A quick look at prices across the different sectors in Ireland reveals a far more interesting pattern than the typical assumption of slowly rising prices would suggest. Clothing and communications prices are at levels similar to those in the 1980s, while ‘deflationary episodes’ are becoming more common in Ireland every decade. Read more
This post uses Census and CSO data to estimate how many mortgage-holders in each county are faced with ‘unexpected unemployment’. Nationwide, almost 7% of mortgage holders are dealing with unemployment, a figure that could rise to 10% if the Live Register hits 500,000. Louth in particular and Leinster more generally are the worst affected areas. Read more
My recent post on negative equity led to some discussions, particularly on irisheconomy.ie, about the financial (i.e. NAMA) and labour market (i.e. dole) implications of negative equity. Here, I use Live Register figures to work out which counties have been affected most by unemployment since the start of the recession. A group of counties from Laois up to Cavan appear worst affected, although all counties have seen unemployment at least double. Read more
An overview of how much the typical worker is taxed in Ireland, compared to the rest of the OECD, reveals Irish workers to have a significantly lower tax burden than the OECD peers. The trend of lower and lower since 2000, so that the average industrial worker was actually subsidised in 2007, now appears not only unsustainable but also reckless. Read more
Earlier this year, I calculated average salary estimates for the public and private sectors in Ireland. The answer, that the average worker in the private sector earned €40,000 last year, almost €10,000 less than their public sector counterpart, has proved if not controversial than certainly a starting point for debate. Given some of the comments on that blog post, and the fact that the teachers conferences were being held last week, I decided to look in a little more depth at the education sector. How much do teachers in Ireland earn? How does this compare with other people in Ireland? How do teachers’ salaries in Ireland compare with other eurozone teachers?
Trade unions have been clear on one point since the size of Ireland’s fiscal crisis became clear: those most in a position to pay should bear the brunt. At the same time, teachers unions have said that their pay is not up for discussion. This implies that teachers presume that they are not among those most in a position to pay. How does that stack up with the stats? The chart below shows average earnings in mid-2007, the latest data across all sectors, with public sectors marked in dark blue, private sectors in light blue, and semi-state in mixed blue.
The single most striking thing is that all the best paid sectors in Ireland are either public or semi-state industries. (Those looking for more detail might start with Dept of Education figures out last week showing that primary school teachers earn on average €57,000.) Surely, any objective trade union leader should be arguing that whatever burden workers have to bear, the bulk of it should be borne primarily by the public and semi-state sectors.
There are a few common queries people have with the relevance of these statistics. The first often runs: “Hang on, you’re not comparing like with like. All teachers have a degree, while who knows how many people do in, say, paper and printing.” Ideally, I’d like to have the stats to hand to explore this. Unfortunately I don’t. My only comment before we move on is that if finance and business services had come out as the best paid sectors in Ireland, would the same people have argued that we should wait and see whether their higher wages were justified by qualifications/experience/profit created? Or would people have argued that as they were best paid, they should pay most?
Let’s move on, though. If comparing education with other sectors in Ireland is not fair, let’s compare Irish teachers with their eurozone counterparts? After all, our old trick in situations like this was just to devalue and hope for the best. Now we share a currency with a dozen or so other countries. Are our teachers overpriced?
The graph below uses OECD statistics to examine teachers’ salaries across the eurozone. (I’ll take this chance to recommend the OECD’s Education at a Glance 2008: even if you hate absolutely everything I’m saying here, do take the opportunity to wander around its facts and figures.) In Ireland, a teacher in the job 15 years, single with no kids, earns more after tax than his or her counterparts do BEFORE they’ve been taxed in most other eurozone members. Marry that teacher off and give them two kids and – despite Germany’s best efforts to catch up – Irish teachers are by far the best paid of the ten eurozone countries shown.
