Generation Game- David McWilliam's take on Irish economy

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Do you think the government gave enough time for Bacon 2 to settle or did it have its arm heavily twisted by certain interest groups such as CIF? It was a crisis acknowledged by the government back then in 1999 that instigated these reports. Little did they know how worse it would get?

Maybe the intervention needed certain tweaking rather than a total u-turn. Surely intervention could have worked. Since its reversal, haven't rents gone up considerably although not totally in synch with house price growth. HPG has gone through the stratosphere and way beyond and in essence will not served the economy well in the long term. I support free market to an extent but mechanisms are necesscary to control reckless abandon.
 
As someone who works in the construction sector I have been absolutely amazed at how the expectations of the Irish consumer have risen so much in the past ten years; when I purchased my own home nearly ten years ago a (pretty cheap and flimsy) laminate fitted wardrobe was "de rigeur" and the only debate in relation to floor finishes was "will I go for solid or semi-solid, vinyl or tile". Even a random inspection through the Home and Garden forum will show how far we have come: we worry about our solid wide plank flooring and underfloor heating/ where can we source the natural stone flags for our conservatory etc etc. To my mind this type of extravagence in terms of spending on our homes was always a little worrying, especially amongst younger, first time buyers who had little savings and wanted everything "now". There was an enormous amount of growth in the DIY and home furnishing and accessory retail sector over the last ten years and I have always felt that any newcomer entering that retail market in the last 3-4 years had just missed the boat. As already stated all these enterprises fueled imports and generated no new wealth. In the bom times we've just come through the construction sector did rise to the challenge posed by government: build more units- but many would argue (I can't disagree) that quality suffered, both in terms of actual build quality and the quality of design and planning of towns and villages around the country. The construction sector will downsize, it has no choice, but we will see smart operators embrace the challenge, building better quality; improved sustainability, quality design and planning for people. I like the "forsest fire " analogy that was used before, unfortunately there will be a lot of people hurt in the process but cest la vie......Let's see what Mr McWilliams has to say tonight?
 
gonk said:
Experience shows attempts by government to control the price of housing through the tax system either don't work or have drastic unforeseen consequences.
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Government attempts to control the price of anything tend to end inevitably in failure but interventions in the property market are especially disastrous, probably because they take so long to manifest.

MichaelDes said:
I support free market to an extent but mechanisms are necesscary to control reckless abandon.
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People who say "I support free markets but ..." are generally not in favour of free markets (which are defined by their absence of intervention).

The "reckless abandon" (irrational exuberrance?) you speak of could be avoided by

- Returning to the gold standard or some comparable fixed money system
- Abandoning fractional reserve banking
- Scrapping the central banking system
 
People who say "I support free markets but ..." are generally not in favour of free markets (which are defined by their absence of intervention).

The "reckless abandon" (irrational exuberrance?) you speak of could be avoided by

- Returning to the gold standard or some comparable fixed money system
- Abandoning fractional reserve banking
- Scrapping the central banking system[/quote]


Japan is an example of a country that has learn't from its past mistakes and no longer follows the path of a consumer spending euphoria to prop up its economy. Its marketplace today is built more on sound principles. Coupled to this the BOJ although with government intervention has limited credit availability to its citizens thus avoiding another bad run like the 1990's. (That's what I mean on free market with some level of intervention). I reckon Japanese would call their past antics reckless abandon, we may do so too - but later on from now.
 
You may well be right gonk that it is nominal terms but i find that hard to believe to be honest.

I may be proven wrong on that one though.
 
Well, for what it's worth it reflects my personal experience. I'm getting the same rent today for an apartment in Dublin as I was getting when I bought it first five years ago.
 
You are lucky. I know more than a few people involved in small home-grown Irish manufacturing firms, who were doing ok years ago, and who now find it increasingly difficult to compete with cheap imports from China. Go in to any goods shop - the labels may be European or American, but I can guarantee you everything that is selling is made in the far east now. Toys, clothes, sports goods, you name it.
 
gonk said:
Well, for what it's worth it reflects my personal experience. I'm getting the same rent today for an apartment in Dublin as I was getting when I bought it first five years ago.
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Fair enough gonk - that is interesting.
Mabe it is nominal so.

