Recently, I published a working paper, entitled East, West, Boom & Bust: The Spread of House Prices & Rents in Ireland, 2007-2012. The abstract is below, while the full paper is available here.
Property prices in the Republic of Ireland fell by half between 2007 and 2012 on average, but little is known yet about how price falls differed across property type and location. This paper examines this issue, using a dataset of over one million property listings to calculate 2007 and 2012 prices for a set of standardised properties for over 1,100 sales regions and 312 lettings regions. It finds four stylised facts about the distribution of house prices and rents in Ireland during this period. Firstly, the spread of prices across different property sizes increased significantly in the crash. This is consistent with a “property ladder” effect during the bubble temporarily pushing up the relative price of smaller properties. Secondly and conversely, the spread of rents from largest to smallest property sizes fell between bubble and crash. Thirdly, there was at most a small fall in the spread of both prices and rents across space. Lastly, in both bubble and crash periods, the spread of rents was constrained relative to the spread of prices, particularly in the upper tail, a finding suggestive of renter search thresholds.
Earlier this week, the Irish Times ran a story entitled “Daft.ie to continue use of ‘rent allowance filter’ on searches“. The thrust of the story was that the Department of Social Protection (DSP) had asked Daft.ie to remove a function that allows landlords to refuse to let to people on rent allowance and that Daft.ie said no. With the local and European elections just around the corner, unsurprisingly politicians jumped on board. Labour TD Aodhan Ó Ríordáin said that he was disappointed over this decision and would like Daft.ie to come before the Social Protection Committee – of which he is a member – to explain themselves. Perhaps summing up the mood for some, a spokesperson for Focus Ireland said: “Can you imagine the uproar if landlords were allowed to say, ‘Travellers or Muslims not accepted’?”
One of life’s big lessons, in my opinion, is that nine times out of ten, if someone else is acting in a way that seems odd to you, you probably don’t know the full story. And so it proves with this. As most readers will know, Daft.ie employ me to undertake the analysis for the quarterly Daft.ie Reports and, by coincidence, the latest Rental Report was out on Monday. So, the day the story broke, I was in Daft HQ and was able to find out the real story. For me, it is a salutary lesson on the curse of good intentions.
Actually, I had been aware that Daft.ie was working with the DSP. In early April, the unit responsible for Rent Allowance got in touch with me originally about this and I passed them on to Daft.ie. Over the following few weeks, Daft and the DSP worked through a plan and in late April, the filter was removed on a trial basis. The trial was supposed to last a week – but collapsed after just two days due to overwhelming user feedback. The users who complained were – wait for it – those in receipt of Rent Allowance. They were joined by one of the country’s largest charities, who got in touch with Daft.ie, asking them to reinstate the filter.
To see why, put yourself in the shoes of someone on Rent Allowance. With the filter, you go to Daft, tick the box that says “Are you looking for places that accept Rent Allowance?” and (as of this morning) are given about 700 results for Dublin city. If you follow up on any of these ads, there is no question of being turned away because you are on Rent Allowance. If that box is taken away, you would be given all 1,800 rental properties in Dublin. This sounds like good news, but the true cost of the missing box is revealed when you start following up on these ads. Roughly speaking (based on today’s numbers), you have look three times as hard to find a property that will even consider you. And time has a cost, whether you’re on Rent Allowance or not.
The removal of the filter – while no doubt well-intentioned by all concerned – actually made matters worse for the very people everyone is trying to help. Much as with rent caps, which I discussed earlier in the week, hiding what you don’t want to see will not address the underlying causes. So, why are landlords so keen to discriminate against Rent Allowance recipients?
Note that in Dublin, where rents are rising at almost 15% year on year, roughly two thirds of landlords currently will not consider someone on Rent Allowance. In contrast, if you were to search in Donegal, where rents are actually still in decline, almost all landlords would accept someone on Rent Allowance (190 out of 230, based on this morning’s numbers). While this story started out with a technical issue, namely a button on a website, the underlying issue is economic and inextricably linked with Monday’s Daft Report and indeed the broader housing crisis: a lack of supply. The tighter supply is, the more picky landlords can be. For example, I know of houses in Dublin currently where landlords are able to say “no, I don’t want three 20-something professionals renting here, I want a family”. No landlord in Dublin would have been that choosy in 2009, when rents were collapsing.