OK, so Irish teachers are well paid relative to other Irish workers – they may just be better qualified. And yes, they’re paid substantially more than their eurozone counterparts. Perhaps price levels are so substantially higher in the rip-off republic that teachers in Ireland need this extra pay just to break even? Unfortunately, eurostat figures on comparative price levels don’t back that assertion up. Whereas prices in Ireland are indeed 15% higher than in France, the single teacher above enjoys 75% more take-home pay. In Finland, prices are just 2% below Irish prices, but an Irish teacher enjoys a wage that is 54% higher than a Finnish counterpart.
If prices don’t explain the international gap, maybe Irish teachers work a longer year than their eurozone counterparts, explaining why they get paid more. Unfortunately again for Irish teachers, the opposite seems to be the case, as the graph below shows. Teachers – particularly secondary school teachers – work less days on average than almost all their eurozone counterparts. This leaves the amount paid for every day spent teaching in Ireland looking pretty unsustainable. Factoring in the pension levy only scratches at the surface of the problem.
Ireland is currently grappling with a huge fiscal and economic crisis. The government faces lots of tough choices about what stays and what must go. The fact that they’ve chosen to cut back some education services suggests that they are missing what should be obvious: the more we bring Irish teachers’ salaries back in line with counterparts elsewhere in the eurozone, as well as with other sectors in Ireland, the less we’ll have to cut back on the range of education services we offer.
As teachers of maths should appreciate, the arithmetic is simple. The government needs to make savings across the board in publicly-funded services, including education. To make savings in education, we can either cut back on education services (quantity) or cut back on teachers salaries (price). Teachers have so far been successful in passing those two issues off as one, and thus creating a somewhat bizarre alliance of service providers (teachers) and consumers (parents/children).
Given how Irish teachers’ pay compares domestically and internationally, it’s time we separated out teachers’ pay from education cutbacks and took a long cold look at what our teachers are paid.
Yesterday, the latest daft.ie report was released. More details here, but the overall gist is that asking prices fell 4.2% in the first few months of the year. Coupled with the falls in 2007 and 2008, this means that asking prices are now down 18% in two years. On the face of it, this may not have much to do the Budget being released today, which has to deal with more pressing issues of the public finances, unemployment and the banking crisis. However, to say that Ireland’s stock of wealth tied up in residential property should have no role in plugging Ireland’s E25bn public finances gap is myopic in the extreme, particularly given Irish wealth-holding tendencies. Even if we rule out a property tax, we should at least know how much we’re throwing away in potential tax revenues, and this blog post hopes to establish approximately this potential is.
No harm, first, to recap the fiscal crisis Ireland faces, outlined in the chart below. In 2007, the Irish government expected that in 2009, tax receipts would be in the region of €56bn. By last week, the expected revenues for the year had slid down to €34bn. This €22bn gaping hole is staggering, as it represents a collapse of 40% in revenues. Any organisation with a 40% collapse in revenues has to re-examine its entire business model and Ireland is no different. Fixing the €20bn-plus gap between income and expenditure will require taking more money in and spending less. My contribution on the debate about spending less is for another day – you can probably get some inkling of what I think here – but on raising more, we have to look again at property. Property taxes in Ireland are based on transactions – we now know, and probably deep down knew all along, that the huge amounts the government was taking in over the past few years were totally unsustainable.
If we don’t tax property transactions, how will we tax property? And what contribution to plugging our €20bn gap can property make? Recent articles by the Sunday Independent and the Irish News of the World have discussed the scale of how much has been wiped off Ireland’s property market, while the combined report by stockbrokers Davy, Goodbody and NCB mentioned the potential revenues that could be earned by introducing a property tax in Ireland. So just how big is Ireland’s property market? The answer is about €460bn, as is shown in the graph below. The graph uses 2006 Census data on the number of households in each county, Dept of the Environment figures on new houses built in each county since 2006 and daft.ie quarterly average house prices by county.
The graph also shows that the total value of Ireland’s residential property is about E100bn less than what it would be were no crash to have occurred. A similar amount has also been wiped off Ireland’s stock exchange, which is plotted on the same scale to allow comparison but whose remaining value is €30bn, compared to the €460bn still in Ireland’s homes.
