I think prices will rise before they fall. If you want to call what's coming a 'cyclical boom', don't let me stop you from levering up and getting rich.
Shadow
1 Nov 2013, 01:08 PM
Yet you think prices will boom from here. Doesn't that make a mockery of the term 'bubble'? You might as well call it a pineapple. People in Ireland in 2000 were calling bubble. Prices doubled after that, and even after they crashed, still remain above 2000 levels today.
Yep, I wish I bought property in Ireland in 2000 and held onto it, I'd be killing the pig.
Economist Colm McCarthy says that urban containment policy played a major role in the formation of the housing bubble. In a commentary in the Sunday Independent, Ireland’s leading weekend newspaper, McCarthy relates how urban planning regulations led to higher house prices in the Dublin area (Note 1).
“Ireland passed its first major piece of land-use planning legislation in 1963, modelled on the UK's Town and Country Planning Act of 1947. The intentions were laudable, to restrict the construction of unwelcome developments and to empower local authorities to take a more active role in shaping the built environment. There was no desire to screw up the residential housing market, but that is eventually what happened.”
The Great Financial Crisis in Ireland
The bursting of the housing bubble led to an economic decline in Ireland that was among the most devastating of any nation during the Great Financial Crisis. Household incomes dropped, unemployment rose to above 15 percent and Ireland was eventually forced into a bailout loan of €67.5 billion (approximately $90 billion) from the European Union and the International Monetary Fund. Ireland’s economy (gross domestic product) declined nine percent, nearly four times the decline suffered by the United States, according to World Bank data.
This is a sharp contrast to Ireland’s image as the “Celtic tiger”. In 1980, Ireland’s gross domestic product per capita (purchasing power adjusted) trailed those of the United Kingdom and the four strong new world economies (United States, Canada, Australia and New Zealand) by approximately 25 percent to 50 percent. By its 2007 peak, Ireland had passed all but the United States, which it nearly caught. By 2012, however, Ireland’s GDP per capita had fallen behind that of Australia (Figure 1).
Migration trends reflect the result of this decline. Net in-migration reached 105,000 in 2007, when the economy peaked when, a notable number for a nation with only 4.5 million residents with a long history of sending its denizens out to the rest of the world (Note 2). In the less robust economy of the last four years, a net 125,000 migrants have left Ireland (Figure 2).
McCarthy, of University College, Dublin and one of the nation’s most respected economists was called in by the government to lead the “Special Group on Public Service Numbers and Expenditure Programs,” which published the McCarthy Report, detailing recommendations for public expenditure reductions to help Ireland “weather” the financial storm.
The Housing Bubble in the Dublin Area
As in the United States, a housing price bubble (centered in the Dublin area) precipitated an economic downturn, which was the greatest since the Great Depression. Our annual Demographia International Housing Affordability Surveys had shown house prices in the Dublin area to peak at a “severely unaffordable” median multiple (median house price divided by median household income) of 6.0, well above the normal 3.0 relationship between prices and incomes. Paying more for housing reduces household discretionary incomes and lowers the standard of living.
After peaking in 2007, Dublin house prices plummeted. Single family house prices fell 53 percent from 2007 to 2012, while apartment prices dropped 61 percent, according to the Central Statistics Office property price index (Figure 3). This year, finally, prices have begun to trend upward.
Decoupling from the Fundamentals
Like in Dublin, this decoupling of housing from the fundamentals occurred not only in Dublin, but also in both vibrant other markets such as Sydney, Vancouver, and the San Francisco Bay area, as well as severely depressed markets like Liverpool, Glasgow. In each case, the decoupling has been accompanied by strictly enforced enforcement urban containment policies that prohibit development on considerable suburban and exurban land, through the use of such devices as urban growth boundaries and the priority growth areas (a euphemism for the only places that development is permitted). As is commonly the case, with these strategies upset the balance between the demand and supply for land, forcing house costs up substantially, just as oil embargoes lead to higher prices at the gas pump.
McCarthy places the blame squarely on urban containment policies.
“…there was and still is no shortage of land in the greater Dublin area, one of the lowest-density urban areas in Europe. There is, however, a shortage of planning permission – an entirely man-made creature of the planning legislation and its restrictive implementation by the Dublin-area councillors and planning officials.”
