Tag Archives: property

37 reasons Irish house prices are too high..

We need banks to be conservative, especially in the present situation. But do we want that? What would that mean? i have expressed some concern about house prices in a few place… See here, here and here as examples.

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Too late to stop a Dublin house price bubble?

And on it goes. The latest house price data from the CSO indicate the two Irelands continuing to diverge. On one hand we have Dublin (and to some extent the rest of the urban areas) growing like gangbusters, while on the other hand the stagnation intensifies in the rest of the state. This is clear in both house prices and in other economic aggregates.  Our geospatial policies are, and have been for decades, next to non existent.  Governments have been too timid, too fearful of shortterm backlash, to put in place a meaningful strategy for growth around designated poles accompanied by real policies for the remaineder. Instead we have the irish version of Laissez Faire – Lackadasical Fear.

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Buy to Let and other residential investments : why dont people sell?

underwaterOne of the features of the Irish residential property boom and bust was the large number of people who purchased residential property for investment purposes. Figures for end 2012 suggest over 150,000 investment mortgages, accounting for some €31b. Now that the market has fallen a question that is often asked is why we do not see more of these investment properties coming onto the market? Many are “underwater” in value terms.

CMYK_87_Hunt__MarieTo try to get some answers to this Karl Deeter (Irish Mortgage Brokers), Marie Hunt (CBRE) and myself have created a short survey. It can be found here and should not take more than a minute or two to fill in. We are also distributing this form through other channels.The survey is aimed at people who are or who were in Ireland who purchased residential investment property whether that property is in Ireland or elsewhere, and where these properties (in whole or in part) are both underwater (likely selling price now less than the purchase price) and (in whole or in part) not on the market for sale.

deeter_indo_304576tPlease fill in and please pass the link round to anyone you think might be interested.

 

Just how obsessed with property is Ireland? Some experimental proof

So, I ran an experiment yesterday, thanks for taking part.
I posted two blogposts. One was titled “are you looking forward to 2013”, the other “where is the Irish property market going in 2013”
Both were identical in every way apart from the title, being the usual expanded version of my Irish Examiner Saturday column. Both were published more or less simultaneously.

    By a margin of almost 5-1 the property titled post got more hits

Where is the Irish Property market going in 2013?

This is an extended and linked version of a column published in the Irish Examiner on 29 December 2012

holdthelineSo what will the new year bring on the economic front? 2012 can be summarized as having been a holding operation – on the domestic front the government held the line at the budget, losing some along the way but pushing forward in a fairly technocratic manner with a lot of legislative initiatives. True, most of these relate to the financial calamity and were insisted on by the troika but Enda has shown his true abilities as a chairman, able to inch forward with minimal fuss. Internationally the palpable change in attitude of the ECB on its role, if not its ultimate responsibility, has marked the tenure of Draghi. No longer semi passive it is now semi active, and willing to intervene to take the worst heat out of the bond yields. In the USA Obama held his line and his job as the republicans continued to implode and explode at once, spinning into ever more radical sects of economic eschatology, while in Europe the same rhetoric held. Greece sank deeper into social and economic collapse, Italy and Spain rumbled on, and Frau Dr Merkel held her Nein Nein Nein views on , well, anything that might cost German taxpayers a pfenning, trusting in some swabian micawber manner no doubt that somehow this time is different and while swallowing austerity the euro area will continue to purchase german exports. Germany is not immune from the euro area economic woes and indeed they are already preparing for same. It will be interesting to see how the swabian housewife economics plays when germany itself is undergoing austerity. Debt is evil you know and evil must be purged….At home the wretched farce that is Anglo shuffles along, staffed by people on gargantuan salaries who seem to be beyond the control and perhaps interest of the government, and the “begotiations” on the restructuring of the odious debt of Anglo glaciates.

So what will 2013 bring? It is probable that things will continue as they have done so, with a slow grinding deterioration on several levels. The beatings will indeed continue.