Supposing the housing crash continues so that Ireland’s 1.6 million homes are worth perhaps E400bn by the time they bottom out. While well below the €600bn or so that it “could” have been, this still represents a huge potential stock of wealth that is largely untaxed. Simple maths says that a property tax that averages 1% could raise €4bn per annum. Assuming that the government will be aiming for a three-year correction to 2012 that lifts tax receipts by €10bn a year, while it cuts spending by €10bn a year over the same period, a property tax could solve 40% of Ireland’s tax woes. The average household’s annual tax bill would be less than €3,000 – or about €50 a week.
How would a property tax work? There are of course some significant issues that Ireland would have to iron out first, before a property tax could come in. For example:
- Politically, older citizens have proved sensitive to the idea that the government might have access to some of the wealth stored in their homes, even if it’s to pay for their healthcare. The illiquidity of houses raises the prospect of retirees having to downsize to avoid tax bills. While this is normal in many places, particularly in the US, it would require a change in mindset here. Put more bluntly, the idea that people should be entitled to have any wealth stored away in property, as opposed to other forms of wealth, untouched by the government is out of date.
- Recent purchasers would have to be given property tax credits, so that double-taxation through stamp duty and then the property tax would be avoided. Those who made particular purchases based on stamp duty arrangements that existed at the time may also feel hard done by.
- Measurement of house prices would become even more important, as it would have tax implications. In this day and age, though, accurately measuring house prices should not be an arcane task. Measures such as the daft.ie and ESRI/ptsb series are both based on well established hedonic price methods, which could easily be adapted to official Revenue Commissioners data, if these data were made available as they are in most other countries.
- An instant extra tax burden is probably not what the economy needs now. Phasing it in gradually over the coming 3/4 years would be advisable as it would allow adjustment to a new system, while also showing medium-term planning on the part of the government.
Nonetheless, there are significant advantages to a property tax:
- It gives the government a steady generally acyclical revenue stream and has an automatic stabilizer effect – i.e. the tax burden households face goes down when prices slump and more than likely their confidence slumps too.
- There is lots of potential in a property tax to achieve other goals as well as revenue-raising. (Indeed, for the purists, taxes should only be introduced when other aims will be served.) For example, the average of 1% could hide differences, if the government wanted to incentivize, for example, energy efficiency. Houses achieving carbon neutrality or some top level of energy efficiency could be exempt from property tax, or perhaps pay a minimal rate of 0.25%, while homes that incur a significant burden on the rest of society might have to pay signficantly more. (This would require significantly more planning and guidelines for consistent rating than the recent BER scheme.)
Given that we’re talking billions – perhaps even twice as much as the joint report by the main stockbrokers suggested – this should definitely be explored in more detail over the coming months.
Intergenerational outsourcing and the consequences of building 10% too much: A look at Ireland’s property market in 2013
With Davy Stockbrokers predicting a 70% fall in Irish construction activity from its peak over the coming ‘medium term’ (2009-2011 or so), I though it might be timely to review some headline statistics for Ireland’s property overhang.
Recently, I’ve been peddling the idea that between 2004 and 2007, we were building twice as many homes as we needed and building twice as many for 3/4 years implies building half as many as you need for 6/8 years to return to equilibrium. Does that stack up? Or, put another way, if we start in 2002 with Census statistics on the stock of housing, use Dept of Environment statistics for the period 2002-2008 and turn Davy’s figures into ballpark estimates for 2009-2013, how bleak will things look in five years time?
The answer, much to the chagrin of those who loathe two-armed economists, seems to be that it depends – in this instance on what part of the country you’re talking about, but also about what you think is the appropriate long-term need for new houses in this country. If we take 2001 figures (technically March 2002 figures) as our ‘departure from normality’ point, how far off course are we? Between 2002 and 2008, we churned out over half a million properties, off an existing base of just 1.3 million households. Back-of-the-envelope estimates, based on an overview of economists’ figures on this topic, suggests that we should have been building perhaps 300,000 households in that same period. (That’s using an equilibrium figure of 40,000 properties a year, rising temporarily after the accession of new EU member states.) So, enough with all the stats, what’s all this for, you wonder. Well, I was hoping to use all this to answer two key questions:
- Where suffered worst from Ireland’s properties building bonanza? Where is housing inventory lying around most?
