Another fine mess! So you want to value some properties…

Dear Government,

Well, you can’t say you weren’t warned. Yes, it was a noisy time for all concerned, with plenty of people telling you they didn’t want to pay any sort of property tax, no matter how cleverly designed. But still, there were those of us who argued all year long for a smart tax with a smart design. One that got lots of information into the system, to enable the auditing that means everyone is paying the fair amount. And perhaps more importantly one that kickstarted economic activity, rather than just another form of income reduction.

Really, the whole thing was quite messy. One of your own agencies, the Land Registry – who can tell you who owns what plot of land and what’s on the land – was apparently not consulted once. The debacle of the Household Charge shows the same happened GeoDirectory, which is a database of addresses and their physical locations, maintained by An Post and Ordnance Survey Ireland, two more of your agencies.

The mess continued on Budget Day, when people were told they had to self-assess the value of their homes – but were given no good incentive to do so well. Some of us advised giving people a tax credit in Year 1 to have their property professionally assessed and in their tax return give the Revenue Commissioners the kind of information needed for good auditing. Instead, the door was left wide open for a most unwelcome experiment in game theory, where neighbourhoods come together and coordinate their valuations at below-market rates, leaving Revenue Commissioners powerless to find any individual resident guilty of tax evasion. Which is why they have decided to value the properties themselves, apparently. But of course, not least thanks to a rather detail-sparse Property Price Register, they have none of the direct information needed to do this.

So, as you’re quite fond of saying yourself, we are where we are. Now what?

As it happens, I actually spend quite a bit of my time worrying about how best to value properties, segment the property market, etc. I’m actually just fresh from a renovation of some of those models. And the good news is that with the right information – in particular a property’s size and location – it’s quite easy to come up with reliable estimates of a property’s worth.

So, between breakfast and starting work this morning, I developed the following estimate of Irish property values. It should work in all areas, urban and rural, and for all major property types (apartments, bungalows, terraced, semi-d and detached) and sizes (one- to five-bedrooms).

So how does it work? To work out the value of a property, simply take the starting point (a 3-bed semi-d in Louth) and then multiply it by whatever factors you need. In particular, pick your county or urban area, if different; and pick your property type and size. So for a four-bed bungalow in Sligo, the €108,000 starting point is multiplied by 0.875 (prices in Sligo relative to Louth), by 1.355 (prices for 4-beds compared to 3-beds) and 1.221 (prices for bungalows, compared to semi-ds). Multiplying them all together gives an estimate of the property’s value in Q4 2012: roughly €156,000.

A rough guide for valuing an Irish property in early 2013 (see accompanying text)

Hopefully, Mr. Government, this table is of some use as you try and disentangle yourself from yet another fine mess!

Some notes on the above table:

  • Clearly, this is by no means meant to capture every last factor affecting property values. (One simple extension is number of bathrooms – roughly speaking, every additional bathroom is associated with a 10% higher price.) This model captures just under two-thirds of variation in house prices in Ireland, which – given the small number of factors included – is pretty good. But there’s still a third out there to explain. (Including effects for areas within counties would explain a significant chunk of the remaining variation, as it happens.) On average this will be right, and it will for the vast majority of cases be close but of course there are always properties that have unobserved factors that dwarf what matters for most homes. The method underpinning the figures above explicitly excludes outliers, so as to better improve the estimates for the vast majority of homes.
  • The table above is based on 60,000 listings on Daft.ie over the year 2012, and allows for the fact that prices varied throughout the year. “Aha”, a sceptic might say, “these are only asking prices and sure we all know they are [insert pet peeve here – too high, too low, etc]”. As it happens, some pretty detailed research comparing asking and transaction prices shows they move together remarkably tightly, once controls for location and size are included (as they are here). Properties that sell typically sell for about 10% less than their asking price, so for that reason the starting point of €108,000 is actually 90% of the figure returned by the model. The key thing about the model is what it tells us about relativities (prices between counties), not necessarily levels.
  • Lastly, lest there be any confusion, I offer this table as a public service but can’t offer it as any more than what it is – one academic economist’s analysis of the market.
  • Craig ,

    Hi You might want to adjust the northern counties i live in 5 Bed detached house in Leitrim/ Dromahair. In my street there was a 4 bed detached house with tax relief sold for €92,500 according to your formula i work out that my house is worth € 167,096.00 problem with that is whilst i would jump at some one offering me that money to buy it i doubt i would get it, as a new 5 bed detached in same village with 10yrs tax relief is selling for € 130,000.

    • Shane ,

      Dublin 18 is missing.

