# How do we prevent the property market mistakes of the past.



## sfag (25 Aug 2008)

It might be a bit early but I’d like to start a debate on how to prevent the construction mistakes of the past happening again – and by that I mean the hyper house price inflation we witnessed. 
I believe that all involved before will regress to their old ways once the current correction bottoms out. 

1. Where possible I’d like to see planning laws that preferred promoting business intentions rather than residential as I believe the availability of cheap premises will promote local business and create jobs that aren’t tied to construction. These were suffocated during the housing boom as people took the fast buck by selling to builders that converted premises to apartments.

2. I’d also like to see government legalisation to force the banks to keep a 90% (or perhaps even 80%) cap on LTV on residential property. Can that be done?. If not then perhaps the Government could tax any borrowing over 90% so much so that no one would contemplate it. They could do that as the mortgage amount borrowed already attracts stamp duty. 

Any body else with ideas?


----------



## webtax (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*

A ban on 40-year mortgages.

This product was one of the more insidious developments of the property boom. Dressed up as the friendly bank & brokers doing the FTB a favour by helping them onto the property ladder, what these 40 year mortgages did in reality was facilitate FTBs in borrowing more than their earnings could justify, thereby condemning them to a lifetime of debt.
While the lenders attempted to justify this by pointing out that the borrower could switch to a different mortgage over time as their wages increase, they conveniently ignored the fact that the FTB would in all likelyhood also have to face the costs of raising a family in the not to distant future. Raising their repayment rate might not be an option when they have to pay for childminding & then school/college expenses, not to even mention contributing to a pension.
The fact is that a 40 year mortgage is basically a sub-prime product that the government should not permit.


----------



## MrMan (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*

why not just put a ban on people making their own decisions for themselves altogether.


----------



## DB74 (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*

The reintroduction of the recommendations of the Bacon Report would be a start, beginning with the abolition of tax relief on mortgage interest for investors/landlords

At the moment, investors get 46% tax relief on 100% of the mortgage interest while homeowners get 20% relief on a restricted amount.

Also the VAT laws previously facilited a situation where it was possible for landlords to reclaim the VAT on any properties purchased for investment and then repay that VAT over whatever term they wanted. So an investor buying a property for €340K could have reclaimed €40K of this back from the government in a VAT reclaim 2 months after he signed the contracts.

At the height of the boom we had first-time-buyers competing with investors for new properties and the potential homeowners had no chance of buying these properties.

I worked in an accountants which also had a mortgage brokers and it ****ed me off royally to see investors being approved for 100% mortgages on their 3rd or 4th properties when working couples had to stump up 8% of the price of the mortgage before trying to compete with the investors.


----------



## shanegl (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*



MrMan said:


> why not just put a ban on people making their own decisions for themselves altogether.


 
No problem with people making their own decisions. Once they don't go looking for government bailouts if they make the wrong ones of course.


----------



## Jethro Tull (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*



shanegl said:


> No problem with people making their own decisions. Once they don't go looking for government bailouts if they make the wrong ones of course.


 
My sentiments exactly.

Seeing as John Hurley is one of the highest paid central bankers in the EU (may even be the highest paid) maybe its time he got off his backside and actually insist the central bank/Financial Regulator actually did something.

My 2c:

Impose a maximum mortgage term of 30 years
Impose stringent stress testing on borrowers in case interest rates increase (and make sure banks actually apply them)
Impose a maximum multiple of salary that a mortgage applicant can apply for (5x net annual earnings possibly)
Introduce maximum loan to value of a maximum of 90%
End and never restart tax systems which favour investors ahead of FTBs
Overhaul regulation involving estate agents/auctioneers etc

I'm sure there are more but I'm in a hurry out the door 

EDIT: Almost forgot introduce manditory (and very harsh punishments) for rogue politicians/Estate Agents/Mortgage Brokers/Auctioneers who colude with each other and/or developers to shaft the ordinary folk of this country
Try get it into the thick skulls of people in this country that house prices way above historic norms (eg average house prices = 10x avergae wage) _is not necessarily a good thing_
Try to explain to people the difference between wealth and debt


----------



## sfag (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*

Interesting points. And so far they all require Government resolve. Do you think they can be trusted to even some of the 'right' things.  I mean they made such easy money at every turn of the construction boom it is gonna be tempting for them to let it run again if it shows signs of taking off. It arguably kept FF in Government for 4 terms. Will they change.