- How long will we have to sit around building hardly anything until we’re back to some semblance of normality in the property market?
Where did we build our extra properties? By the end of 2008, we were about 5 years ahead of schedule – i.e. we’d built 12 years supply in just 7 years. To give a regional flavour, based on insights gleaned from the property overhang per county figures I calculated in December, I split Ireland into three regions – Dublin, Connacht/Ulster and the rest of the country. (The data allow for a full county-by-county analysis, however time constraints and poor formatting in the various external sources has prevented me from threatening another heatmap!) Over the period in question (2002-2008), more houses were built in Connacht/Ulster than there were in Dublin, which has almost twice the population! As a result, in terms of years of “pre-production”, if you will, while Dublin had under 2 years excess supply by end-2008, Connacht/Ulster had almost 8 years. Once more emphasis: builders managed to produce 15 years output in Connacht/Ulster in just 7 years.
How long will we have to sit around building nothing? It’s all very well for someone to come along after the fact and say “You shouldn’t have done that”. What’s more interesting is to shed some light on where the adjustment will come first and where it will be hardest. One option would be just to close up our construction sector for a few years until inventory shifts sufficiently and prices start to rise. Practically, of course output doesn’t and shouldn’t collapse to zero and, as per Davy’s figures, will be in the range of 10,000 to 25,000 over the coming 5 years.
Therefore, I’ve assumed output of 20k in 2009 (still slowing down), 10k in 2010 (bottom of the market) and then a simplistic 5k increase in output every year after that, rising to 25k in 2013. Let’s call this the ‘post-Section 23′ scenario. This is contrasted with a ’20:20 foresight’ scenario where steady-state output in construction remains 40,000, apart from a minor blip of 35,000 in 2009 due to global economic circumstances. In both scenarios, new houses are allocated according to a region based on its Census weight – crucially, and we can relax this later, even in our post-Section 23 world, output resumes in Connacht/Ulster, not at the distorted rates we saw but in proportion to its size. The result of all this is the chart below. The figures show the excess of properties as a percentage of the total property stock in each of the three regions.
The results are pretty clear:
- Even with some major internal restructuring of the construction industry (i.e. rebalancing output of houses according to a region’s weight in the economy), Connacht and Ulster will still have a significant property overhang, more than 10% by 2013 – and that itself based on a drastic 70% contraction in building activity from peak levels.
- For most of the country – and indeed the country on average – the overhang will have halved by 2013 but will still be in the region of 5/6%.
- In Dublin, shortages in housing may emerge as quickly as 2012.
Objections to the above might include one along the following lines: construction will not only contract 70% but also no-one will be building in Connacht/Ulster for years to come so even the rebalancing of output described above is not an accurate forecast. In that case, the overhang will just take the full 8 years from 2008. Section 23 and the property boom will have taken construction jobs from 2009-2015 and left them in 2002-2008 – a sort of integenerational outsourcing.
Another objection is that the optimistic (if 2012 is optimistic) scenario painted for Dublin hinges on that long-term need of 40,000 units a year (which translates into about 12,000 new units in Dublin annually, based on its Census weight). Significant and persistent net outward migration from Dublin from 2009 on – which incidentally is why I believe that Dublin Bus, so clearly an ‘inferior good’ in the economist’s sense of the word, is losing money when incomes fall – might mean that the demand for housing in the period 2009-2013 may fall to 20,000. Replacing 40,000 with 20,000, from 2009 on suggests that the average percentage overhang for the country stays stuck at 10% and Dublin – while still much lower – remains stuck at 3-4%.
