Ireland Faces New Housing Crisis A Shortage of New Homes and Rising Prices Is Cementing the Problem LINK
DUBLIN—Ireland is facing a new housing crisis with a shortage of new homes, a leading economist has warned, as government data published Wednesday showed that six years after the country's disastrous property market crash, prices are once again rising strongly.
The Central Statistics Office said house prices countrywide rose 1.4% in April from March, and were 8.5% higher than in April 2013. In the populous Dublin region, prices climbed 17.7% on the year, the data showed.
The government has in the past hailed rising home prices as a key sign that the country is recovering from the huge property bust in 2008 that wrecked Irish banks and brought the country close to bankruptcy.
But Conall Mac Coille, chief economist at Davy Stockbrokers, said in a major report that Ireland's housing market is far from healthy because a desperate shortage of new housing starts and a small number of sales is driving market prices higher. With a low number of transactions, "an illiquid market is being starved of new supply," Mr. Mac Coille said in the "Housing Market Monitor" report for the Irish Banking Federation.
The government will need specific plans to rezone additional land in the Dublin area for new home building, but should resist any measures to provide subsidies to first-time buyers that would only make matters worse, he said.
With prices and rents rising steeply, housing experts and not-for-profit housing groups have warned about a shortage of housing in the capital. The government this month published initiatives that it says will in time boost the flattened construction industry, but Mr. Mac Coille said that its plan is "short on concrete proposals to address the key issues, namely cost pressures and supply constraints."
Ireland's housing crash was among the steepest in the world, and left many builders and developers bankrupt. Despite price increases, prices are still 46.3% lower than their early 2007 peak, and, are 48.5% below the peak reached in the capital.
Mr. Mac Coille said that the number of housing sales has increased, but turnover at only 1.9% of all the Dublin housing stock remains at "exceptionally low levels". Irish households are paying down the huge debts accumulated during the crisis, and banks will have sufficient credit to lend to first-time home buyers, but any measure to loosen credit standards for first-time buyers "should be resisted," he said.
Henry McDonald The Observer, Sunday 24 August 2014
The spectre of property speculation is stalking Ireland once more, as soaring house prices in Dublin bring warnings that the country is in danger of repeating the mistakes that brought the economy to its knees during the financial crisis.
Property prices in the Irish capital are rising by an average of €6,600 a month, according to the country's Central Statistics Office, which puts them 24.4% higher than last year. But as demand for new homes now outstrips supply across Ireland, the body representing mortgage holders warns that the country is becoming obsessed again with inflated house prices.
The Irish Mortgage Holders Organisation (IMHO) points out that the legacy of the boom-to-bust years is still weighing on thousands of households. Figures from Ireland's central bank show 35,000 homeowners unable to pay their mortgages for up to 24 months, and 135,000 households in mortgage arrears, despite an economic upturn and expectations that GDP will grow by 2.5% this year.
IMHO founder David Hall said: "People crippled by debt and paying new austerity taxes such as property tax and upcoming water taxes are watching with shock at the new development of property porn. We see commentary after commentary that prices are rising and negative equity is reducing, yet this is no comfort to those crippled in debt. A reduction in negative equity might be of benefit to banks who consider repossessing homes. But increases in property prices do not help with a family's affordability in paying their mortgage."
Hall accuses Ireland's banks and property industry of fuelling a fake mini-boom. He claims it is designed to increase the paper assets of Irish banks before they face stress tests from the European Central Bank in October.
"This property bubble being developed by vested interests needs bursting and bursting sooner rather than later," he added. "The financial system owes a gratitude to the Irish citizen for keeping it afloat and now it needs to back off irresponsible promoting of a property bubble, which could land many citizens in deep financial trouble again."
But economists at a Dublin-based investment bank argue that the real problem in the resurgent Irish property market is supply rather than increasing demand. Philip O'Sullivan, chief economist at Investec Ireland, says high VAT rates on new homes, as well as other taxes, are the central reasons for poor supply in the market. He points out that construction of new housing units in the republic is running 25% lower than the yearly average over the past four decades. In 2013 only 8,301 housing units were built in Ireland, and the figure is not expected to exceed 9,000 this year.
O'Sullivan says: "The reality is that the effective cost of bringing a new unit to market in most of Ireland is higher than the achievable sales price at this time. This is why completions are running at about a quarter of their long-term average, while many of the units finished in the recent past involved the completion of semi-built developments from the bubble era."
He adds that a reduction in local authority charges on construction sites would increase the supply of private housing, and VAT could even be temporarily suspended to allow builders to meet rising demand. "Underlying demand is robust, so the main challenge is to find ways to encourage new supply," O'Sullivan says.
According to government statistics, the average cost of a Dublin home now stands at €349,000, a rise of €71,000 on last summer. But the picture outside Dublin is much less robust: residential property prices in the rest of Ireland have risen by only 2.3% compared with June last year.
O'Sullivan says the Irish central bank in Dublin has already promised to introduce measures to cool the market down if it reaches boom-years levels again. He adds that mortgage credit lending is 93% down on the rate of bank and building society lending to borrowers during the boom.
However, the warning from the IMHO about Ireland becoming re-addicted to "property porn" is a reminder of the cost the country paid for the house-price bubble from the late 1990s to the early 2000s, when parts of Dublin were among the most expensive real estate on the planet.
Property tycoons and business figures borrowed billions of euros from banks to buy into a market that seemed to be going in one direction – up. But when the financial crash of 2008-9 wiped out property prices, Irish entrepreneurs like one-time billionaire Sean Quinn lost their fortunes. And the banks they borrowed from, such as the notorious Anglo Irish Bank, had to be rescued by Irish and later European taxpayers from total collapse.
Since then there has been a painful atonement through public spending cuts. Last December the Irish government confirmed that it would be the first bailed-out eurozone state to leave its international rescue programme. This came three years after the country avoided bankruptcy thanks only to the International Monetary Fund, the European Central Bank and the European Union with a €67.5bn (£54bn) loan. It was accompanied by sombre warnings that the nation remained heavily indebted and austerity must continue. But finance minister Michael Noonan appeared to foresee this year's troubling housing revival. "We can't go mad again," he said.
I think this old bat deserves a pat on the back - I did pick this recovery when everyone else was sneering.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
I think this old bat deserves a pat on the back - I did pick this recovery when everyone else was sneering.
Its not a recovery.
Its a market failure. Some would argue its an entirely manufactured market failure because rising property prices are doing wonders (on paper) for Ireland's bust banking system by increasing the book value of the housing assets they are so leveraged in to.
Then there is the stock being held back by NAMA.
And then there is the small problem of this that hasn't been resolved.
But then if you think property prices rising 25% in one year in Dublin is a sign of a recovery than you are even thicker than I thought possible.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Lucky Australia has only 1.2% of mortgages in arrears (poor old Ireland still has 13% in arrears and prices are rising) and on aggregate are almost two years ahead on their mortgages.
You wont see much price falls here in Australia IMHO, people are just not at the same levels of stress that were witnessed in Ireland.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
You told us fascinating stories about American banks brining down Irish banks and other fairy tales.
I wouldn't be commenting on Ireland any more dear.
You are clearly very ill informed.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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