We could of course simply make it illegal for landlords to discriminate on the basis of Rent Allowance, being a 20-something professional or any other criteria we don’t like. But again, that doesn’t address the underlying issue and merely pushes the problem out of view. If those of us who do not have to depend on Rent Allowance want to help those who do, hiding the problem will not make it go away. To assuage our “middle class guilt”, for want of a better term, we need to look at the underlying issue of a lack of supply. And for that, as I argued on Monday, we need to look in particular at how the government controls planning and land use. Hopefully Deputy Ó Ríordáin will be to the forefront in calling for land use and planning reform – I’m more than happy to share my thoughts with him.
Today sees the publication of the latest Daft.ie Rental Report. The full report is available here, while below are my thoughts on what the latest report tells us.
Most analysis of the housing market – both sales and rental – is currently done through the lens of the last housing bubble and where it was when it burst in 2007. However, that is a point of view that is increasingly out of date. In the rental market, for example, rents bottomed out in Dublin and Cork cities in late 2010 and had actually bottomed out a year earlier in Galway city. Ireland’s urban centres are four years into a new housing market cycle – and yet there is still very little evidence that anything is being done about what is now a chronic shortage of accommodation in Irish cities.
With local and European elections just a couple of weeks away, a number of candidates – particularly in the Dublin constituency – have been talking about rent control as a necessary remedy for the ills of rising rents. However, while the desire to simply make illegal what you don’t like is understandable, it mistakes the symptom for the underlying disease.
On the one hand, tenants already have reasonable security of tenure. Since the Residential Tenancies Act 2004, once a 6-month probationary period has been passed, tenants have security of tenure in four-year cycles, something that is known as a “Part 4 Tenancy”. (To ensure this is the case, tenants who have signed one-year leases need to notify their landlord about their intention to stay – more here.) There are a certain number of conditions under which a landlord can terminate a tenancy, but getting higher-paying tenants is not one of these.
On the other hand, rising rents are caused by a lack of accommodation in urban centres and reducing rents will discourage the provision of new accommodation, thereby making the problem worse. What we have seen in both sales and rental markets is reasonably robust demand for accommodation in Dublin and other cities, which has pushed up both rents and prices. These should be acting as a signal to bring about new supply – so why has significant new building not started in Ireland’s cities?
Whether construction of new homes takes place depends on whether revenues exceed costs. Revenues come from rents and house prices, which both appear to be at the cusp of affordability given incomes in Ireland. Therefore, if rents and prices are high enough, the solution is about reducing costs in construction – not about capping rents and thus further discouraging the very construction that would alleviate the accommodation crisis.
The cost base in construction includes capital, labour, land and regulation, as well as materials, whose prices are typically set on world markets. What is needed now is for the Government to go through each element in the cost base and develop actions to lower costs. It may surprise some readers to learn that the cost of building a house is 3.3% higher now than in 2007.
Labour costs in construction fell once, in March 2011, when hourly rates were reduced by 7.5%. But in an economy where the average disposable income fell by 25% between 2006 and 2012, and where there are significant numbers of long-term unemployed construction workers, is that enough? More importantly, the minimum hourly rate for a basic operative in Ireland at €13.77 remains a quarter higher than in West Germany (€11.05, a figure which will rise to €11.30 by 2017). Department of Environment figures indicate that for every €1 of materials, €2 is paid in wages, so the wage rate in construction has a real effect on levels of construction.
Just as important is the cost and supply of land. If people are allowed to hoard land or sit on derelict or vacant sites, this imposes a cost on the rest of society. Dublin City Council’s proposed levy on derelict and vacant sites may help encourage unused land to be used, but it can do nothing to encourage land to be used better and its biggest effect may be just a clamour to have some activity – any activity – on these sites to avoid tax.
Related to this, various levels of government currently deploy a bewildering array of planning and building regulations and charges, each of which increases the cost of building. While standards of quality should not be sacrificed for political expediency, many of the regulations – such as minimum sizes – appear to very little connection to quality and instead look like the preferences of planners and policymakers trumping those of households.
How the system currently treats land and planning regulations needs, at the very least, to be streamlined. Overhauling a dated and complicated system of stamp duties, development levies, commercial and industrial rates and amenity contributions, not to mention the Local Property Tax, with a single unified Site Value Tax is clearly the best solution to join up the very disjointed Government system that underpins Ireland’s construction sector.
The Government’s new strategy for the construction sector will be published shortly. No dobut the headline measures will relate to capital, with a fund for construction projects or targets for the pillar banks featuring prominently. But capital is only one part of the puzzle. Labour, land and regulation are just as important. It is to be hoped that the new strategy will contain specific measures to lower the cost of both labour and land, as well as streamline the Byzantine system of planning and building regulations. Only a holistic approach will be good enough if Ireland’s latest housing crisis is to be stopped.
