The October Report of 2011 puts Irish banking debt at 279 billion euros. Yet you link to your article stating that the total debt will not exceed 50 billion euro, and state that much of that debt may well be repaid. None of these banks will ever repay anything.
How do you justify your claims?
Eoin Grace
,
Ronan,
Why are you ignoring the effects of the necessary reduction of rent allowance rates on the property rental market?
The rise of the expression ‘rent allowance not accepted’ being included in Rental Ads would suggest the market already believes it will happen. So, are you ignoring it because you believe the government are still trying to prop up property prices / afraid of the impact on investor’s and additional bankruptcy’s or simply because the media have been largely ignoring this misallocation of public funds?
@John
The figure you’ve quoted is the entire loan book of the Irish banks. No-one believes that every last cent currently on their loan books will be lost, so the figure I’ve used is the total amount irretrievably lost by Irish taxpayers saving the Irish banking system. It’s based on two assumptions that may or may not balance each other out: that the aggressive recapitalisation of the banks in March 2011 will be enough (at least to the nearest billion or two), and that there is no large rebound in the value of the banks (thus generating a profit for the Irish taxpayer).
@Eoin
The presence of ‘rent allowance not accepted’ on ads is precisely why one should not be hoping for too much from a reform of rent allowance rates. It is an indication not of a belief in their impending reduction but rather a statement that the rent allowance and non-rent allowance markets are, at least to those landlords, separate ones. Rent allowance rates are a price floor and price floors are either binding or not. I believe the price floor to be binding for one and maybe some two bedroom properties in the urban markets and perhaps a greater share of the rural rental markets. The logical corollary of that is that when the price floor is lowered, it will only have an impact on those segments.
Put another way, if a landlord now rents out a 4-bed family home in Rathgar and will not consider rent allowance because that’s not the type of tenant she wants, she will be unaffected by a reduction in rent allowance rates. The state will certainly be able to save money by reforming rent allowance but I suspect most tenants will not notice any difference to their rents.
Interesting article Ronan.
Do you not think that the significant proportion of tracker mortgages taken out in the 2000s mops up a lot of the differences in mortgage repayments that you attribute to falling house prices. It would seem unlikely in the medium term (even a ten year window) that the bank margin driving available variable rates will go below 2.5%. Which is at least double most tracker increments. Also you assume no impact associated with the increased deposit. The saving required to generate this is surely an additional negative burden for a number of years prior to purchase.
Your second point certainly may have an impact, although it should be remembered that having to raise 10-15% will not seem abnormal to those born after 1980, in fact any return to vaguely normal credit conditions will be a loosening of the credit constraint to those who in other circumstances would have bought in the period 2008-2012. Also, the first graph in the post wasn’t really intended to capture the macroeconomic impact of greater collateral requirements, just the impact on house prices.
On the interest rate, the rates used in the post are not ECB rates, nor do they assume a fixed margin. They are the actual rates paid by the typical mortgage borrower, which CSO figures suggest were on average 4% in the period 2001-2010 and which – in my view – will be of the order of 6% in the coming decade. Hope that makes sense and thanks for the comment,
Ronan.
Diarmuid
,
Ronan, thats all very well for assessing attractiveness of Dublin to FDI staff etc, but what about all those who’s green (rent/mortgage) is based on existing debt at pre bust prices and who’s tax burden (red) will also be increasing to 18%. Increasing competetiveness will be offset by much reduced disposable income for this generation.
@Diarmuid
Very fair point – I did try to allude to that trade-off in the post, by contrasting those born in the 1970s with those born in the 1990s. But the point is that while the reduced disposable income/1970s group are effectively stuck here (due to negative equity), the 1990s group are not – hence the importance of increased competitiveness.
Thanks for the comment,
John Mack ,
The October Report of 2011 puts Irish banking debt at 279 billion euros. Yet you link to your article stating that the total debt will not exceed 50 billion euro, and state that much of that debt may well be repaid. None of these banks will ever repay anything.
