Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

April 2012

Ireland’s property market – past, present and future

Over the past month, I’ve given a couple of talks on the Irish economy and the Irish property market in particular. While not exactly following the model of the “Single Transferable Speech” adopted by some, there was understandably – given the similar topics – a good deal of overlap between talks given to the public at the Central Dublin Library and an-EU sponsored conference on the Irish Economy in NUI Galway.

Both talks build on not only some of the academic research I’ve been doing recently but also material that only exists thanks to this blog and the feedback from readers, such as this post “Are we nearly there yet?“, comparing house prices now to their long-run level and to incomes and rents in Ireland since the 1970s.

A video of my talk in Galway is up on Vimeo here, while the slides are available both on Slideshare and on Scribd: both are embedded below also. All five sessions from the Galway conference are up on the Digital Revolutionaries Vimeo page. John McHale’s presentation contained a really neat graph with revisions to Ireland’s growth expectations by various bodies over the past 18 months, while Aidan Kane’s talk contains lots of fascinating information on Ireland’s historical debt issues, going waaaay back into the 1600s!

Ronan Lyons – The Irish property market from Digital Revolutionaries on Vimeo.

Wealth taxes and property taxes in Ireland: understanding the tax base

The end of the first quarter of 2012 saw not just the usual quarterly reports – such as the Q1 2012 House Price Report discussed elsewhere on the blog – but also the deadline for paying the €100 Household Charge. The charge has been the focus of a campaign of resistance that is surely more to do with the principle than its size (the increase in Band A motor tax was almost as large as the Household Charge but I don’t recall anyone complaining against that particular flat tax).

In fact that campaign has succeeded in one way already: while it had originally talked about the charge applying for 2-3 years on an interim, the Government is now not going to go through all this again and desperately wants to bring in a fairer property tax with Budget 2013 this coming December.

Where’s all the property wealth?

What sort of base is there for property tax? The latest Report gives county-by-county figures, which can be combined with information from 2006 and subsequent completions (or alternatively Census 2011 information) to reveal what wealth there is in residential real estate around the country.

The total amount of wealth in residential property peaked in 2007Q4, at €564bn. 37% of all this wealth (€208bn) was in Dublin (home to just 28.5% of households in 2006). A further €37bn was in the four other cities – their 6.5% being roughly in line with their 7% share of all households. Since then, the trickle of new completions has not been nearly enough to offset the fall in property values. The stock of homes as of Census 2006 has fallen in value from €525bn to €255bn, as of Q1 2012, while including the value of new completions in the years since 2006 increases the total value of all residential property to €294bn.

Households and housing wealth in Ireland

Dublin is now home to just under €100bn of housing wealth, as of early 2012, while the rest of Leinster and all of Munster are home to €70bn and €76bn in housing wealth respectively. Connacht and the three Ulster counties are home to about €48bn of housing wealth. The relative proportions that each of four regions makes up of Irish housing wealth and Irish households is shown in the two pie charts above – you can see that rural households need have no fear that any property tax will hit them hardest. Quite the reverse: any property tax will have to make sure that it doesn’t overly punish urban life, which is so crucial to subsidising the rest of the country.

Where’s all the wealth?

These are statistics that the political class would do well to heed. To recap our Econ1010, there are three main types of tax: those on incomes, those on consumption and those on wealth. Ireland is also home to some of the world’s most punitive rates of taxation on income and consumption, so hence there is increasing interest in wealth taxes.

There are four main forms of wealth: (1) cash/deposits, (2) equities/shares, (3) debt/bonds, and (4) real estate/property. In Ireland, as of 2006, deposits made up 10% of Irish wealth, equities a further 8%. Pension and investment funds – wealth holdings of unknown type but likely to be a mix of mainly equities and bonds – made up a further 11% of wealth. But it was property that was the overwhelming type of wealth in Ireland, making up 72% of all wealth. The vast bulk of this was residential property. And that picture is not likely to have changed substantially with so much of Irish equity wealth being invested in the banks, which are now all next to worthless.