----------



## Jethro Tull (25 Aug 2008)

*Re: How do we prevent the mistakes of the past.*



sfag said:


> Interesting points. And so far they all require Government resolve. Do you think they can be trusted to even some of the 'right' things. I mean they made such easy money at every turn of the construction boom it is gonna be tempting for them to let it run again if it shows signs of taking off. It arguably kept FF in Government for 4 terms. Will they change.


 
absolutely zero chance of any of what I said actually being implimented!!!

FF are the builders party and until the ordinary people of this country realise that they do not have the interests of the electorate at heart and only look after themselves then nothing will change.

The one good thing I hoped would come out of such a massive speculation fuelled asset bubble was that FF would be exposed for the filth that they are, I'm not holding my breath tho


----------



## MrMan (25 Aug 2008)

> No problem with people making their own decisions. Once they don't go looking for government bailouts if they make the wrong ones of course.



Of course people should be responsible for their own actions, a bail out wasn't mentioned but restricting things to 30 year only and the like doesn't suit everyone.



> Almost forgot introduce manditory (and very harsh punishments) for rogue politicians/Estate Agents/Mortgage Brokers/Auctioneers who colude with each other and/or developers to shaft the ordinary folk of this country



Its them nasty FF/EA/bankers pulling the wool over the poor gullible joe public again, will they ever be taught a lesson?



> FF are the builders party and until the ordinary people of this country realise that they do not have the interests of the electorate at heart and only look after themselves then nothing will change.



Quite alot of 'ordinary' folk are builders and have done quite well out of the boom, but i'm sure when the opposition parties show that they are only in it for the electorate things will change. Just to re-cap are you saying FF are greedy and won't stop till the country is in ruins but their pockets are full and if so is there an alternative govt that you see as being a shing light in all this darkness?


----------



## z103 (25 Aug 2008)

I can't see anything 'wrong' with what's happened.
Just your classic boom and bust. It's just the way things are. People made hay while the Sun shone, and if they had any sense go out in time.
The government should keep its nose out of it.


----------



## webtax (25 Aug 2008)

MrMan said:


> Its them nasty FF/EA/bankers pulling the wool over the poor gullible joe public again, will they ever be taught a lesson?



Might be worth watching this so...how the banks never lose, 8pm channel 4:


----------



## SidTheDweeb (25 Aug 2008)

leghorn said:


> I can't see anything 'wrong' with what's happened.
> Just your classic boom and bust. It's just the way things are. People made hay while the Sun shone, and if they had any sense go out in time.
> The government should keep its nose out of it.




You can't see anything wrong with what's happened.

I wonder *will *we (or _have _we) seen any of the following;

Ghost estates
Heavily indebted population
Negative equity
Poor planning
Poorly constructed properties
Bank failure/bail-out
Government (me and you) funded bail-out / stimulus package
Inflation
High cost of doing business
Unemployment, construction permeating to consumer etc.
Poorly focused education system


I'm sure there is a million more things...

Jethro Tull made a really good list;



			
				Jethro Tull said:
			
		

> Impose a maximum mortgage term of 30 years
> Impose stringent stress testing on borrowers in case interest rates increase (and make sure banks actually apply them)
> Impose a maximum multiple of salary that a mortgage applicant can apply for (5x net annual earnings possibly)
> Introduce maximum loan to value of a maximum of 90%
> ...



^^^ Sure we couldn't have that now could we. That'd be madness.