How do you justify your claims?
Eoin Grace ,
Ronan,
Why are you ignoring the effects of the necessary reduction of rent allowance rates on the property rental market?
The rise of the expression ‘rent allowance not accepted’ being included in Rental Ads would suggest the market already believes it will happen. So, are you ignoring it because you believe the government are still trying to prop up property prices / afraid of the impact on investor’s and additional bankruptcy’s or simply because the media have been largely ignoring this misallocation of public funds?
– Eoin
Ronan Lyons ,
Hi guys
@John
The figure you’ve quoted is the entire loan book of the Irish banks. No-one believes that every last cent currently on their loan books will be lost, so the figure I’ve used is the total amount irretrievably lost by Irish taxpayers saving the Irish banking system. It’s based on two assumptions that may or may not balance each other out: that the aggressive recapitalisation of the banks in March 2011 will be enough (at least to the nearest billion or two), and that there is no large rebound in the value of the banks (thus generating a profit for the Irish taxpayer).
@Eoin
The presence of ‘rent allowance not accepted’ on ads is precisely why one should not be hoping for too much from a reform of rent allowance rates. It is an indication not of a belief in their impending reduction but rather a statement that the rent allowance and non-rent allowance markets are, at least to those landlords, separate ones. Rent allowance rates are a price floor and price floors are either binding or not. I believe the price floor to be binding for one and maybe some two bedroom properties in the urban markets and perhaps a greater share of the rural rental markets. The logical corollary of that is that when the price floor is lowered, it will only have an impact on those segments.
Put another way, if a landlord now rents out a 4-bed family home in Rathgar and will not consider rent allowance because that’s not the type of tenant she wants, she will be unaffected by a reduction in rent allowance rates. The state will certainly be able to save money by reforming rent allowance but I suspect most tenants will not notice any difference to their rents.
Thanks for the comments,
Ronan.
Can Ireland improve its competitiveness while raising taxes? | Machholz's Blog ,
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Brian ,
Interesting article Ronan.
Do you not think that the significant proportion of tracker mortgages taken out in the 2000s mops up a lot of the differences in mortgage repayments that you attribute to falling house prices. It would seem unlikely in the medium term (even a ten year window) that the bank margin driving available variable rates will go below 2.5%. Which is at least double most tracker increments. Also you assume no impact associated with the increased deposit. The saving required to generate this is surely an additional negative burden for a number of years prior to purchase.
Ronan Lyons ,
Hi Brian,
Your second point certainly may have an impact, although it should be remembered that having to raise 10-15% will not seem abnormal to those born after 1980, in fact any return to vaguely normal credit conditions will be a loosening of the credit constraint to those who in other circumstances would have bought in the period 2008-2012. Also, the first graph in the post wasn’t really intended to capture the macroeconomic impact of greater collateral requirements, just the impact on house prices.
On the interest rate, the rates used in the post are not ECB rates, nor do they assume a fixed margin. They are the actual rates paid by the typical mortgage borrower, which CSO figures suggest were on average 4% in the period 2001-2010 and which – in my view – will be of the order of 6% in the coming decade. Hope that makes sense and thanks for the comment,
Ronan.
Diarmuid ,
Ronan, thats all very well for assessing attractiveness of Dublin to FDI staff etc, but what about all those who’s green (rent/mortgage) is based on existing debt at pre bust prices and who’s tax burden (red) will also be increasing to 18%. Increasing competetiveness will be offset by much reduced disposable income for this generation.
Ronan Lyons ,
@Diarmuid
Very fair point – I did try to allude to that trade-off in the post, by contrasting those born in the 1970s with those born in the 1990s. But the point is that while the reduced disposable income/1970s group are effectively stuck here (due to negative equity), the 1990s group are not – hence the importance of increased competitiveness.
Thanks for the comment,
Ronan.
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