buzzing. I had 28 viewers and 10 bidders all within an 18 day period, and a number of the bidders where Polish settling down in Ireland. The market is on the up once again.

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  • Re: The Daft Report Q3 2006

    Posted By: not so strange Date: Monday January 29, 2007 @02:30PM

    People who can afford homes in excess of 500 000 would not be your average first time buyers. And in my opinion property within that pricerange wouldn't fall in price as much as, say apartments in the city vicinty.
    Also, if someone has the budget to fork out 500 000, they probably don't mind forking out an additional 34 K. That's just a reflection....

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  • Re: The Daft Report Q3 2006

    Posted By: Matt Date: Thursday February 15, 2007 @06:28PM

    I've enjoyed the ebb and flo of the above debate. What strikes me is how familiar it all is. I lived in Australia from the early seventies to the mid nineties. In that time I experienced Three Boom and busts in the Australian property market. Each time the property crash also brought about an economic recession lasting around five years before the whole cycle started again. The initial fall in house prices was of the order of 30% in the first year. The market would then stagnate for years until wage inflation made houses seem cheapish and affordable again. It should be noted that Australia had a very high immigration intake through all of these cycles. Demand was always there, affordability for first home buyers was not, their vacation from the market was, in each case, the first sign of trouble. The difference this time in Ireland is that house prices seem to me vastly more inflated than the aussie prices ever were.

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  • Re: The Daft Report Q3 2006

    Posted By: Anonymous Poster Date: Thursday September 17, 2009 @10:07PM

    september 2009 need i say anything

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