And sure the below advice is mad too, far too sensible;



			
				DB74 said:
			
		

> The reintroduction of the recommendations of the Bacon Report would be a start, beginning with the abolition of tax relief on mortgage interest for investors/landlords
> 
> At the moment, investors get 46% tax relief on 100% of the mortgage interest while homeowners get 20% relief on a restricted amount.


----------



## Senna (25 Aug 2008)

MrMan said:


> Of course people should be responsible for their own actions, a bail out wasn't mentioned but restricting things to 30 year only and the like doesn't suit everyone.



If it* doesn't suit* you to buy a house on a 30yr or less mortgage, then you cant afford the house, why cant people work that out??
People weren't taking out 40yr mortgages because it *suited* them to be in debt for 40 years rather than 25 years, they were taking them out because house were/are hugely overpriced.

Jethro Tull's points seem like scene, i'd actually like for maximum lending to drop to 80%, i think it will install a saving ethic in many FTB's, that will brode them well through any future economic hard-times.  But for 80% to be relistic, prices will have to continue dropping.


----------



## sfag (25 Aug 2008)

There were some advantages to the boom. The creation of wealth - shakey and unfounded as it may be - still made some of use weathy to buy tracts of property in other countries. Now as long as those properties dont go down as well .....

The disadvantage of the bust bit of the boom will be the lack of credit available to stimulate growth. That and the bankruptcies that will follow, The bust will end when the banks decide to loosen lup ending again. 

Do you think it will be possible to have a housing market bust but still keep jobs in other sectors. 
There was a jobs turn down with a 2 year freeze on recruitment in 2001 - 2002 and it in turn did not effect house prices.


----------



## Senna (26 Aug 2008)

sfag said:


> The bust will end when the banks decide to loosen lup ending again.



so we should go back to 100% lending on 6-8x two incomes??

That wont happen for a considerable time, defiantly not in the next 10 years, hopefully never.  The house market will see some pick up (maybe in line with inflation) when house prices get to the level were a family or couple can buy a suitable house, not a 1 bed shoebox, on 5x one income with a 10-20% deposit.
This is still above tradition bank lending levels, but with lower interest rates, some allowances will be made.


----------



## Jethro Tull (26 Aug 2008)

MrMan said:


> Of course people should be responsible for their own actions, a bail out wasn't mentioned but restricting things to 30 year only and the like doesn't suit everyone.


 
historically it did suit (almost) everyone. Most people borrowed 3-5x their annual salary (1 person's salary not a couple's) and paid it back over 20 years.

Does the fact that people who earn some of the highest wages in the western world needed to borrow as high as 7-8x dual incomes, lie on their applications and repay over 40 years just to get on the bottom wrung of 'the ladder' (god i hate that phrase) not tell you anything.

In my head the alarm is blarring, house prices had gotten to idiotic levels and people couldn't actually afford them.

Allowing people to do the above was a mistake and the chickens are now coming home to roost. People are not all singing all dancing rational beings. That is exactly why we (alledgedly) have regulators. To protect consumers and ensure they are not taken for a ride. Because of size of transaction and potential long term effect on the consumer of course this means that financial institutions should be subjected to stricter regulation than umbrella manufacturers, say.

The people who's fuction this is have failed miserably over the last 10 years despite being some of the highest paid people in their field. If i remember correctly there are over a half dozen people in the central bank who earn more than Trichet and John Hurley may well be the highest paid central banker in the Eurozone


----------



## Green (26 Aug 2008)

MrMan said:


> *Quite alot of 'ordinary' folk are builders* and have done quite well out of the boom, Just to re-cap are you saying FF are greedy and won't stop till the country is in ruins but their pockets are full and if so is there an alternative govt that you see as being a shing light in all this darkness?


 
How do you know this, are there statistics on it? The reality is that FF have done nothing to introduce land use and transport planning. Dublin is now given as an example to developing countries by the European Environment Agency as a model of bad planning..