First, there seems no prospect whatsoever that Europe (read, Germany) will come to its senses on the required changes to the European experiment to allow the foundations to be laid for a true union. We all know what these are -a banking union, a transfer union and a political union – and have seen the enormous difficulty that the nascent banking union has encountered in getting even onto the taxiway never mind take off. Eurozone growth for 2013 onward is forecast to be negligible, with muted inflation and rising unemployment. The ECB willingness to intervene in the secondary bond markets acts to keep a lid on bond yields, but this is the equivalent of aspirin. It acts to keep the temperature (bond yields) low but does little to solve the underlying problem (too much debt). Expect to hear a lot more about Article 123 in 2013 – this is the article of the Treaty on the Functioning of the Union which prohibits what is known as monetary financing ,the underwriting of government deficits by central banks. Someone will have to pay for the writing down of excessive government debts and the logical (if legally problematic) candidate is the ECB. Absent that we will see more and more greek style social collapses as the costs are passed onto the taxpayer and inevitably hit the poorest hardest.

Domestically and related, the government are facing into a brutal 6 months. Not content with having to manage Europe, including a crack at framing a budget in the face of growing eurohysteria from the UKIP hagridden Cameron, they will find that all the political oxygen is absorbed in a conflagration around abortion. Meanwhile the aftershocks of the “seismic” deal agreed in June, on bank debt, dwindle into background noise, and for Labour these become the first tremors of political oblivion, with the IMF, damned commies that they are, now revealing itself as being demonstrably more concerned about the poor than they are. All indications are that we are being prepped for a deal on the wretched anglo Promissory notes that will be minimal. In order of impact we can reduce the interest rate (pointless as this cycles back to the state anyhow), increase the repayment time or reduce the amount of these that are to be repaid. The latest statement from Kenny suggests a focus on the first two. Expect a deal that is touted as a solution but which merely kicks this can along the road for longer, and while welcome it is not a solution to a debt which is in every sense odious. Meanwhile the domestic economy will shuffle along with unemployment remaining stubbornly high and the prospect of a further brutal budget in 2013.

car-mired-in-mudFinally, the housing market will remain mired. Although selected areas will show some growth, houses and decent apartments in established urban areas for the most part, there is a combination of overhangs that will mute any prospects for rises. First, the transparency given by the property price register empowers bidders to bid low. Knowing that there are downward pressures, why bid more than the last relevant price? Second, the property tax and uncertainty around same acts to reduce slightly the prices. Third, the likely wave of repossessions, mainly of buy to lets but increasingly of family homes will result in increased flows of distressed property. Finally, the reduced incomes of potential purchasers combined with a moribund banking system will make mortgage finance less accessible. All of these together will result in the housing market sinking towards its post bubble low in 2013.

Are you looking forward to 2013?

This is an extended and linked version of a column published in the Irish Examiner on 29 December 2012

holdthelineSo what will the new year bring on the economic front? 2012 can be summarized as having been a holding operation – on the domestic front the government held the line at the budget, losing some along the way but pushing forward in a fairly technocratic manner with a lot of legislative initiatives. True, most of these relate to the financial calamity and were insisted on by the troika but Enda has shown his true abilities as a chairman, able to inch forward with minimal fuss. Internationally the palpable change in attitude of the ECB on its role, if not its ultimate responsibility, has marked the tenure of Draghi. No longer semi passive it is now semi active, and willing to intervene to take the worst heat out of the bond yields. In the USA Obama held his line and his job as the republicans continued to implode and explode at once, spinning into ever more radical sects of economic eschatology, while in Europe the same rhetoric held. Greece sank deeper into social and economic collapse, Italy and Spain rumbled on, and Frau Dr Merkel held her Nein Nein Nein views on , well, anything that might cost German taxpayers a pfenning, trusting in some swabian micawber manner no doubt that somehow this time is different and while swallowing austerity the euro area will continue to purchase german exports. Germany is not immune from the euro area economic woes and indeed they are already preparing for same. It will be interesting to see how the swabian housewife economics plays when germany itself is undergoing austerity. Debt is evil you know and evil must be purged….At home the wretched farce that is Anglo shuffles along, staffed by people on gargantuan salaries who seem to be beyond the control and perhaps interest of the government, and the “begotiations” on the restructuring of the odious debt of Anglo glaciates.

