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Soft Landings: Irish Property Style
Read more about: Economy, Housing, Social Policy, Taxation
In the past ten years the construction of houses and other dwellings has far outstripped demand, yet prices have grown at unprecedented rates.
From 1996 to 2006 the number of occupied households in Ireland (dwellings with one or more residents), increased by 346,300 units. At the same time, 611,961 new dwellings were constructed. This leaves a surplus of 265,661 units.
Every year since 1997, more houses were built than were subsequently occupied. Now, under even that most basic rule, supply and demand, the cost of housing should have dropped - in other words, the 1996 figures of €75,000 as the national average for the price of a house, and €85,000 as the average for a house in Dublin, should be the high water mark for sellers. With far more house built than occupied, it’s a buyer’s market.
Not so.
In 2002, six years after our water mark, the price of houses had tripled, but the demand had not.
Four years later, prices had again increased, as had the surplus in housing. In fact, the amount of surplus dwellings more than doubled, with absolutely no downward effect on the cost of a home.
It is a truism in Irish society that the demand for housing in Ireland has been the driving force behind the price increases - yet, where is the evidence? The ten-year increase in occupied dwellings of almost 346,300 is the largest single increase in the history of our State. Yet, the construction of 611,961 new dwellings is also the largest increase in any ten-year period.
There is a problem in assuming that demand has caused the rise in prices. It has to do with the fact that people do not buy houses. People buy mortgages. Then they buy houses. The increase in the size of mortgages is the real story here. It is that which has affected to a large degree the price of houses - people have been able to buy more credit in the past ten years (and just because they can buy it, doesn’t mean they can afford it). Another significant factor has been rampant land speculation (on which, see here).
So. Why have mortgages increased in the past ten years? According to Niall O’Grady, marketing director for the Permanent TSB, the rise in house prices can be explained thus:
Without doubt the dramatic price growth which has taken place over the past decade has had solid foundations; low interest rates, strongly supportive demographic trends and an outstanding employment fuelling economic performance. In isolation any of these elements would have supported a strong housing market. Together they created the circumstances which have led to the exceptional growth in prices we have become familiar with.”
Absolutely no mention of the dichotomy between a huge surplus in housing and equally huge increases in prices. But of course, Mr. O’Grady isn’t talking about what caused the increase in house prices, but what caused the increase in credit allowances for the Irish working population - with subsequent knock-on effects for the housing market.
Still, banks and other financial institutions will give mortgages up to what people will put up with - and in Ireland what we have seen in the past twelve months is the tapering off of what people can absolutely stretch themselves to buy. It is this that has caused the slow-down in the housing market.
Not stamp-duty uncertainty. And certainly not a surplus of housing (we’ve had that for ten years).
The slow-down in house purchases is really a slow-down in the mortgages market. What we have witnessed since 1997 is a boom in that market, and now that boom in mortgages is finally coming to an end.
The houses did not cause the rise in prices: that was why the huge surplus in housing never affected the price. It was in part the mortgages market, and those associated with the mortgages market, that created the price bubble, whipping up a bidding frenzy and a “get in quick” pyramid mentality. I do not know whether that bubble will burst this year, or next year, or the year after, but burst it will. And when it does, the housing on which the vastly overpriced mortgages were secured, will follow.
Even two years ago, bank lending policy was seen as a major factor in house price increases. The introduction of 100% mortgages had stimulated demand. In August 2005, RTE reported that
Douglas Newman Good’s Keith Lowe said the introduction of 100% mortgages had led to a ’substantial’ increase in the numbers of first-time buyers actively searching for homes in the second-hand market during the last few weeks, which is usually a quieter time for the market.”
The next month, September 2005, the IIB had the audacity to say that SSIAs and immigrants were fueling the mortgage price boom, and not their mortgage lending policies. Again, from RTE:
A study by IIB Bank’s mortgage division has said that migration is boosting demand for housing in Ireland by far more than is usually thought to be the case.
Economist Austin Hughes said booming immigration might require as many as 25,000 extra homes a year. Citing travel statistics, he said there may be far more ‘guest workers’ that migration statistics indicate.
Hughes also said SSIAs could boost demand for housing by around 16,000 in the next couple of years, as many people appeared to view SSIAs as property savings accounts.
He added that interest rates could remain at current levels until at least September next year. The study was prepared by IIB Homeloans for its mortgage brokers.”
The idea of anyone suggesting that interests rates would remain static for a year seems laughable now, but just remember, these be the think-tanks with the fancy names that are speading the guff that it is the public, and not them, who are stimulating demand at these ridiculous, and dangerous, prices.
Note also the tactic of using ridiculous reports such as “travel statistics” to suggest that we need more houses. Someone is trying to sell us a whale’s vagina.
The introduction of 100% mortgages kept the mortgage boom going for almost eighteen months after they were first introduced. Now, both are coming to an end. along with the future hopes of an awful lot of mortgage recipients.
Conor, could you stick in a page break after the first paragraph. You’re blocking the light.
Problem is people are willing to pay the prices for these morgages.