----------



## MrMan (26 Aug 2008)

> Does the fact that people who earn some of the highest wages in the western world needed to borrow as high as 7-8x dual incomes, lie on their applications and repay over 40 years just to get on the bottom wrung of 'the ladder' (god i hate that phrase) not tell you anything.



So are you saying that the norm was/is that people are on 40 year mortgages 8xincome and they all lie on applications, if that is true doesn't it say more about the particular people that do that. I think it does suit some to be able to use a 35 yr to start out with and can be reasonably reduced after the initial few years as new home owners. Taking a very black & white approach doesn't suit everyone and we should be wary of having blanket bans to make decisions for other people. By all means come down on the banks and brokers if they push through applications that aren't strong but there has to be a reasonable amount of responibility from adults when deciding to take on the huge debt that is a mortgage.


----------



## MrMan (26 Aug 2008)

YOBR said:


> How do you know this, are there statistics on it? The reality is that FF have done nothing to introduce land use and transport planning. Dublin is now given as an example to developing countries by the European Environment Agency as a model of bad planning..



I don't have statistics to back up my claim that quite a number of ordinary folks are builders but talking to 100's of them over the last 10 years has done little to dissuade my opinion in that they have done very well for themselves out of the boom. Do you think differently?


----------



## grackal (26 Aug 2008)

Even if prices come down hugely, some people will not be able to afford a property, and will fall in the middle ground between social housing and private purchase.

To this end renting should be made a more attractive option - for both the landlord and the tenant.

* Renting Legislation & PTRB should be re-examined, and a more equitable and fast track system put in place to deal with problem tenants/landlords.

* Renters should receive equal tax relief on the money they pay to rent a property as a house buyer receives on the the money they pay to rent money to buy a property.

And for the property purchase market:

* All incentives to invest in property should be removed. Let the yield justify the investment.

* Planning, planning, planning. How long do we let the current corrupt/inequitable/unaccountable system of planning go on? 

* Standards on new builds should be increased and enforced. No flood plains, better minimum sizes, better minimum noise insulation, better regulation of apartments/mgt companies. A lot of the property here is below par, and will be shown up in the flight to quality.

* John Hurley in "Does something" shocker. Something like regulate the banks and avoid their dangerous lending habits putting a large chunk of the economy in peril.

* Learn from our painful mistakes. If we want to prevent a repeat of the mistakes of the past then people should have to learn from those mistakes. A taxpayer funded bail-out, via one of the many ways currently being floated in the media, will simply reinforce the belief that property is a sacred cow in Ireland and people cannot lose. It will waste a lot of money before the inevitable happens anyway. Its re-arranging deckchairs on the titanic at this stage, but paying a lot of other peoples money to do so.

* Rewrite private person bankruptcy laws to cushion the coming pain. Our laws are draconian. Pain should be felt, but it should not destroy a persons life for 12+ years.


----------



## Sunny (26 Aug 2008)

MrMan said:


> So are you saying that the norm was/is that people are on 40 year mortgages 8xincome and they all lie on applications, if that is true doesn't it say more about the particular people that do that. I think it does suit some to be able to use a 35 yr to start out with and can be reasonably reduced after the initial few years as new home owners. Taking a very black & white approach doesn't suit everyone and we should be wary of having blanket bans to make decisions for other people. By all means come down on the banks and brokers if they push through applications that aren't strong but there has to be a reasonable amount of responibility from adults when deciding to take on the huge debt that is a mortgage.


 
Exactly. There is nothing inherently wrong with 40 year mortgages as long as people are aware of the costs of such a deal. I was one of them 'fools' who took out a 40 year mortgage a couple of years ago. I pay extra off every month so the effective maturity is 25 years. Now I can stop making those extra payments if things get tight without having to refinance or approach my lender asking for new terms. It gives me a flexibility that I wouldn't have if I took out the 25 year mortgage.