So what will 2013 bring? It is probable that things will continue as they have done so, with a slow grinding deterioration on several levels. The beatings will indeed continue.

First, there seems no prospect whatsoever that Europe (read, Germany) will come to its senses on the required changes to the European experiment to allow the foundations to be laid for a true union. We all know what these are -a banking union, a transfer union and a political union – and have seen the enormous difficulty that the nascent banking union has encountered in getting even onto the taxiway never mind take off. Eurozone growth for 2013 onward is forecast to be negligible, with muted inflation and rising unemployment. The ECB willingness to intervene in the secondary bond markets acts to keep a lid on bond yields, but this is the equivalent of aspirin. It acts to keep the temperature (bond yields) low but does little to solve the underlying problem (too much debt). Expect to hear a lot more about Article 123 in 2013 – this is the article of the Treaty on the Functioning of the Union which prohibits what is known as monetary financing ,the underwriting of government deficits by central banks. Someone will have to pay for the writing down of excessive government debts and the logical (if legally problematic) candidate is the ECB. Absent that we will see more and more greek style social collapses as the costs are passed onto the taxpayer and inevitably hit the poorest hardest.

Domestically and related, the government are facing into a brutal 6 months. Not content with having to manage Europe, including a crack at framing a budget in the face of growing eurohysteria from the UKIP hagridden Cameron, they will find that all the political oxygen is absorbed in a conflagration around abortion. Meanwhile the aftershocks of the “seismic” deal agreed in June, on bank debt, dwindle into background noise, and for Labour these become the first tremors of political oblivion, with the IMF, damned commies that they are, now revealing itself as being demonstrably more concerned about the poor than they are. All indications are that we are being prepped for a deal on the wretched anglo Promissory notes that will be minimal. In order of impact we can reduce the interest rate (pointless as this cycles back to the state anyhow), increase the repayment time or reduce the amount of these that are to be repaid. The latest statement from Kenny suggests a focus on the first two. Expect a deal that is touted as a solution but which merely kicks this can along the road for longer, and while welcome it is not a solution to a debt which is in every sense odious. Meanwhile the domestic economy will shuffle along with unemployment remaining stubbornly high and the prospect of a further brutal budget in 2013.

car-mired-in-mudFinally, the housing market will remain mired. Although selected areas will show some growth, houses and decent apartments in established urban areas for the most part, there is a combination of overhangs that will mute any prospects for rises. First, the transparency given by the property price register empowers bidders to bid low. Knowing that there are downward pressures, why bid more than the last relevant price? Second, the property tax and uncertainty around same acts to reduce slightly the prices. Third, the likely wave of repossessions, mainly of buy to lets but increasingly of family homes will result in increased flows of distressed property. Finally, the reduced incomes of potential purchasers combined with a moribund banking system will make mortgage finance less accessible. All of these together will result in the housing market sinking towards its post bubble low in 2013.

Public Sector, Private Sector, Public Money, Private Money

I spoke yesterday at the Irish Proshares Association ( a branch of IBEC), along with Jim Power and Constantin Gurdgiev. A gloom of economists indeed.Part of the discussion after our presentation got me thinking of the nature of the “debate” in ireland, where much focuses on public sector versus private sector. The debate is posited in these manichean, zero sum, hobbesian (both Eddie and Thomas….) terms. Sometimes it is overlain with the language of productive versus unproductive.  There is an unspoken assumption that all private sector activity is productive and all public sector unproductive. Speaking as we were in the spanking new PWC building, with a magnificent view of the skeleton of Anglo’s headquarters, I suggested that we reconsider our language.