In sum, we are where we are. We’ve more than enough houses everywhere in the country and plenty of houses in places where we won’t need them for another 10 years or so. Therefore, it would be wise for the Government to take this crisi-tunity, as Homer Simpson would say, to harness both supply and demand sides of the market.
- On supply, it should focus the efforts of the much-trimmed residential construction industry, when that sector starts to medium-term plan in 2010/2011, on Dublin and other areas around the country most likely to show a shortage of property this side of 2015.
- On demand, the Government should attempt to deliver balanced regional development, taking property overhang as an opportunity for affordable housing to create new centres of employment. Taking this to its most logical conclusion, firms outsource because they want to free up resources to specialize on what they’re good at. Therefore, we must adopt a mentality along the following lines: “Let’s take this opportunity to treat our property boom as intergenerational outsourcing, which has freed us up to focus on what we’re good at.” (Just don’t say all we’re good at is construction!)
Watching Monday’s Questions & Answers, I became increasingly baffled as to how poorly understood the gap between public sector and private sector pay in Ireland actually is. I conducted a mini-straw poll, through the various media of living room chat, email and Twitter. That poll made me realise that while I had been labouring under the presumption that despite all the stats we have on wages across sectors, those stats were having no impact, others were labouring under the presumption that the debate had to be kept at a general level because we had no statistics on the topic.
The guts of a decade ago, I undertook some research for Prof. Frances Ruane on the original benchmarking deal. What we found at the time was that there was no gap emerging between public and private sector wages, or if the gap was there at all, it was in favour of public servants. For those interested in more on that 2001 perspective, I’ve embedded a version from Scribd at the very bottom of the post.
Given the way this week is going, with public sector unions somewhere between agog and apoplectic at the idea of having their wages reduced, and given that no-one in public discourse (if Q&A is representative) is quoting these figures, I thought it might be no harm to see if I could do up what we in the business call “a one-slider” that might make them understand the decision a little better.
First, a general comment about public sector pay cuts. This can’t possibly be that much of a surprise to anyone in the public sector. After all, this is what they signed up to in 2001, with benchmarking. Benchmarking may have been an incredibly expensive way to do it – costing the economy €1bn+ every year and counting – but it did establish a principle in public sector wages in Ireland. That principle is that trends in public sector wages must mirror those in the private sector. It’s incredibly cheeky of those happy to have the principle applied in the good times to argue that they shouldn’t have to ‘bear the brunt’ of having the same principle applied in the bad times.
Now for the one-slider!
And in true consultant style, three key points from the above graph:
- Lest we forget the most obvious, in every year of the series, public sector workers were paid more per year than their private sector counterparts*. 30% more on average! (There may be perfectly legitimate reasons for this, for example average experience/years worked may be higher, responsibilities may be greater… but a priori, who knows?)
- As you can see, the gap has widened, not narrowed over the decade. In fact, in euro terms, it widened 8 years out of 10! And after the two years of greater private sector increases (prizes for eyesight if you can spot them on the graph), there were huge increases in public sector pay the following year.
- Public sector pay is at least five years ahead of private sector pay. What public servants earned in 2003 took their private sector counterparts until 2008 to earn (in fact, they’re not even there yet, another €500 or so to go!).
With the Live Register now rocketing towards 400,000 and private sector wages now stagnant, bonuses disappearing, total earnings in the private sector are falling. Therefore, according to the principle of benchmarking, so must public sector wages. As they are paid €50,000 on average, compared to average wages of less than €38,000 in the private sector, this won’t be the biggest economic calamity to befall Ireland this year. Now, can we please incorporate this knowledge into our social dialogue?
[scribd id=11635058 key=key-2809dv8hrkl94xxmtc5r]
* Public sector includes public administration and education, but excludes health. No data there for some reason. Private sector includes all sector apart from agriculture (again no data). Some other methodological notes: I have had to assume Q4 figures for 2008 equal to Q3 in some instances or just take the average for the first three quarters, as Q4 data are not yet out. Construction figures only start in 2004, while manufacturing/industrial wages end in 2007, so I have had to use rates of change for the remaining sectors in those time periods, but the level of wages is determined by the full sample of private non-agricultural wages.