      • Ronan Lyons ,

        Hi Craig,
        Thanks for the comment. The model is not one that can be adjusted manually, as it’s the culmination of thousands of individual sellers’ expectations. One issue that your example raises and which is easily dealt with in a full model (this is just a starter) is, within rural counties, the difference between town and county properties. Town homes are on much smaller plots and, particularly with estates, are of a significantly lower value than their county brethren.

        Another issue that came up on Twitter is the limitations of these 50 or so regions – think for example north vs. south Kildare/Wicklow or within Dublin 4 Ringsend vs. Ballsbridge. If people really want to get granular, there is always: http://www.daft.ie/research/?request=research

        Thanks again for taking the time to comment,
        Ronan.

        • Ronan Lyons ,

          Hi Shane,
          I should have explained – Dublin 18 is bundled in with South County Dublin (for legacy reasons). Naturally a fuller model could distinguish between the two, although homeowners on the fringes of the area tend to be relaxed about whether to include it or not.
          Thanks,
          Ronan.

          • Paul ,

            Hi Ronan,

            Useful tool for people given the lack of advice from our Government. Quick question, would you place a 3 bed duplex as an apartment or 3 bed semi for the purpose of this calc?

            Thanks
            Paul

            • Ronan Lyons ,

              Hi Paul,
              Good question! Given it’s three-bed, probably semi-d (I’m guessing it’s over two floors and so feels more like a house than an apartment). But perhaps look at both figures (taking it as an apartment and as a semi-d) and you might get a sense of the bounds of its value.
              Ronan.

              • Your Property Tax Valuation Estimator Has Arrived | Broadsheet.ie ,

                […] s Ronan Lyons has come up with a way of estimating the value of your house based on work he’s been doing on property […]

                • Eoghan ,

                  Ronan,

                  Just a comment on Paul’s query.
                  A duplex would more than likely have management fees associated with it, while 3 bed semi’s mostly do not have this additional cost.
                  Therefore impacting on the valuation, due to the additional yearly outgoing.

                  Consequently the ‘management fee’ issue should be taken into account in assessing the valuation

                  Very interesting work, as always, and i look forward to your more expanded model.

                  Regards

                  Eoghan

                  • Brian ,

                    Looks like you are valuing the most expensive house in Ireland at €818,000. Please tell this to the Sherry Fitz salesmen and women who are still hawking south dublin properties for €1-3M.

                    • Ronan Lyons ,

                      HI Brian,
                      It’s worth pointing out that a good chunk of the variation in house prices that remains unexplained will be the kind of factors that are in very scarce supply (Victorian homes, stunning views over Dublin bay, close to a DART or Luas stop, large urban gardens… and of course all of these things combined). One of the reasons people like me were arguing in favour of a site value tax instead of market value tax is that market value taxes are toughest to get right at the very end of the spectrum you want to get right: the wealthiest in society. Models find it very tough to predict a house is worth €2.5m if only the top 0.05% of homes are worth that. It’s a lot easier to figure out where land is very valuable, though, and impossible for someone to disguise the fact they own half an acre in Killiney.

                      Thanks for the comment,
                      Ronan.

                      • Andrew Paul ,

                        Hi Ronan,
                        Love the table, but I cant see the most common property type, semi-detached listed?? If i choose terrace instead of detached, there is quite a difference.
                        Andrew

                        • Ronan Lyons ,

                          Hi Andrew,
                          Thanks for bringing this up – with semi-detached, you do not need to multiply by anything, as it is the control. (Similarly with 3-bed and with Louth.) Apologies for the lack of clarity,
                          Ronan.

                          • Sean Keogh ,

                            Hi Ronan,

                            Thanks for putting this together and congratulations on your continued success with DAFT. May I ask, why is the multiplier for an apartment higher than a terraced house?

                            I own a 3-bed terraced townhouse and I would have thought it was valued more than an adjacent 3-bed apartment. However, using your figures this is not the case, unless I am missing something.

                            So I’m in Dublin 13 and I make:

                            3-bed terrace: 108 x 1.98 x .857 = 183.26k
                            3-bed apartment:: 108 x 1.98 x .925 = 197.80k

                            Is this correct? I would have though a 3 bed house (terraced or not) would be of higher value than a 3-bed apartment?

                            Thanks in advance,
                            Seán

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                              • albert ,

                                The one thing that is certain with properties is that property tax will rise and rise and rise now that politicians have got their claws on a new tax. My two bedroom flat in a nice part of Brighton is rated at £3000 a year council tax and £875 for water. However it’s sale price is rising at 6% per year.

                                • Liam ,

                                  Hi Ronan
                                  I live in North West Meath near the Cavan and Westmeath borders and I would suggest there is a vast difference between the value of property in this area and those in the Dublin end of Meath but the calculator does not allow for that.

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