So when people talk about taxing wealth in this country, they are talking principally about taxing the homes that we live in. In second place comes taxing the deposits we have in the bank. Make sure to mention this to the next person who says “We don’t need a property tax, we need a wealth tax”.

Signs of life or April Fool? The latest Daft Report

The latest House Price Report was released this morning and contains what may be surprising reading for some. Across three different metrics, there were signs of improved activity in the market in the first three months of the year. Given we sent out press releases to journalists before midday on April 1, I did worry that some of them might think it all just an April fool!

Increased optimism

But the signs are there. The fall in asking prices in the first three months of the year was, at 1.4%, the smallest fall in asking prices seen since prices started to fall in 2007. “Smallest fall” mightn’t sound like particularly good news for homeowners but what was particularly interesting was the fact that the average asking price rose in a number of regions.

Of 26 counties, the average asking price rose in eleven. An average price increasing at the county-level despite general falls is not unheard of – every other quarter might see one or two counties buck the trend, before falling again the next quarter. However, eleven in one quarter is as many county-level increases as the previous seven quarters put together.

Quarterly change in asking prices, by county, Q1 2012

Over on Manyeyes, I’ve visualised the changes over the last three months by county – an overview is given in the graph above. I think what’s interesting is that there is an obvious difference between the “bottom half” of the island, so to speak and the stretch from Galway over to Dublin. This less than random scattering of increases also suggests something more fundamental at work.

Shifting properties

Why are sellers in many parts of the country being more optimistic, though? Some – such as NAMA Wine Lake – believe that we can read very little into analysis of the actions of 27,000+ sellers and this is probably just noise. However, what are other metrics telling us? Sellers may be more optimistic if properties are shifting.

There is some evidence, particularly in Dublin and Leinster, that properties are shifting. The total number of properties for sale in Dublin is at its lowest since mid-2007 while the slow and steady decline in the stock sitting on the market in the rest of Leinster continues: there are now 14,000 properties for sale in the province, down from a peak of 18,000.

One other metric we’ve been pioneering in the Daft Report is the proportion of properties selling within a certain number of months. Typically, one might look at time-to-sell of the average property coming off the market but in a market where some properties have been up for three or more years, averages will get skewed and not give a fair indication to someone selling at a realistic price now of how long it will take to sell a property.

The report gives the proportion of properties selling within four months of listing, for both December (30%) and March (33%). And – like the average asking price and total stock on the market – it does suggest a slight improvement in conditions in the first few months of 2012. One third of properties now find a buyer within four months. In Dublin, that figure is 40%.

As I’ve been saying on radio this morning, I wouldn’t be take this report and run off popping open the champagne in the certainty of the market having stabilised. Instead, it’s a step in the right direction. Recovery in the property market is about activity (not prices). There’s evidence from today’s report that conditions did improve in the first quarter of the year – but that could easily be undone by trends between April and June. In particular, without sufficient lending by the banks, it’s unlikely we’ll see any stabilisation and recovery in the property market.

The daft-myhome conundrum

For those paying attention, there’s an obvious clash between what this Daft Report is saying and what the alternative report, by, is saying. Whereas the Daft Report shows these three indications of improved market conditions, the Myhome report reads like the Daft Report from January: they’ve seen the largest fall in their series yet.

I learnt recently that there is one large methodological difference between the two reports. While the underlying methodology, hedonic regressions, is the same (and is also used by the CSO and was previously used by the ESRI), Myhome use all properties listed on their site come late March, no matter how long those properties have been listed. Asking prices however reflect sellers expectations and in my own opinion it should only be expectations formed (i.e. properties listed) during the quarter that are counted.

The other difference is the sample size available to each website. Daft has approximately 50% more properties listed for sale than Myhome and this is particularly pronounced outside Dublin (in the capital, to the best of my knowledge, it is pretty much even).