I had the rather pleasant task today of going through a range of Web 2.0 / social networking tools and establishing the potential in their application to primary research. Some key things that the new generation of web tools can give include:
- Using something like digg or scribd to find key themes and recent developments in a topic, and – because you know who’s posted and who’s posted most – experts on a particular topic
- Using something like basecamp or dimdim to project manage flexibly, particularly when teams are non-traditional, i.e. they are globally dispersed, working from home, volunteer-based, etc.
- Using something like LinkedIn or indeed WordPress to access groups of experts on a particular topic and start a discussion
- Using something like Manyeyes (which I’ve done in a few posts) or wordle (which I may have done in one too many posts last year!) to come up with new visualizations and ways of thinking about data
Many or most of these I was already somewhat familiar with. Indeed, twitter is increasingly one of my main sources for accessing news, thanks to RTE’s twitter services, and accessing expertise, as a surprising number of economists are on it. (I may also use it to keep tabs on Stephen Fry and Jonathan Ross, but that’s probably for another post!)
Anyway, what I was not aware of, or rather perhaps only vaguely aware of, was the plethora of wisdom-of-the-crowd prediction markets tools out there. By way of example, I’ve set up one at hubdub, that hopefully proves my point:
When will Ireland’s Live Register top 350,000? I hope the crowds will tell me…
This is an unabridged version of my commentary on the latest daft.ie report (2008 in review), which is available at daft.ie/report.
When we look back at 2008 in a few years time, I think it’s fair to say we will regard it as the annus horribilis for Ireland’s property market. In late 2006, we issued a report which was the first to spot a slowdown in the property market. At the time, it was our view – unpopular though it was – that rising interest rates and high levels of supply would lead to a levelling off in house prices. This turns out to only have been the start of the story.
Ireland has become a bit of Britney Spears economy. Bursting onto the world stage at the end of the 1990s, Ireland was heralded as an economic phenomenon and rapidly became a global superstar and poster-child for economic development. But recently it looks like it’s all just falling apart. Nowhere is this more evident than in Ireland’s housing market – until recently the engine of Ireland’s economic growth. House prices have fallen significantly from their 2007 peak, with trends in Ireland’s property market driven by the ongoing effects of overproduction of housing, combined with extraordinary international economic developments.
As the daft.ie review of Ireland’s property market in 2008 shows, asking prices for Irish property fell on average 15% during the last year. That makes 2008, in many ways, the opposite of 2006. While asking prices were static throughout 2007, the 12 months of 2008 have seen the typical home lose just over €50,000 in value, almost the exact amount gained in 2006. Ireland’s average asking price of €295,000 in December 2008 is almost exactly the same as that in January 2006. Even the property market’s quarterly trends were like 2006 in reverse.
The early part of the year was marked by uncertainty about growth in developed economies, as ongoing financial turmoil took its toll on share prices and the dollar. There was still a widespread belief, however, that emerging markets would take up the slack and that we were experiencing a blip rather than a derailment. Asking prices therefore eased back just 1.4% in the first three months of the year. As summer came along, though, it seemed that we were entering a new economic era, one of $200 oil and inflation. As this sank in, confidence took a further hit. Asking prices fell twice as fast between April and June as they had done in the first quarter, with the outer commuter counties of West Leinster, more dependent on petrol prices than elsewhere, particularly badly hit.
As autumn descended, the full extent of the financial crisis was revealed. Long-standing banks and investment houses were wiped out or nationalised on a weekly, if not daily, basis. House prices fell almost 4% in the three months between July and September as a result. There was still a feeling, however, that the financial and real economies, or Wall Street and Main Street as they were dubbed, worked in somewhat separate spheres. As the year came to a close, however, the full impact of the financial crisis on the real economy was becoming apparent, with job losses in retail, catering and manufacturing. The largest fall in asking prices, almost 6%, has come about in the final months of the year (just as the largest rise occurred in the first part of 2006).