----------



## csirl (26 Aug 2008)

Some planning reform i.e.

- Serious restrictions on one off housing.
- All houses must be connected to sewage/water system (remember Galway etc.)
- Stricter building regulations and min apartment sizes - improve the build quality so people get better value.
- Zoning laws changed. If a local authority determines that more housing is needed in an area, they should not zone specific fields, as they do now. Instead, if they determine that the need is for e.g. 500 houses, then all landowners with suitable land in the area should be eligible to apply for planning permission with the permission judged on its merits taking into account issues like proximity to local services, suitable land (flood plains etc.). Once the 500 houses have been built, then thats it, no more planning permissions. This eliminates the zoning issue whereby certain landowners are gifted the right to build houses and can effectively hold everyone to randsom.


----------



## Jethro Tull (26 Aug 2008)

as I have mainained all along _my opinion_ of 100% mortgages and mortgages of a term more than 30 years is the following:

100% mortgages: Wreckless on behalf of the bank. We were at the very top of an asset bubble. I assume the banks could see the end of the line as some of the major ones (along with a few other major institutional investors) were selling HQs, branch networks etc. Introducing 100% mortgages was a very risky strategy as some homeowners faced the prospect of immediate negative equity. This placed the banks capital (i.e. shareholders money) at risk earning a reward (the interest rate) that, IMO, was in no way consumate with the risk

Mortgages with a term of greater than 30 years: This led me to believe that the _vast majority_ (not all) of the people taking out these mortgages could not afford them. Put the shoe on the other foot, if well paid professionals had to resort to such borrowing that was out of sink with jistoric norms then prices were too high and susceptable to a crash. See 100% mortgages above for the risks involved to the banks and their shareholders.

On the other side look at loans to developers who bought land as massively inflated prices on the assumption that they could sell finsihed units at vastly inflated prices.

My opinion (for the reasons outlined above) is that 100% LTVs and/or mortgage terms >30 years constituted a form of subprime lending under another name. The reward the bank was receiving was in no way enough to compensate for the risks involved. This unduely put shareholders capital at risk (and when the inevitable day comes and there are big write downs in loan books that risk will not have paid off, look at Irish banks NAV's to show what the markets think of the book value of their loan books). Therefore IMO the banks were acting irresponsibly and it should have been the job of the regulator to act and prevent this. 

And my analysis above is before you look at the actions of the borrower and the possible negative implications there that the regulators should have analysed

Feel free to disagree.


----------



## sfag (26 Aug 2008)

Jethro Tull said:


> "On the other side look at loans to developers who bought land as massively inflated prices on the assumption that they could sell finsihed units at vastly inflated prices." -
> 
> With regard to this point - only the small builders late into the game will be squeezed by this one. It could take years and years from the date of the purchase of development land and the date of the last phase being sold , so I'd say most builders in the game were well leveraged.
> 
> ...


----------



## sfag (26 Aug 2008)

If we're waiting on the bottom of the market to be reached where do you think it will stop - at the cost of building perhaps? - Would that be the true value of a house.?

If you remove the only real variable in the equation - the site value - the cost of building a three bed mass production house to an Irish Builders standard (ie no interior to speak off). - then the cost/value would be less that 150,000 (and even those prices were at inflation wages levels). 

Will that represent the bottom?. I remember in the early ninties it was possible to buy a second hand house that cost less than the cost of building the same so I suppose we could bottom out at prices below houses true value. We'd need serious reduction in demand for that happen though.


----------



## ubiquitous (26 Aug 2008)

*Re: How do we prevent the mistakes of the past.*



DB74 said:


> The reintroduction of the recommendations of the Bacon Report would be a start, beginning with the abolition of tax relief on mortgage interest for investors/landlords
> 
> At the moment, investors get 46% tax relief on 100% of the mortgage interest while homeowners get 20% relief on a restricted amount.