I'm guessing that apartment must be outside the city centre though ya?

Funnily enough,just today I actually just rented a standard enough 55 sq. mtr. 1-bed apt with parking in the south docks,dublin 2 for €1,575 / month.
I can't see that happening 5 years ago anywhere in dublin.

I suspect that city centre rents have continued to rise over the last 5 years - outside the city centre may not have.
 
MichaelDes said:
Do you think the government gave enough time for Bacon 2 to settle... .
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Bacon 2 was in place for 3 years 9 months - from March 98 to Dec 01. How long do you think it needed? Five years? Ten years? The main victims of Bacon 2 were the tenants who either didn't want to, or couldn't buy their own homes, and who ended up being screwed on higher rents.
 
qwertyuiop said:
I'm guessing that apartment must be outside the city centre though ya?
Mabe it is nominal so.
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Kilmainham - v. close to Luas. And the Luas wasn't running when I bought it!

If you think about it, the Daft index is itself a metric of inflation in rents. It wouldn't make sense to be adjusting it for general inflation.
 

Ubiquitous,

I think the Bacon report was flawed but could some other interventionist means have been used to flatten the market. With 15% of property presently lying vacant and the possibility that many young transient immigrants may move on if business flattens (renting on mass - a bit of unforeseen luck to prop our market). Will this exaggerate a worse effect in the longer term for the market?

Qwertyuiop is in the right position between the two canals - demand will always be greater in a capital city and withstand any aftershock.
 

Government intervention is a very significant reason for there being so many empty houses. Tax relief designation for entire counties like Leitrim and Longford as well as holiday homes have resulted in large numbers of houses being built in areas where there would otherwise have been no demand. When the tax relief for the "investors" who bought these runs out, I can't see what resale market there will be for them and in the meantime the rental market is poor to non-existent. These reliefs have also had the result that places like Achill have been scarred with totally inappropriate holiday homes scattered like confetti all over the landscape. And again, these houses would be occupied for at best 10 to 12 weeks in the year, with the odd bank holiday weekend in between.
 
MichaelDes said:
I think the Bacon report was flawed but could some other interventionist means have been used to flatten the market.
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That's a good question. Perhaps an annual property tax or domestic rates system might have acted as a brake on the market at the time in order to quell the excessive demand for housing. I don't believe that a measure along these lines would have worked after the market started going crazy around 2002, but it was worth a try around 1997 or 1998 before things got out of hand.
 

Gonk,

You are entirely right on that point, the government has been wrong on gross rural development - but also it has been wrong not to control runaway growth. Houses in Leitrim etc are not worth the cost of building materials etc. How did they get it so wrong? Hindsight would have been wonderful.
 

It's a strange example to pick. Given that

- The government and the BoJ loosened credit rules considerably during the boom years, fuelling spectacular asset price inflation (sound familiar?)
- After the collapse, the BoJ refused to allow banks to fail, keeping non-performing loans on their books for the better part of a decade with no means of writing them off
- The government continues to intervene to try and "kick start" the economy with government works programmes of every hue, including bridges to nowhere and free coupon passes for food, this has seen the debt-to-GDP ratio exceed 100%
- In the misguided belief that they can kill off deflation through a combination of low interest rates and a weak currency, the BoJ intervenes relentlessly in the currency markets to keep the Yen weak. This has fuelled asset price booms in everything from New Zealand property to modern art. This policy sees Japanese citizens shunning investment in their own country, preferring to borrow in Yen and place the money in high interest rate NZ deposit accounts.

It was the BoJ's inflationary loose-lending policies that caused the original bubble, the very same policies are unlikely to also be the solution, and help explain "the lost decade" from which the country has never recovered.
 
Getting back on topic - The Generation Game.

I enjoy McWilliams's musings and hypotheses in general, however I feel that last nights programe was very poor. It was dis-jointed and rambling and really added little to the debate or expanded in any significant way on points made last week. Hastily put together and ill thought through I believe. Can't wait to see what the big plan is next week!
 
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