He describes how artificial scarcity raises prices (other things being equal), a process anyone who listened in Economics 101 would understand. McCarthy says:
“Before land-use zoning came along, house-builders extended the city by buying up farms on the city's edge and building at whatever densities the market would support. But as more and more lands were withdrawn from the buildable stock by the planners, prices began to rise and the house-builders moved further away from the city proper.”
With new house building consents so rigidly controlled, a Dublin area house prices escalated well beyond incomes and prices in the rest of the nation. As McCarthy puts it:
“In the principal residential suburbs of Dublin an artificial scarcity (of planning permission, not of buildable land) was allowed to develop and prices rose, from the mid-Seventies onwards, to a 50 per cent or 60 per cent premium over comparable homes outside Dublin.”
In addition to the houses for commuters that were further from Dublin, a government encouraged rural building boom led to over-building in more remote areas (Note 3).
Economics and Urban Containment
The consequences of urban containment policy have been known for a long time. More than four decades ago, Sir Peter Hall and his colleagues documented the extent to which house prices have been driven upward in England as a result of the land-use policies that have been copied in Ireland and elsewhere (See: The Costs of Smart Growth: A 40-Year Perspective).
More recently, Brian N. Jansen and urban economist Edwin S. Mills (Northwestern University) took the argument further (See: The Consequences of Urban Containment) and tied the Great Recession directly at the foot of smart growth policies. They noted that “…. it is difficult to imagine another plausible cause of the 2008–2009 financial crisis,” and concluded: “In the absence of excessive controls, housing construction would quickly deflate a speculative housing price bubble.”
My analysis of metropolitan markets for the National Center for Policy Analysis showed that 73 percent of the house price value losses from the peak of the US housing bubble to the housing bust precipitated Lehman Brothers bankruptcy occurred in just 11 markets in California, Florida, Arizona and Nevada, all of them with severe land restrictions (see The Housing Crash and Smart Growth). Had those losses been smaller (as they would have been if prices had not risen so high), the Great Financial Crisis might have been less severe or even avoided.
Ireland’s Challenge
More recently, there is good news out of Ireland. The government has announced that it will no longer need the EU/IMF line of credit and will exit the bailout program. The 2012 gross domestic product nudged above the 2007 peak. But that does not mean that those who suffered economic losses during the downturn were made whole. Economic downturns massively redistribute wealth, and there is good reason to not repeat history on this score.
McCarthy comments that: “It is quite remarkable that the contribution of restrictive zoning to the house price bubble has been so little acknowledged.” He stresses the importance of avoiding “Bubble Mark II,” and urges planning system reform:
“The key policy measure required is the zoning for residential development of the very large volume of derelict and undeveloped land in the Dublin area.”
Failing that, a another shock to the standard of living could face the Irish, who have already suffered one, at least partly due to urban containment policy. It could be time, again, for the government to follow Colm McCarthy’s advice. The only housing bubble that cannot burst is one that never forms.
Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.
This one is especially for the most senile old goat I know.
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
My point is very simple and I have written and great length about it before: in relation to Ireland, I have caught Skamy out time and time again talking absolute rubbish. Lies. Falsehoods.
She refuses to acknowledge that once pointed out to her.
In fact, she goes on to peddle the same clap trap again and again.
Its really quite annoying.
EDIT: and this is about facts not opinion. Her opinions are daft too, but that's another matter.
Why am I right on Ireland's recovery and you are wrong? (I wrote that post ages ago,when you were talking about another deeper crash for Ireland)
Because I know Ireland, it is my place of birth, whereas you read nonsense on the internet in the ridiculously naive hope that Australian house prices will crash in the way that Ireland's did.
You swallowed the News Corp fear-mongering lines hook line and sinker.
Now it is time to grow up look at the choices you have and leave the doom and gloomers behind you. Put your hard earned money into a home for your family's future not into the pockets of the Macrobusiness charlatans.
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.
Why am I right on Ireland's recovery and you are wrong? (I wrote that post ages ago,when you were talking about another deeper crash for Ireland)
Because I know Ireland, it is my place of birth, whereas you read nonsense on the internet in the ridiculously naive hope that Australian house prices will crash in the way that Ireland's did.
You swallowed the News Corp fear-mongering lines hook line and sinker.
Now it is time to grow up look at the choices you have and leave the doom and gloomers behind you. Put your hard earned money into a home for your family's future not into the pockets of the Macrobusiness charlatans.
Let's all listen to skamy so australia can have an awesome property market... just like ireland.