The end of one quarter and the start of another sees the usual slew of economic reports and the start of Q4 is no exception. Today sees the launch of the Q3 Daft.ie Report. In line with other reports in the last week or so, and indeed with the last few Daft.ie Reports, there is evidence of strong price rises in certain Dublin segments. What is new this quarter is the clarity of the divide between Dublin and elsewhere: all six Dublin regions analysed show year-on-year gains in asking prices (from 1.4% in North County Dublin to 12.7% in South County Dublin), while every other region analysed (29 in total) continues to show year-on-year falls (from 3.1% in Galway city to 19.5% in Laois).
The substantial increases in South Dublin over the last 12 months have led to talk of “yet another bubble” emerging, with internet forums awash with sentiment such as “Not again!” and “Will we never learn?”. To me, this is largely misplaced, mistaking a house price boom for a house price bubble. Let me explain.
Firstly, I should state that, unlike “recession” which is taken to mean two consecutive quarters of negative growth, there is no agreement among economists on what exactly constitutes a bubble, in house prices or in other assets, but the general rule is that prices have to detach from “fundamentals”. For example, the Congressional Budget Office defines an asset bubble as an economic development where the price of an asset class “rises to a level that appears to be unsustainable and well above the assets’ value as determined by economic fundamentals”. Charles Kindleberger wrote the book on bubbles and his take on it is that almost always credit is at the heart of bubbles: it’s hard for prices to detach from fundamentals if people only have their current income to squander. If you give them access to their future income also, through credit, that’s when prices can really detach.
In that vein, I think it would be useful for commentators to distinguish between price bubbles and price booms, even if that distinction may be less clear in real life than in theory. Stop any friendly economist and they will tell you that the price is just the outcome of the interaction between supply and demand. If supply falls, or if demand rises, this will push prices up. We are familiar with house price booms in Ireland: between 1995 and 2001, significant growth in house prices – even adjusting for inflation – was the result of a number of factors (fundamentals). These include demographics (how many people per household on average), household income and the supply of housing.
House price growth between 2001 and 2007 was, in contrast, a bubble, driven by banks over-extending themselves (lending relative to deposits) and over-extending borrowers (higher loan-to-value). Every increase in incomes that happened in that period was offset by an increase in the supply of housing. House prices rose because banks went from lending out 80% of their deposits to lending 180% (by borrowing themselves from abroad).
Somewhere in the middle of this split between boom and bubble is what’s known as “user cost”, basically how interest rates compare to people’s expectations about house prices. Expectations are clearly central to bubbles as no-one will pay €400,000 for a 1-bed apartment unless they expect it will be worth at least as much in the future – so we can say that expectations are a necessary precondition. However, while I may expect that this apartment will be worth at least €400,000 in ten years, unless I can turn my desires into effective demand, that’s not enough. And that’s where credit comes in. So, when we are talking about prices being a multiple of average incomes, expectations are necessary but not sufficient to bring about a bubble.
What do we see in the Irish market at the moment? We certainly do not see easy credit: fewer than 2,000 mortgages are given out to first-time buyers each quarter at the moment, one fifth of the number given out in 2005 and 2006. But whereas now is too few, then was almost certainly too many. What is the right level? Well, there are about 7,500 births to first-time mothers per quarter, which gives us an idea of how many households are being formed. Allowing for households that never buy (and for the moment excluding households that never have kids), this means a healthy market would see perhaps 6,000 mortgages being issued each quarter to first-time buyers. What we have is – still – a housing market starved of fresh credit, not stuffed with it.
This suggests that what we are witnessing is being driven more by fundamentals than by credit. For simplicity, if we think of house prices as demand divided by supply, it is clear that rising prices may be nothing to do with too much demand and may instead be driven by too little supply. This helps explain why it is Dublin, and not the rest of the country, that is seeing rising prices at the moment: Dublin has no oversupply from the bubble. This is being compounded by negative equity preventing trader-upper type moves, creating a crunch in a market where there is at best moderate demand.
The limitation to a neat split between house price booms driven by fundamentals and house price bubbles driven by credit is market momentum. Rising prices now may generate rising prices in the future because rising prices now affect people’s expectations. But the point made above still remains: unless those expectations can tap in to credit, they will not translate into a rise in demand.
Does this mean there is nothing to worry about? Absolutely not! The graph above shows the ratio of prices for a four-bed semi-d in South County Dublin to one in Mayo, and the same ratio for a one-bed apartment. The “Dublin differential”, which was steady from 2006 to 2009 and falling until early 2012 has increased dramatically since then. For a one-bedroom apartment, it has doubled (from 120% to 240%).