Anglo was of course a private organization, and one would be hard pushed to find anyone that would concur with the statement “this was a productive use of money” to describe its last decade or so of existence. Similarly  one might well conclude that (steady now…) the HSE is a productive body – one can and must argue about HOW productive but the nature of public health provision is to increase overall economic productivity. Less contentiously, we can look at multinational tax arbitrage (private, but productive?) and the provision of second level education (public, inarguably productive). Much of the problem seems to stem from confusion about being productive (a net addition to economic wellbeing) and productivity (how many “units” of economic output are produced per unit of “input”).

A more useful approach might be to look at public money versus private money. Like all universities TCD is part public part private funded. We get a bloc grant from the state (because there is a public good in having a well educated population); we get a sum of money which the state provides us as opposed to charging fees to undergraduates; we obtain competitive scientific research grants from both public and private bodies; we charge fees for courses to private individuals; we have some campus companies and other activities which give a yield.  We might want to think of all the private sector bodies and how they obtain monies – there is a vast flow of money from the public purse to the private sector directly each year, not to count the indirect multiplier effects. Lets concern ourselves with how effective, how productive is the use of public money regardless in the first instance of whether the body is called public or private sector, itself a rather flexible legal distinction when the 100% public owned state bodies such as NAMA, IBRC and so on are not classed as public sector.  The contractual nuances of the individual disposing of the money might well be important but of prime importance is how the money is deployed. And in that context, the debate needs to mature (but it wont of course)….

Full Property Price Details Ireland Jan 2010-Sep 2012

Ok, the site (www.propertypriceregister.ie) is awful. But you can download data (in csv). Below is a full download to save the aggravation (in xlsx format) of all property sold in Ireland since 2010 January. File is c 3mb….

PropertyPrices2010Jan-2012Sep

Taxes, Land and Wealth

This is an expanded version of a column published in the Irish Examiner 25 August 2012. One of the defining characteristics of Irish governance is the inability to make decision based on evidence. All to often we substitute evidence-based policy, where a careful weighing of the consequences and analyses of different positions leads to a debate on alternatives and eventually to a rational decision, for political based policy. While democracy is, as Churchill stated, the worst form of government apart from all the others, it would be nice if once and a while political expedience could be put aside in favour of rational decision making. The emergent discord on land is one area where, as so often and to so much detriment, we see again that rational debate is being cast aside in favour of political point scoring.

Two examples in recent weeks show how strong the hold of the land remains, 120 years after the land war. We seem to be hurtling backwards in relation to household tax and to be ignoring evidence and history in relation to student grants. Both of these reflect an ongoing conflict between evidence and politics. The evidence of the past is that when these come into conflict politics wins. As we know, this time is never different.So it seems that there might not now be a site value tax, due, we are told (by Deglan De Breadun in the Irish Times and Fionnan Sheehan in the Irish Independent) to “anomalies” in the tax.

These anomalies seem to boil down to the fact that if I have a tumbledown shack and you a spiffy neat dwelling , next to each other, then we will pay the same tax. De Breadun states this explicitly ” Property tax is the new rates and, if it is not to incite serious public ill-feeling, must be seen to be fair. Although it’s still early days, the notion of a higher rate for owners of larger homes is being floated. That’s the way it is already with income tax: the more you earn, the higher the percentage deduction.How you assess the value of a house in the current uncertain market is another issue. Using the site as a basis for valuation doesn’t always make sense: you can have a mansion or a shack at a similar location” while Sheehan states ” The Government is moving away from a site-value tax because it would throw up anomalies. For example, two houses — one rundown and one modern — on the same-sized site would have the same property tax bill.In urban areas, houses on the same road tend to be more uniform — with the site and the house being, more or less, the same size and value.But in rural areas there are often houses of different sizes and values built side-by-side.”