Ireland house prices Ireland’s housing market continues to recover. The national residential property price index rose by 6.12% (6.01% in real terms) during the year to October 2013, according to Central Statistics Office Ireland. However in the latest Daft.ie report, average transaction prices were up by only 1.9% y-o-y.
The housing market in Dublin is much healthier. The residential property price index in Dublin rose by a whopping 15.02% (14.91% in real terms) during the year to October 2013. This is the tenth consecutive month of growth in residential prices in Dublin, raising concerns over an emerging property bubble in the capital.
Daft.ie again has less aggressive figures, with Dublin’s average asking price rising 7.7% in Q3 2013, the strongest growth since early 2007.
In Dublin City Centre, the average asking price was €195,777, up by 9.5% during the year to Q3 2013, 54.4% below peak. In South County Dublin, the average asking price was up by 12.7% y-o-y to €370,650, 48% below peak. West County Dublin’s average asking price up by 3.4% to €170,148, down 55.4% from peak. North County Dublin’s average asking price was €210,765, 1.4% higher than the previous year, down 51.9% from peak.
But 18,000 'shovel ready' units - enough for three years - lie idle
FIonnan Sheahan and Maeve Sheehan 27/07/2014
DUBLIN has three years' worth of supply of sites with planning permission available for building homes, but many are owned by insolvent developers who can't get the funds to begin construction. A lack of supply of housing is driving up house prices in the capital, with the cost of buying a house in Dublin surging 25pc over the past year.
Writing in today's Sunday Independent, Central Bank Governor Prof Patrick Honohan has promised to step in and stop house prices in the capital running out of control if the boom emerges.
"We have a toolbox of measures which can be used to cool down credit-fuelled demand. We will not hesitate to use them to prevent bank credit overheating the market," he writes in Sunday Independent Business.
The property bubble has also resulted in claims of the return of gazumping, where homebuyers who have agreed a price are then told a higher bid has come in. The Coalition wants banks to act faster to appoint receivers to bust developers to get their sites moved on to builders with funding.
Analysts believe it is now profitable for developers to build houses in Dublin again for the first time since the collapse of the property market.
New figures provided to a special government committee show there are 18,000 units with planning permission across Dublin city and county - enough new housing supply for three years, if the homes were built.
The bulk of these sites can be 'shovel-ready' for building within three months. Across the four Dublin local authorities, there are another 3,000 units in the planning process.
Taoiseach Enda Kenny warned this week it would take up to two years for policies to speed up the building of houses to make an impact. In the meantime, house prices will continue to rise as supply fails to meet demand.
The new figures were prepared by the Dublin housing supply task force for the Government Construction 2020 steering group at the beginning of July.
The largest number of sites with planning permission is understood to be in Fingal, which covers the north and west of the county.
Government officials believe a large proportion of the sites are held by developers who cannot get funding to start construction because they already have big debts.
These are usually smaller builders, outside the top 200 developers whose assets are being managed by Nama.
The Government is putting pressure on the banks to move more swiftly on builders who are not able to develop land they own, due to their financial position.
The view in government circles is that Nama is acting more efficiently than the banks in dealing with insolvent developers' portfolios.
Another problem is the lack of solvent developers to take on the sites that are freed up. The focus for attracting funding is mainly on bringing in international investors to provide the equity.
The new Irish Strategic Investment Fund is also supposed to provide equity and loans on commercial terms to developers who cannot access finance.
The Taoiseach identified funding for builders as a blockage in the property market this week. Mr Kenny accepted there was "pressure" in the housing market, but denied there is a bubble.
However, he said there would be a particular focus on house-building in Dublin.
Mr Kenny said it would take up to two years for the Government's policies to result in a "visible impact" on the market.
Banks have also been accused of hoarding repossessed properties until the market turns. As of March of this year, banks owned 1,116 family homes and 568 buy-to-let homes, after selling around 200, according to the latest Central Bank figures.
Irish Mortgage Holders Association director David Hall said the Central Bank should force lenders to speed up the sale of repossessed family homes, to help ease supply pressures.
"Banks are completely manipulating the market. They have been praying that this would happen for years and now it's happening," he said.
With the Government blaming the lack of supply, economists have also called for incentives to encourage older "empty nesters" to downsize, vacating big family homes for a younger generation of parents.
Trinity College Dublin economist Ronan Lyons said incentivising older people to downsize to "luxury apartments in good suburbs" would free up the properties most in demand: decent three and four-bedroom homes.
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