Rising prices may be good for those who already own their homes but for those looking to buy, affordability of property in the capital is paramount. When prices rise because of a bubble, you can prick the bubble by restricting the supply of credit, but this is invariably messy (UK: take note!). When prices rise because of a boom, what is needed to moderate prices to simply an increase in supply. What we need to understand now is why there is so little construction happening in Dublin, when the city clearly needs it.
Thoughts on the above welcome in the comments below.
Over the weekend, Revenue Commissioners launched their guidance for the Local Property Tax, in the form of an interactive map. With just a couple of pieces of information (location, property type and whether it was built before or after 2000), it takes you to a map of the country where when you click on an area, it gives a guidance for the likely band for properties of that type in that area. So for example, detached homes in Dublin 4 are estimated to be in the “greater than €1m” band.
The calculator has generated much discussion over the last few days, with many people claiming that for their properties, the valuations are “way off”. Revenue Commissioners economist, Keith Walsh, was on a range of media outlets on Monday trying to explain that this is the starting point for a valuation, and not the definitive say-so on what your home is now worth.
Some people have phrased the question in terms of “how did Revenue Commissioners get it so wrong?”. To me, this is looking at it the wrong way. As soon as the Government had decided that it was not going to ask people to return in Year 1 the information needed by Revenue Commissioners to audit the system, Revenue were stuck. While there is a register of who owns what plot of land, there is no such register of what is on the land. There is a system – Geodirectory – that can tell Revenue what type of structure is at each address (apartment, semi-d, etc). But it can’t say anything about the size of the property in any detail.
And that is why the Revenue system is only a start point. No-one, certainly not Revenue, are saying that a two-up two-down terraced in Stoneybatter is worth the same as a five-bed Victorian house with a garden around the corner on North Circular Road. And if of course the owner of the latter tries to pretend that they are in the same band as the former, ultimately that will catch up with them.
But what impact does bedroom number and bathroom number have on the price? Working with the guys at Daft, I’ve been trying to help people out on that one. The result is the Daft.ie Local Property Tax calculator. You choose where you live, the number of bedrooms and bathrooms, whether you have a garden, and the property’s type, and it produces an estimate not just of your tax bill but also of the value of the property itself, as of Q1 2013.
Daft.ie Local Property Tax calcualtor
How does it work?
The valuation you are given uses all information from the daft.ie archives since the start of 2011 – over 150,000 properties in total. For each property, information on location, size and type is known, meaning that the effect of these can be estimated. It is also possible – as is done every Daft Report – to capture how prices change over time, so that we can estimate relative prices (of say Cobh relative to Cork city centre) and not worry that this relative price is affected by when properties were listed.
For those who like the detail, the model is a hedonic price regression that – like the CSO’s index – uses a filter called Cooks Distance to exclude unusual properties which have a disproportionate effect on the results. Each property is assigned into one of five regions (Dublin, Other cities, Leinster, Munster and Connacht-Ulster) and one of 365 “micro-markets” around the country. (Meath, for example, has the following micro markets: Navan, Ashbourne, Dunboyne-Clonee, Trim, Enfield-Kilcock, West/North Meath, Kells, Laytown-Bettystown, Gormanstown+, Mornington-Drogheda, Dunshaughlin, Ratoath, Duleek+, Tara+, Meath (other), where a “+” denotes areas close by.)
Each property is also categorised by type, number of bedrooms, number of bathrooms relative to bedrooms and whether it has a garden. As mentioned above, it is also classified by month (actually by month and region, recognising that prices trends have varied across the country). The model then takes all the observations and through the magic of matrix algebra and modern computing gives a series of coefficients.
Those coefficients are actually factors, such as how the price of a 5-bed is relative to that of a 3-bed, everything else being equal. So, even with the same location, property type, and number of bathrooms, the model is telling us that 5-beds in Dublin relative to 3-beds are twice as expensive on average. This has obvious implications for the Property Tax.
Technically, the prices the model produces are asking prices, not transaction prices. Evidence from 2012 is that on average transaction prices were 10% below asking prices, so 10% has been deducted from the model output, to reflect market conditions.
And now the “buts”…
Of course, this is not the be-all-and-end-all either. While accounting for location, type and size will get you about three-quarters of the way in explaining variation in house prices, there is still a quarter to go. This is made up with factors that are not available across all properties, from things that hopefully soon will be measured, like size of the property and site in square metres and the building’s BER, to things are always going to be tough to capture, like the quality of the structure and of the finishing.