Far from being an anomaly, defined as a deviation from the normal rule, this is in fact one of the points of such a tax. There are many issues which we would like to see in a tax, but theoretical arguments aside the reality is that tax can be and is used by governments to incentivize or discourage particular activity. Thus we had property based tax breaks in the boom period to encourage living over the shop, building in particular areas and so on, and we have carbon taxes that are at least in principle to act as a dampener on the use of particular fuels. The beauty of a site as opposed to what-is-on-the-site tax is that it will, all things being equal, encourage people to make maximum use of the site. In and of itself it will not be a silver bullet but it will encourage. If you have a site and have poor quality use made of it then the incentive is to make better use – build a house, improve the one that is on it, or sell the site to someone that is willing to make better use (as they see fit) of the site.

Instead, apparently the intention is to instead use a self reported market value of the property, to rely on the good citizenship of a society where over 40% are still avoiding paying a self reported tax (the household charge). This in an environment where a) there is as yet no public database of sales values, b) where the only data available are disjointed asking prices across various agencies, c) where the market for residential property can hardly be noted as being whatever might pass as “normal” and d) where there is no clarity on what the situation will be if one disagrees with the revenue. And the sad thing is that we have had exactly this tax before from 1983 to 1997. It was a massive failure, widely evaded and avoided and proven to be unworkable.

Leaving aside the advantages of site value taxes, repeatedly and lucidly explained by Ronan Lyons and Constantin Gurdgiev, for example the fact property value based taxes are prone to procyclicality (stamp duty anyone? ) while site value taxes are not, and the fact that the site tax captures to the state some value from increased infrastructure, the reality is that the political pressure is to avoid the perception of penalizing urban dwellers whose sites are inherently more valuable than those of rural dwellers.

The ultimate logic of the site tax would be that it would extend to all forms of land, residential, commercial and agricultural. And in dealing with land tax it is the principle that is important. At present there is a rift in cabinet on the issue of the inclusion of the capital value of farmland in the determination of third level student grants. For decades it has been clear that farmers and self employed persons can have significant levels of wealth but low (declared) income, and evidentially gain disproportional access to such grants. But again, in the face of evidence we have done nothing. If we are to move to the logic of land taxes we will begin to further incentivize farming to move activities to higher value uses of existing land. The underlying idea is that land assets convey an “imputed rent” and one should be incentivized to make best and most productive use of them. But there is a logical end point that leads to wealth tax. If a farmer has land valued at €500,000 and is to be assessed on this then we must for equity also assess the self employed person with a shop or business worth €500,000 the same. and what of people with non-capital asset wealth? It’s a good job logic is not a strong point in Irish political discourse…. A wealth tax will not bring in tens of billions, the dreams of the ULA notwithstanding. But it would bring in some, and would crucially show that while the rich are different (richer for one) they are not in fact running the show. Coupled with a proposal I have made before to link citizenship with tax status, and we could see the bitter pill of increased taxation being sugared by a recognition that we are in fact all in it together.

only 18% of NAMA loans are performing…

remember, this rate was 21% as late as late 2011…..

NAMA Wine Lake

Ah remember the innocent old days of 2009 when NAMA was just a glint in Peter Bacon’s eye? The assumption was that loans extracted by NAMA from the banks would see the banks crystallising losses of €23bn, after an average 30% haircut – we were so innocent in those days that even the term “haircut” meant something different. And you might also recall the assumption in the draft business plan published in September 2009 that 40% of the loans acquired by NAMA would be performing. Since then, NAMA has actually forced €42bn of losses on banks and we have been constantly disappointed with NAMA reporting fewer and fewer loans performing, and in its most recent report and accounts for Q4, 2011, the Agency said that only 20% were performing, down from 21% the previous quarter. Alas it seems that even this was an overstatement.

In the Dail this week, the…

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