Well, I’ve got a feeling that if people were told that the ONLY reason why mortgages are so expensive is because the banks are fucking screwing you, they just might hold back on taking one out.
thing is, the media, the PDs, Fianna Fáil, etc, all told us that it was supply and demand that was causing the rise in property prices.
The census figures show that that is a fucking lie.
I was talking to someone today about mortgages and how the bank potentially has you by the balls right up into your 70s, if you’re unfortuntate enough to only get a mortgage in your 30s, which is a lot of people’s situation. Basically, they have you right up until your life is expected to expire. The person I was talking to said he guessed that’s why they called it mortgage, which is a term that comes from French law and means ‘Dead Pledge’.
If one more estate agent type appears on RTfuckingE television telling me that we’re currently in a buyers market I might have to do something stupid with a carving knife, like cutting the power cable on my TV.
When you think that we’ve actually been in a buyer’s market for the past ten years, and yet vested interests were allowed run riot and basically con hundreds of thousands of people into thinking there was a fucking SHORTAGE,it’s enough to want to make you scream.
These figures just blow away whatever tattered shreds of credibility that the PDs had to their claim that - whatever else - at least they were a free market party. Nothing, and I mean NOTHING, could be further from the truth. What cunts. Protecting land speculators and fucking banks.
Conor, I would point out that a significant amount of the house build was holiday/2nd homes down the country. The figure fluctuates aroud the 20% mark and also the amount of one houses which are self builds, as in you arrange the finance and then get a builder in to build the house you want. My understanding is that less than 50% of houses are in the real supply and demand situation and it is that area there the unsatisfied demand was and it is that which propelled the growth. If you live and work on the north side of Dublin for example, your chances of getting planning permission yourself anywhere in a 30 mile radius were incredibly limited if not fantastically unlikely. So you were into the situation whereby you were bying a ready built house and that is where the demand far outstripped the supply.
I suppose what I’m saying is there isn’t just one housing market. There are lots of separate markets after all a house in Monaghan isn’t much good to you if you work in Wexford.
he idea that there are over 200,000 empty holiday homes in Ireland is nuts. Just simply nuts.
Planning permission is needed for each and every one of those standalone holiday homes in Ireland. In 2006, 22,774 planning permission applications were approved for 93,419 dwellings. In 2005, 25,334 were received and approved for 80,957 dwellings. In order for holiday homes to be the cause of the surplus, each and every one of these planning permissions must have been for a holiday home - in other words, every single piece of household construction approved under planning permission must have been a holiday home in order for the figures to have an impact on the surplus. Every single household built in Ireland must have been a holiday home!
And that is a nuts argument.
There is a shortage of houses that people can afford to buy in Dublin - that’s why there’s been a slowdown in the mortgage market.
From the Daft.ie annual report:
“The core issue here is affordability. Basic estimates suggest that the median per capita disposable income in the country today stands at around €31,300 per annum. Factoring in the savings rates and using a 4.5:1 ratio of disposable income to loan value, a median household entering the market today can afford a mortgage of between €380,000 and €400,000. The stamp duty, legal fees and costs of moving the household and upgrading properties cut roughly 15 percent from the affordability threshold.
This is a far cry from the latest asking prices – according to Daft’s statistics, the average family dwelling in Dublin city ranges from €485,000 to €518,000 for a three bed and from €671,000 to €734,000 for a four bed property.”
The slowdown in the market happened when asking prices in Dublin broke the €400,000 mark - and not because of bloody stamp duty or little surplus.
Quite simply, demand for houses at over €400,000 is what has dropped off. So. What you’re seeing now is houses empty for six months or more as sellers can’t find buyers for their prices.
Also, the actual census enumerators came up with a figure of around 230,000 empty households across the country. Remember, these guy and gals were the ones ACTUALLY KNOCKING ON DOORS, and not just sitting around reading what the sunday papers have dreamt up. nowhere did the census enumerators say that they had knocked on 230,000 empty holiday homes.
I’m sorry, Dan, but it’s a fucking ridiculous argument. you’ve got to give me figures.
In other words, where are you getting the “around 20%” figure from? i’m getting the households and construction figures from the CSO - as in the hyperlinks. And I’m getting the planning permission applications from the department of the environment.
Can we just SEE THE FACTS PLEASE? Really.
Conor, take a breather will ya? I don’t carry the figures around in my arse pocket, I will source them and include them here when I get back in from my evening out. You can have a read of this from the Clare Champion while you’re waiting.
Just for the record, I never suggested there were 200,000 empty standalone holidays home, nor that they were all one off houses. I was merely pointing out that not all dwellings were built in areas of demand for the purposes of sale. There are many multiple holiday home developments up and down the west coast, one planning application could mean 20 holiday homes.
And you don’t actually include links yourself to the DOE figures. It is also worth remembering that not all planning permissions result in actually building happening.
Planning permissions granted are here.
http://www.cso.ie/statistics/planperm1992to2006.htm
The figures for demand being the cause of price just don’t add up. not by a long shot. The banks have screwed us, undermining the economy in the process. Now we have Brian Cowen calling for wage restraint in the public sector as demands may have an effect on the competitiveness! After giving the banks a free hand for ten years to push prices up as far as they could, now he wants to blame civil servants for inflation. what a cunt!