As with the Revenue system, this is meant to a step on the way, not the final destination. My advice for those whose properties are coming out with wildly different prices across the two tools is to first check the Property Price Register and if all those three sources don’t leave you relatively clear on your property’s value, you may need to get a professional valuation if you want to challenge the Revenue’s initial guidance.
One of the mantras of Celtic Tiger Ireland was that it was a rip-off Republic. And indeed, by 2006, Ireland had overtaken Finland to become the most expensive place in the eurozone for consumer goods.
Mid-2008 marked a turning point, however, and the combination of global economic turmoil and local economic depression meant that prices fell for over 18 months from until early 2010. Regaining competitiveness with our currency peers does not necessarily involve deflation, however. It can instead be brought about by more moderate inflation in Ireland than in other parts of the eurozone.
And since 2010, that is what has been happening. The first graph below shows consumer price levels (as measured by HICP, which is designed to be comparable across EU member states) in four economic groupings. In addition to the eurozone core and Ireland, also shown are the PIGS countries (the “I” here refers to Italy) and the new EU member states (largely outside the Euro for the period shown).
Consumer prices in selected EU regions, 1999-2012
In the first period, from 1999 to early 2004, Ireland acted like a new EU member state. Consumer prices increased by 22% in that period in Ireland, compared to 20% on average in the new EU states, 14% in the PIGS and 9% in the eurozone core. The second period, from early 2004 to mid-2008, Ireland actually saw more moderate growth in prices: 14%, in line with other PIGS (15%), below the new EU states (21%) but above the core (11%).
In the 50-odd months since August 2008, Ireland has been unique. Prices in Ireland have actually fallen by 1% in that period, while they have risen by almost 10% in both the PIGS and the new EU member states. In the Eurozone core, they have risen by 6% in the same period.
A direct comparison of Ireland and the eurozone core shows this competitive readjustment more clearly. The second graph below shows prices in Ireland relative to the eurozone core (=100) from 1999 on. Ireland’s price competitiveness worsened by 12 percentage points in that early period (up to 2003) and by another four percentage points (roughly) between then and 2008. In other words, it was the early years of the eurozone when the damage was done to Ireland’s cost competitiveness.
Prices in Ireland relative to Eurozone core (1999:1=100)
Of that 16-percentage point worsening in Ireland’s competitiveness, roughly half has since been eroded away. Compared to 1999, Ireland’s price levels have risen by 8 percentage points more than the Eurozone core. (This hides differences by particular categories of goods and services – a subtlety that matters a lot!)
In truth, that 8% figure probably overstates things slightly, as HICP excludes accommodation costs, which are the single biggest component of consumer expenditure. Both rents and house prices in Ireland at currently at levels comparable to 2000, which is unlikely to be the case in any other European economy. Perhaps the only other candidate for such stable figures is Germany, but its property market has heated up the last two years, meaning costs are a good bit above 1999 levels.
In short, it has not been fun – as inflation is associated with expansion and deflation with contraction – but Ireland has put in five hard years of competitive readjustment. With prices on hold, so are wages, which boosts Ireland’s attractiveness for FDI. The sting in the tail is that with inflation throughout the eurozone so low, any further competitive gains are going to be even tougher and slower.
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!
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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.
As with every New Year’s period, the end of 2012 and start of 2013 has brought a significant amount of taking stock, from the global economic outlook down to the prospects for the Irish property market. The “2012 in Review” Daft.ie Report has been released and marks an expansion of the range of information covered in the reports.
In particular, the report includes information from the Property Price Register in a like-for-like manner. As NAMAwinelake has noted, this is the first ever house price index for Ireland that has both the following features: (1) it is hedonic (i.e. compares like with like), (2) it includes both cash and mortgage-based transactions (current indices are based on either listings or just mortgages).
Asking price, closing price
An important question is how closely does it match one based on asking prices? This is important for two reasons. Firstly, the Property Price Register only goes back to 2010, so for example for those who bought in the latter stages of the Celtic Tiger to understand the scale of their negative equity, other sources will be needed to understand what happened up to 2010. Secondly, as explained recently, quantity and quality are highly related when it comes to property market reports, so to have county- or size-specific findings, we will need more voluminous sources than the Residential Property Price Register (RPPR). A comprehensive dataset of listings (such as the daft.ie dataset) is of sufficient size to estimate in a statistically reliable way not just differences in prices over time but also across space.