The reintroduction of the recommendations of the Bacon Report would be a disaster. The original Bacon Report  measures were a disaster when they were in place between March 1998 and December 2001. They led to a shortage of rented properties and sharp rises in rents, and fuelled continuous rises in house prices. The rent rises only abated when the measures were abolished. Tom Parlon and his VI buddies would be wetting their pants with laughter if the Govt were stupid enough  to go down that road again. It would be truly a case of the government bailing out the housing market at the expense of tenants and first time buyers.


----------



## Green (26 Aug 2008)

MrMan said:


> I don't have statistics to back up my claim that quite a number of ordinary folks are builders but talking to 100's of them over the last 10 years has done little to dissuade my opinion in that they have done very well for themselves out of the boom. Do you think differently?


 
I would depends how you describe "ordinary folk", and if as you suggest they have done well are they still ordinary folk? Are they on the industrial wage, i would doubt it somehow. I think Jethro Tull's point should have said developer rather than builders. If they have "done very well", from 1995 till 2008, and lets face it, it was easy for builders to do so. The point is how are they doing now, there have been enough official statistics to  point to job losses in construction so was 15 years of boom enough to support 25 years of unemployment, we'll have to wait and see.


----------



## Senna (26 Aug 2008)

Sunny said:


> Exactly. There is nothing inherently wrong with 40 year mortgages as long as people are aware of the costs of such a deal. I was one of them 'fools' who took out a 40 year mortgage a couple of years ago. I pay extra off every month so the effective maturity is 25 years. Now I can stop making those extra payments if things get tight without having to refinance or approach my lender asking for new terms. It gives me a flexibility that I wouldn't have if I took out the 25 year mortgage.



The question is, would the banks have given you the same amount over 25 years as they did for 40 years?

The simple fact is, if there were no mortgages over 25-30yr terms, a vast majority of FTB's wouldn't have been able to afford to buy in 2005-2007.  If there wasn't this demand, what would have happened? maybe prices would have dropped to a level were FTB's could have afforded the same house, only with a mortgage of 25yrs.

This might not be the case with you as i dont know you, but wouldn't you be happier with a smaller mortage over less years? instead of being forced to take it out over 40yrs cause that was affordable, on a over-priced house?


----------



## groom (26 Aug 2008)

sfag said:


> If we're waiting on the bottom of the market to be reached where do you think it will stop - at the cost of building perhaps? - Would that be the true value of a house.?



True value of a house is moving target decided by demand and supply. There is so much over supply currently that it is highly likely that alot of newly built poor quality housing will have to be sold off at a loss and well below cost. 

Indeed if you have travelled through the midlands recently its hard to imagine some empty house estates ever being full no matter how low prices were to go


----------



## joe sod (26 Aug 2008)

I think one of the biggest legacys of the housing boom is that the irish countryside is littered with ugly one off houses, I think the first thing that should happen is that planning be now strictly enforced especially with regard to one off houses, developers love moving into green field sites rather than redeveloping existing sites, this should also be severely restricted, force developers to demolish ugly developments which are now underused, there are many industrial areas in the dublin suburban areas which are largely vacant, force redevelopment into these rather than continuously sprawling urban areas outwards


----------



## Protocol (26 Aug 2008)

For the future we need a change of mindset:

*Consider your house as a home, not as a an investment, not as a commodity. *


----------



## Protocol (26 Aug 2008)

Also, note that Germany has had no house price inflation for at least a decade, and so has had slowly falling real house prices.

And this has not caused any major disasters.


----------



## Jethro Tull (27 Aug 2008)

Protocol said:


> For the future we need a change of mindset:
> 
> *Consider your house as a home, not as a an investment, not as a commodity. *


 
The sooner people cop on to this one the better


----------



## DB74 (27 Aug 2008)

*Re: How do we prevent the mistakes of the past.*



ubiquitous said:


> The reintroduction of the recommendations of the Bacon Report would be a disaster. The original Bacon Report measures were a disaster when they were in place between March 1998 and December 2001. They led to a shortage of rented properties and sharp rises in rents, and fuelled continuous rises in house prices. The rent rises only abated when the measures were abolished. Tom Parlon and his VI buddies would be wetting their pants with laughter if the Govt were stupid enough to go down that road again. It would be truly a case of the government bailing out the housing market at the expense of tenants and first time buyers.


