Whilst it is clear that the boom in housing supply has created a glut of unaffordable homes, I think it would be wise to compare Ireland’s bubble with the UK phantom boom. In reality, demand for new and second-hand housing was fuelled by easy credit and asset speculation in both markets. Let’s be clear that probably the single advantage of the Irish housing bubble has been the massive improvement in the stock of housing in the Republic that has occured.
The problem with economic models of supply and demand is that textbook economists forget that demand is simply the willingness of consumers to purchase at a given price. The turning point at the end of 2006 in housing sales may be reasonably interpreted as the realisation by lenders and borrowers that private sector credit and house prices was becoming unsustainable.
The real problem of the housing boom has never been the production of too many homes, but the fictitious inflation of housing and land valuations. I’d go so far as to say that Irish housebuilding was restrained artificially by our draconian planning laws.
Irish house prices are still overpriced and banks’ liabilities and assets are still significantly overstated. We have renewed Ireland’s dilapidated housing stock, albeit by building cramped dwellings in higher densities to suit the developers and planners. At least we’ve avoided the dismal experience of the UK housing market where rapidly rising prices have coincided with historically low housing supply.
Thanks for the comment – an interesting perspective, and one worth contrasting with Dan O’Brien’s commentary on a Daft Report early last year. You’re right that property in many counties was at the wrong price-point. I also agree that we’ve improved a lot of our housing stock in recent years. I’m not sure I’d agree, however, that we needed all the properties we built in many counties. I think the evidence suggests that the tax incentives had their intended effect – a bit of a boom in all constituencies, rather than targeted growth in areas that needed it.
We may need new properties soon in centers of employment, but I think some developments will prove to be ghost estates.
Though since Britney Spear’s breakdown, she has had a number one and a number two album in the US selling over 2 million copies each worldwide. She also has had a US number one hit single and two other top ten hits in the same time period. You would have to wonder if the Irish economy and property market will have a similar display in such times of adversity.
I think she may be a leading indicator. Watch out for Ireland in 2009!
Another way of putting it is that she’s only sold 2 million widgets. Ireland sold over 7 billion widgets in October 2008 alone! (Admittedly, we have to sustain 4.5 million, she’s only got two kids. And even then only part of the time…)
I think that the skewed character of housing development may be more accurately treated as the distortionary impact of the arbitrary planning system. I’d agree that many new estates were built in locations that made little sense from a housing need or employment growth perspective, but this does make sense if one understands how planning artificially disfigured the housing market to become an asset market. Irish planners have zealously controlled planning permissions to stop sprawl (urban and rural) and ribbon development. Development control created the environment for planning gain and asset speculation.
One further issue that must be considered is how the integration of the estimated 100,000 unsold units will effect the private rented sector as well as average house prices.
I’d be keen to read your remarks on the increased availability of these superior homes on the rental market. If capital values of inferior rental stock is destroyed by the supply of more modern accommodation, then that may be considered a positive benefit for society. Although not for the owners of such property.
Ahem, well, I guess it does depend on whether you think Britney is ultimately talentless.
IMO, I think Britney is (1) reasonably talented, (2) endowed with natural beauty and (3) given how things have gone since 2002, needs a decent manager to keep her on the straight and narrow. Just like Ireland!
Steve ,
Whilst it is clear that the boom in housing supply has created a glut of unaffordable homes, I think it would be wise to compare Ireland’s bubble with the UK phantom boom. In reality, demand for new and second-hand housing was fuelled by easy credit and asset speculation in both markets. Let’s be clear that probably the single advantage of the Irish housing bubble has been the massive improvement in the stock of housing in the Republic that has occured.
The problem with economic models of supply and demand is that textbook economists forget that demand is simply the willingness of consumers to purchase at a given price. The turning point at the end of 2006 in housing sales may be reasonably interpreted as the realisation by lenders and borrowers that private sector credit and house prices was becoming unsustainable.
The real problem of the housing boom has never been the production of too many homes, but the fictitious inflation of housing and land valuations. I’d go so far as to say that Irish housebuilding was restrained artificially by our draconian planning laws.
Irish house prices are still overpriced and banks’ liabilities and assets are still significantly overstated. We have renewed Ireland’s dilapidated housing stock, albeit by building cramped dwellings in higher densities to suit the developers and planners. At least we’ve avoided the dismal experience of the UK housing market where rapidly rising prices have coincided with historically low housing supply.
ronanlyons ,
Hi Steve,
Thanks for the comment – an interesting perspective, and one worth contrasting with Dan O’Brien’s commentary on a Daft Report early last year. You’re right that property in many counties was at the wrong price-point. I also agree that we’ve improved a lot of our housing stock in recent years. I’m not sure I’d agree, however, that we needed all the properties we built in many counties. I think the evidence suggests that the tax incentives had their intended effect – a bit of a boom in all constituencies, rather than targeted growth in areas that needed it.
We may need new properties soon in centers of employment, but I think some developments will prove to be ghost estates.
Cheese ,
Though since Britney Spear’s breakdown, she has had a number one and a number two album in the US selling over 2 million copies each worldwide. She also has had a US number one hit single and two other top ten hits in the same time period. You would have to wonder if the Irish economy and property market will have a similar display in such times of adversity.
Any prizes for the least intellectual comment?
ronanlyons ,
I think she may be a leading indicator. Watch out for Ireland in 2009!
Another way of putting it is that she’s only sold 2 million widgets. Ireland sold over 7 billion widgets in October 2008 alone! (Admittedly, we have to sustain 4.5 million, she’s only got two kids. And even then only part of the time…)
Steve ,
Thanks for the feedback.
I think that the skewed character of housing development may be more accurately treated as the distortionary impact of the arbitrary planning system. I’d agree that many new estates were built in locations that made little sense from a housing need or employment growth perspective, but this does make sense if one understands how planning artificially disfigured the housing market to become an asset market. Irish planners have zealously controlled planning permissions to stop sprawl (urban and rural) and ribbon development. Development control created the environment for planning gain and asset speculation.
Steve ,
One further issue that must be considered is how the integration of the estimated 100,000 unsold units will effect the private rented sector as well as average house prices.
I’d be keen to read your remarks on the increased availability of these superior homes on the rental market. If capital values of inferior rental stock is destroyed by the supply of more modern accommodation, then that may be considered a positive benefit for society. Although not for the owners of such property.
Clare ,
The “Britney Spears Economy” 🙂 Well, that’s certainly a first. Keep up the great blogging
theunwelcomeguest ,
You picked Britney because Ireland is ultimately talentless??? Worst metaphor for the economy ever dude, distinctly depressing…
ronanlyons ,
Hi TUG,
Ahem, well, I guess it does depend on whether you think Britney is ultimately talentless.
IMO, I think Britney is (1) reasonably talented, (2) endowed with natural beauty and (3) given how things have gone since 2002, needs a decent manager to keep her on the straight and narrow. Just like Ireland!
Ste ,
I think todays Daft.ie report on the rental prices answers one of the questions posed about how the stock of empty houses will impact the rental market. Here is the Daft.ie rental Index showing the steady decline: http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/29/Daft.ie-Rental-Price-Index.html
Not so sure about the Britney thing.. although perhaps the government has no balls.
tosser ,
Leave Britney alone!!!! :,((