Average house prices (asking and transactions), 2006-2012
Falling – but not so fast
So, how do the two measures compare? The first graph above shows the average house price (using county population weights) according to both the asking and price register datasets. It is clear that the average price from the price register is below the average list price – with the gap 13% on average. (Slight digression: it is not correct to interpret this 13% as the average gap between what someone asks and what someone gets, as transactions and listings do not automatically match up. Transactions from December are associated with listings from earlier in the year.)
The second graph, below, compares the annual rate of change in house prices, as measured by asking prices and the price register. The key contribution of an index is how it measures changes over time, so this is the key comparison between the two. What is striking is how similar they are (the correlation between the two is over 97%). Both suggest that the year-on-year fall in prices accelerated from 14% in early 2011 to close to 20% by early 2012 – but that by end-2012, the rate of decline was below 10%.
Year-on-year change in house prices (asking and transactions), 2011-2012
So the conclusion seems to be that asking prices do actually do a very good job in mimicking transaction prices. For a range of purposes, from estimating negative equity to valuation of amenities, this is good news.
Town and country
But that is the answer to a relatively specific question. The broader question is what state is the property market in, as 2012 finishes and 2013 starts. The first graph above – particularly the RPPR line – points to a slow-down in price falls. Taking on board the point made above, that asking prices can shed light on regional trends not available form RPPR figures, asking prices tell us that the annual rate of change in prices varies hugely around the country.
This is shown in the third graph, below. In rural property markets of Connacht and Ulster, prices are falling at rates of close to 20%. In Dublin, on the other hand, there are actually some segments – in particular, South County Dublin, which might be regarded as a bellwether (or alternatively, exceptional) – where asking prices are stable or even rising.
Annual change in asking prices, Q4 2012, by region
This picture of stabilising prices in the capital is reinforced when one looks at measures of market activity. The fourth and final graph shows the proportion of properties sale agreed (including those subsequently taken off the market) within four months of their original listing. The graph shows the figure currently, compared to the figure from a year ago.
Finding a buyer
While there is an improvement in all regions, that improvement is being driven by Dublin in particular, where almost two thirds of properties find a buyer within four months, and to a lesser extent by the other cities (half find a buyer). In Munster, Connacht and Ulster (outside urban areas), between two thirds and three quarters of properties are still on the market after four months, a proportion that has not fallen significantly in the last twelve months.
Proportion of properties selling within four months, by region
So on the face of it, the signs from Dublin are unambiguous – and one may conclude that 2013 will be a new dawn. The fly in the ointment is the extent to which the Government removing itself from fiddling around with the property market had the effect of fiddling with the market one last time.
Until the end of December, first-time buyers were entitled to generous income tax rebates on their mortgage interest relief. The removal of this very generous subsidy may have had the effect of taking some of the demand from 2013 and cramming it into 2012. The result may be that even the Dublin market finds it tough in the first half of 2013 and maybe even beyond, as would-be buyers also factor in a new annual property tax.
2013 might yet turn out to be not a new dawn, but the morning after the night before, a hangover (albeit on a much smaller scale) following the end of the (interest relief) party. My sense is that, for the major cities at least, this will not prove to be the case. But who knows?
This roots of this blog actually lie in some miscellaneous thoughts on the U.S. Presidential election of 2008. Four years on, and another election less than a week away, I thought it would be useful – for me if for no-one else – to have a quick look through what’s “in play” this time around.
The U.S. Presidential election is not so much an exercise in democracy – on a number of occasions, the victor has not been the person with most votes – as it is a race to 270. There are, as many know, 538 Electoral College votes and these are (almost always) given at state-level in a winner takes all contest. He who gets 270 or more (Obama won 365 in 2008) is President.
Given it is not so much one vote as it is the aggregation of a number of winner-takes-all contests, this actually makes it a good bit easier to talk about probabilities of winning. (Certain pundits have actually embarrassed themselves in this regard in the last couple of days, by showing a total lack of understanding of either the college system or more likely basic statistics.)
The bankers
Like every good democracy, a candidate needs the support of bankers to get up and running. Analysts typically write off 26 of the 51 States (yes, I know D.C. isn’t really a state) as bankers one way or another, with sixteen (Alabama, Alaska, Arkansas, Idaho, Kansas, Kentucky, Louisiana, Mississippi, Nebraska, North Dakota, Oklahoma, Tennessee, Texas, Utah, West Virginia and Wyoming) staunch Republican and ten staunch Democrat.
Advantage Romney? The problem for Republicans is that just one of these sixteen – Texas, with 38 – is a big hitter in college votes. Tennessee and Alabama together bring another 20, while the remaining lucky thirteen account for seventy in total.