 
I totally disagree and contend that the rise in the cost of housing was fuelled by the tax relief given to investors following the abolition of the Bacon Report recommendations. It became easier for investors to buy 3 and 4 houses than for first-time buyers to get on the market.

And it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses


----------



## ubiquitous (27 Aug 2008)

*Re: How do we prevent the mistakes of the past.*



DB74 said:


> I totally disagree and contend that the rise in the cost of housing was fuelled by the tax relief given to investors following the abolition of the Bacon Report recommendations. It became easier for investors to buy 3 and 4 houses than for first-time buyers to get on the market.



So why then did rents balloon in 1998-2001, especially in 2001 which wasn't a particularly great year for the economy between the foot & mouth crisis and 911?



DB74 said:


> And it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses



So you now want to bail out these landlords and restrict the availability of rental properties once again?


----------



## DB74 (27 Aug 2008)

Firstly the original poster asked "How do we prevent the property market mistakes of the past". Economies go in cycles and when the next peak comes around, I would prefer to see government policies aimed at reducing investment rather than fuelling it. I would prefer a stabilised economy which shows peaks and troughs which are just above and below the equilibrium rather than what has happened over the past 10-15 years where the attitude of many has been "Lets make as much money out of this as we can and screw everybody else"

Secondly where did I say I wanted to bail out landlords?

The way to stabilise rents in a time of rising house prices is to offer tax reliefs to landlords who are prepared to offer tenants longer-term tenancies rather than 12 month ones followed by 20-30% rent hikes.

Examples include:
25% of the mortgage interest allowed where a 3-year lease is granted
50% of the mortgage interest allowed where a 5-year lease is granted
75% of the mortgage interest allowed where a 8-year lease is granted

Prior to Budget 2007 (I think), EVERY landlord got the same tax relief irrespective of what type of lease they grant to their tenants.

If you own a property, your mortgage repayments don't increase unless interest rates are rising. Yet in a time where interest rates were falling, rents were increasing, even by landlords who were already in the market. These guys owned properties which they bought cheaper than the properties were worth yet they were creaming off the top on the rental side as well as making huge gains on the equity side.

No wonder everybody wants to own their house in this country when a landlord can double your rent if he wants and there is nothing you can do about it.


----------



## ubiquitous (27 Aug 2008)

But how many students & young office workers are interested in apartments rented under 3/5/8 year leases? 

This was the constituency that suffered most during the rent hikes of the 1998-2001 Bacon period, when as you say...



> in a time where interest rates were falling, rents were increasing, even by landlords who were already in the market. These guys owned properties which they bought cheaper than the properties were worth yet they were creaming off the top on the rental side as well as making huge gains on the equity side.



... a scandal that was largely resolved by McCreevy's scrapping of Bacon's rules in Dec 2001. Since then, increases in supply has introduced a measure of competition into the market and rents have not increased at the same rate as they did in 1998-2001.

You have said above that you would like to see these rules reintroduced. You also said that "it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses". 

This is why I asked to you clarify whether you are in favour of bailing out landlords by pushing up rents and house prices, as this would be the first consequence of your suggestion.


----------



## DB74 (27 Aug 2008)

I don't want to see the Bacon Report introduced NOW. It's too late for that.

It should have been re-introduced back in say 2003 when it was obvious to the dogs in the street that the demand for new houses was far outstripping supply and that a significant portion of that demand was from investors.

And it doesn't make sense to say that investors were creaming it on the rental side BEFORE the abolition of Bacon.