South County Dublin has been in many ways the flagship of Ireland’s property market. Average asking prices in the area rose from €530,000 in early 2006 to over €680,000 by mid-2007. They have fallen steadily since then and in late 2008 fell over €50,000 to stand very close to their early 2006 levels. Elsewhere around Dublin, the fall from the peak has been in the region of €70,000 to €80,000. Outside the capital, falls in asking prices of between €40,000 and €50,000 from peak values in mid-2007 are more typical.
A range of global economic developments has made it necessary for countries around the world to revise down their growth estimates over the coming years. Russia, which earlier in the year had been expecting growth in 2009 of perhaps 7%, is now fighting talk that it is already in recession. The US may experience its first two-year recession for some time, while the IMF believes that the world as a whole will be in recession next year, according to its definition of global growth of less than 3%.
Ireland was delicately poised atop recent global economic trends. Its two major currency exposures are to the dollar and to sterling, so recent depreciations of both are having a major impact for Ireland’s exporters.
In the midst of all these external developments, Ireland’s domestic sector – so heavily reliant on construction for employment, wages, tax revenues, and general sentiment – has contracted sharply. The government budget shortfall for the year totalled €8bn, with likely implications for public sector pay and employment in 2009 and 2010. It is likely that net migration will change from large inflows in 2007 to outflows in 2009, particularly as unemployment looks likely to reach double digits at some point in the next few months.
What do all of these local and global trends mean for homeowners and prospective first-time buyers? To see where the property market will go next – and when it is likely to recover – it is necessary to look to the past as well as to the future. Over the past few years, Ireland has built perhaps twice as many houses as it needed, due in large part to tax incentives. Between 2005 and 2007, a quarter of a million new homes were built in a country that only had 1.4 million households in 2005. Worse still, due to the nature of the tax incentives, many of these properties were built in areas that did not need them. It stands to reason that if you build twice as many houses as you need for three years, you’ll need to build half as many as you need for six years to get back to equilibrium.
So should we write off Ireland’s property market until 2015? Not necessarily. It’s likely that prospects will vary from region to region. As outlined above, areas like South County Dublin are certainly feeling the pinch now, falling almost €150,000 on average from peak values. In such areas, prices are determined less by wages and interest rates, and more by expected future value and confidence. Therefore, whenever sentiment eventually reverts to a more optimistic outlook, those areas are likely to rebound faster. With the government seemingly tied into a pro-cyclical trap and not able to implement an economic stimulus package, due to large increases in public expenditure in the good times, it is of course an entirely different question whether lower interest rates will be enough to kick-start sentiment in Ireland.
In other regions, the long-term prognosis is very different. For properties close to centres of employment, four elements – employment, wages, interest rates and access to finance – will be crucial. Other areas, suffering from a glut of properties, may need a longer or a larger adjustment. Ballpark figures, based on the 2006 Census and daft.ie listings, suggest that as much as 10% of properties are for sale in counties like Roscommon, Cavan and Leitrim, compared to less than 5% elsewhere. It won’t be impossible to sell properties in these counties in coming years, but sellers must be realistic about the value of their property in a flooded market.
As I mentioned at the start, Ireland has been in many senses the Britney Spears of the world economy over the past ten years. Bursting on to the scene in the late 1990s, we earned worldwide recognition for how much we achieved so fast from such humble beginnings. With all this fame, it was perhaps to be expected that we lost our way in the early years of this decade. Recently, things have got a lot worse. With bank bailouts, budget debacles, job losses and public sector cuts, we’ve been through it all. Nonetheless, like Britney, while a lot of damage has been done, with good management, we can look ahead and spot elements of a brighter future – just look at the cost of petrol, mortgages, food or clothing now compared to a year ago. Ultimately, with the resolve to put right what needs to be fixed, and with a far better starting point than we had in the mid-1980s, we have to be confident about our prospects for the future.