The ten Democrat states are split evenly between big and small. California, with 55 votes, is huge, while Illinois (20) and New York (29) also matter a lot. Maryland (11) and Massachusetts (10) are also double-digits, while the remainder (D.C., Delaware, Hawaii, Rhode Island, Vermont) account for just 3 or 4 each. The end result is that, on the road to 270, it is advantage Democrats after accounting for the bankers, 142-128.
The likely lads
Those thinking to themselves that a system where voters in just half the states have any chance of influencing the outcome does not sound like much of a democracy, turn away now! A further 14 States are considered (by Real Clear Politics among others) to be likely or leaning one way or the other. Likely means a double-digit lead in the polls for one candidate, while leaning means a lead of 5-10 percentage points (statistically significant, one might say).
Good news for Republicans is that three states – worth 37 votes in total, Georgia, Indiana and Missouri – are likely Republican states. Indiana (with its 11 college votes) is the only state choosing Obama in 2008 that appears to have reconsidered – Romney is ahead by 12% in the polls. Missouri is a funny one as Romney’s double-digit lead in the polls is at odds with much tighter margins in the last three elections. In addition to those three states, there are four GOP-leaning states also, most significantly Arizona (11 votes) but also South Carolina (9), South Dakota (3) and Montana (3).
There also seven states likely or leaning Democrat. Five states accounting for 42 votes – Connecticut, Maine, New Jersey, New Mexico and Washington – are “likelies”, while Minnesota and Oregon account for a further 17 votes leaning Democrat. All of these – except New Mexico in 2004 – have been blue states since 2000, so it is relatively safe to bet that they will stay that way.
After the bankers and the likely-lads are all totted up, the Democrats can effectively count on getting 201 electoral college votes, while the Republicans are looking at 191, assuming Missouri polls are accurate.
The toss-ups
So the kernel of the U.S. election is that its outcome will almost certainly come down to just 11 states, Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, North Carolina, Ohio, Pennsylvania, Virginia and Wisconsin.
Of these 11 states, five currently have Obama ahead by more than 2 percentage points (skirting the bounds of statistical significance). What is crucial for the outcome of the election is that these five account for a meaty 70 college votes: Michigan (16 votes), Nevada (6), Ohio (18), Pennsylvania (20) and Wisconsin (10). If these five states were to hold for Obama, that would be that – 271 votes with six states still to account for.
College votes, by degree of analyst confidence (target of 270)
The only toss-up currently going Romney’s way is North Carolina (15). From a GOP viewpoint, it would want to – if Romney can’t take a state that only gave Obama a 0.3% margin in 2008, and was double-digit Bush territory in 2000 and 2004, then he’s in trouble. These forty-six states are shown in the graph above, and point to an Obama win.
A Romney win?
There are five states that are too close to call, most importantly Florida (29), but also Virginia (13), Colorado (9), Iowa (6) and New Hampshire (4). Romney is ahead in both Florida and Virginia at the moment (just).
Suppose he won those two. Adding them and North Carolina to the GOP total so far gives 248 votes. Pennsylvania looks beyond Romney’s reach so hence the focus on Ohio, where Obama is ahead by 2.3% in the polls. An Ohio win added on would leave Romney on 264 votes, just shy of the 270 needed. Colorado is a state that twice voted for Bush and has Obama only marginally ahead currently. Its nine votes would be enough for a Romney victory.
The cheat-sheet redux
So, what should you watch out for in the wee hours of next Wednesday morning?
Nevada and Ohio are Obama’s most fragile possessions of the 271 votes outlined above. Without their 24 votes, Obama would need Florida – or Virginia plus two of New Hampshire, Colorado and Iowa – to win. If he keeps those two, though, he is on course for re-election, barring surprises.
Potential surprises include an Obama win in North Carolina, if news of which broke early in the evening, you could retire relatively safe in the knowledge that Obama would be re-elected, or alternatively Obama struggling in any of Michigan, Pennsylvania or Washington.
Romney’s route to victory requires winning not just Florida and Virginia, where he is currently ahead, but also Ohio and Colorado.
If Arizona or Minnesota – or indeed anywhere else – is being discussed by pundits on the night as a possible upset, then it’s probably best to get the popcorn out, it’ll be a long night!
Earlier in the week, news broke that some of Irish overseas development assistance to Uganda had been misappropriated by the Prime Minister’s office. In a Father Ted-style development, it seems that up to €4m of Irish aid ended up in the Prime Minister’s account. A poll taken the next day on thejournal.ie had, depressingly, almost half of those voting no to the question “Should Ireland distribute foreign aid while it is in a bailout?”