After Bacon, an investor could buy a property with an interest-only mortgage. By the time the property was ready to be rented, the rent covered the interest-only mortgage and NO INCOME TAX was paid by these investors.

*tongue-in-cheek mode* The way to solve the housing crisis is for the government to buy all unsold houses from builders at 50% of the cost of building them and then knock them! This will almost single-handedly equalise demand & supply in the housing market. Then regulate the housing market properly going forward. *end mode*!


----------



## ubiquitous (27 Aug 2008)

DB74 said:


> I don't want to see the Bacon Report introduced NOW. It's too late for that.
> 
> It should have been re-introduced back in say 2003 when it was obvious to the dogs in the street that the demand for new houses was far outstripping supply and that a significant portion of that demand was from investors.


ie Rents weren't high enough and were being depressed by the entry to the market of new landlords?



> And it doesn't make sense to say that investors were creaming it on the rental side BEFORE the abolition of Bacon.



The existence of the 1998-2001 rent hikes isn't a matter of opinion. It is fact. If you don't believe me, read any of the many critiques of the Bacon measures from the likes of Colm McCarthy or Brendan Keenan at the time. You should find these easily in the Irish Times or Indo online archives, as well as this:

[broken link removed]



> Calls for budget U-turn to redress Bacon effect
> Sunday Business Post
> 
> Sunday, November 19, 2000
> ...


----------



## DB74 (27 Aug 2008)

I'll concede that the abolition of the Bacon Report was probably needed in 2000/2001 in order to boost the number of rental properties in the market. Nor can I deny that investors were making money from high rents during Bacon. However, they also made money following the abolition of Bacon, all the while pushing the cost of new houses beyond the reach of first-time buyers.

In the article you quoted, Mr. Murphy of Threshold didn't call for the interest relief to be re-introduced for investors, but called for reform of the stamp duty laws as well as abolition of the 2% speculator tax.

Some watered-down version of Bacon was necessary at some stage in the last 5 years to slow the rising cost of new houses.


----------



## ubiquitous (28 Aug 2008)

DB74 said:


> In the article you quoted, Mr. Murphy of Threshold didn't call for the interest relief to be re-introduced for investors, but called for reform of the stamp duty laws as well as abolition of the 2% speculator tax.



The abolition of interest relief, the punitive stamp duty and the 2% speculator tax were all part of the same package, with the same motivation, ie to disincentivise landlords from investing in residential property. When Mr Murphy says that "The stamp duty increase has adversely affected supply in the private rented sector" it is hard to imagine him arguing for the interest relief ban to be maintained, as its effect on the supply of rented properties was exactly the same as that of the punitive stamp duty.



DB74 said:


> Nor can I deny that investors were making money from high rents during Bacon.However, they also made money following the abolition of Bacon,



But rents fell in 2002, and remained largely stable thereafter.  

Fwiw, I have no problem with the idea of landlords making a profit, but I draw a line at the idea of what they were allowed do in 1998-2001, ie act as an effective cartel by artificially inflating rents because of government restrictions on competition in the market. 

I would have been quite happy had 2002-03 rents fallen to pre-Bacon levels but unfortunately the growth in rents during the Bacon period was so pronounced that it proved impossible to reverse.



DB74 said:


> ... all the while pushing the cost of new houses beyond the reach of first-time buyers.



This latter point is also highly debatable. You seem to ignore the possibility that first-time buyers themselves contributes to the spiral in house prices by using and mis-using 40-year mortgages, 100% mortgages and the like. 



DB74 said:


> Some watered-down version of Bacon was necessary at some stage in the last 5 years to slow the rising cost of new houses.



Its worth noting that the exodus of investors from the property purchase market in 2006 & 2007 did not signal a bonanza for first-time buyers.

To finally get back to the point, do you still advocate the reintroduction of Bacon, as you suggested earlier? How would you propose to resolve the inflation in rents that would follow this?


----------