What was particularly depressing to those who believe that the return on taxpayers’ money when spent on things like malaria nets and primary schooling in sub-Saharan Africa is huge was the nature of the discussion that followed under the poll. Here are some choice comments [if it looks like a typo, there’s an implied (sic.)!]:
“I going to be blunt here… Not a single euro more should we give. It is disgraceful pumping money into these warlord run countries when we are in a bailout program.”
“But the current situation is simply unsustainable. We are borrowing billions of euro, at a five per cent interest rate, just to hand it over to corrupt foreign heads of state. Madness.”
“Do we want to be seen giving money to people who are clearly living in the stone age??I don’t want my money going to these people. I want it going to my people, Irish people, for health,education, job creation and infrastructure!!!”
“Africa is mineral rich but kept in poor by foreign bankers and Corporations who suck each country dry and prop up evil corrupt regimes.”
I used to work in Irish Aid, as it happens, although only briefly, so I won’t go into the ins and outs of something I’m not current on. However, there are a number of misconceptions about sub-Saharan Africa revealed in these comments that I think would be useful and relatively straightforward to dispel.
I’ll take two: the belief that the continent is beyond fixing (aka that Western so-called aid is keeping these countries poor); and that the political system in sub-Saharan African is corrupt and/or authoritarian.
Myth #1: Africa’s rulers are corrupt war-mongering dictators
Sub-Saharan Africa is home to forty-plus countries (the birth of Namibia, Eritrea and South Sudan, among others, mean the number is not constant). Thanks to the Polity Project, which quantitatively assesses the democratic/authoritarian nature of every government from 1800 on, it is possible to see whether Africa remains home to dictators or instead whether it is a hotbed of democracy.
The Polity score ranks every country from -10 (full-blow dictatorship) to +10 (full-blown democracy), with special indicators for where government has collapsed (due to foreign occupation or civil war). The graph below shows for 1975, 1995 and 2011, the percentage of countries in Africa that were autocratic (a score of -6 or less), autocratic-leaning (-1 to -5), democratic-leaning (zero to 5) and democratic (+6 or more), as well as the worst off, those without a government.
Proportion of sub-Saharan countries by regime type, 1975-2011
What’s pretty clear is that the trend is a positive one. In 1975, six out of every seven countries in sub-Saharan Africa was a dictatorship. Now, there are only two autocratic countries on the continent, Swaziland and Eritrea.
In 1975, there were only two islands of democracy, literally in the case of Mauritius, 500 miles off the coast of Madagascar (the other being Botswana). Now there are 19 democracies and 11 other countries that could be described as democratic-leaning.
No-one is for a minute arguing that the political system in Africa is perfect – democracies can be just as corrupt as autocracies in certain circumstances – but the idea that there is some sort of warlord class of dictator still ruling over the world’s second most populous continent is ridiculously uninformed.
Myth #2: The African economy is a basket case with no hope
The other clear implication that one gets from reading comments such as those on thejournal.ie’s poll is that Africa is an economic no-hoper, as poor today as it has ever been. This is a tough one for NGOs and Governments to counteract. Make the case too strongly that there have been returns on the investment of aid and people start to question whether it is needed anymore.
But I think those involved in the aid industry do have a case to answer for in not showing the progress that has been made. The graph below shows average growth rates and also income per head in Africa at the end of each five-year period (population-weighted). The source is the IMF World Economic Outlook, the primary repository of comparable international statistics over time.
Average income and economic growth (% annual) in sub-Saharan Africa, 1980-2017
Average annual income in Africa has risen from less than $900 in 1980 to $2,500 now and is set to increase to over $3,100 in the next five years. Even with growth slowing to about 5% per annum, by the late 2020s, the average increase in an African’s income in three years will be greater than their entire income was in the late 1970s.
Which brings us on to growth. GDP growth in sub-Saharan Africa averaged 2.5% in the twenty years to 2000, barely enough to cover population growth. Since then, population growth has slowed while economic growth has accelerated. The average rate of growth in the period 2000-2017 is expected to be 6% – with the final few years actually slightly slower than the period 2000-2012.
So again, no-one is arguing that Africa is perfect or even that there are no chronic situations in Africa. But those who assert that money put into Africa is money wasted, because ‘clearly the continent is a basket case (possibly under the thumb of the West)’ again make their case devoid of all evidence.
Indeed, what’s ironic is that those who believe these countries are in the Stone Age are the ones themselves who have rather archaic opinions of what is and is not happening in Africa.
