It is a fallacy that house prices are too high in Ireland

The Horseman · 28 Sep 2021

Purple said:
House prices are based on what the market will stand. House costs are based on input costs. The difference is the profit or loss.

Just about everything else has become cheaper to make over the last 50 years. Why are houses so much more expensive? (and no, it's not because standards are higher). The problem is that the construction sector internationally is dysfunctional. That's been covered in detail elsewhere.

Not by much. Site costs, taxes and charges and the cost of finance are bigger issues and easier to fix. The fact that around 30% of construction materials that are delivered to a construction site end up as waste tells us that the problem is not the cost of materials. Factory built houses generate around 5% waste.

Yes, but higher BER houses produce lower carbon emissions over their lifetime.

If costs outweigh sale price then properties are not built.

The spec of houses has increased significantly over the last 50 yrs and someone has to pay for this increase.

I old enough to remember houses with no bathrooms inside. When we bought our family house in the mid 70's it came with nothing no central heating, no insulation, no garden wall, no shed, a very basic kitchen.

Nowadays properties are very well insulated, have solar panels, on suite bathrooms etc so who how exactly is supposed to pay for all of these?

Site costs, vat, finance costs etc are an issue but there are a number of the reasons our we are where we are. Our eviction laws are non existent. Failure to pay your mortgage or rent has no real consequences. Which is one of the reasons foreign banks are leaving the Irish market. Vat on the price of a house is significant where the purchaser has to include the that as part of the mortgage required. What people fail to realise is that if you lower Vat and other taxes relating to the construction sector this needs to be found elsewhere if you want to maintain social welfare levels and public services.

You can't have both, something needs to give.

Purple · 28 Sep 2021

The Horseman said:
If costs outweigh sale price then properties are not built.

Yes, and then prices rise as demand out strips supply, and then supply rises, assuming that there are no other constraints on the market.

The Horseman said:
The spec of houses has increased significantly over the last 50 yrs and someone has to pay for this increase.

The specs on cars and just about every other manufactured item have increased in the last 50 years but prices have dropped massively. This is due to improvements in productivity within those sectors. Construction is unique as an industry in that it has hardly seen any increases in productivity in the last 50 years. Increases in standards are not anywhere near the main reason prices have gone up.

The Horseman said:
I old enough to remember houses with no bathrooms inside. When we bought our family house in the mid 70's it came with nothing no central heating, no insulation, no garden wall, no shed, a very basic kitchen.

Nowadays properties are very well insulated, have solar panels, on suite bathrooms etc so who how exactly is supposed to pay for all of these?

Cars used to have no airbags, a solid steering column, no electronics, no ABS, very inefficient engines, they used to rust and belch black fumes and break down all the time. New cars are vastly superior and cheaper in real terms. Increases in standards are not anywhere near the main reason prices have gone up

The Horseman said:
Site costs, vat, finance costs etc are an issue but there are a number of the reasons our we are where we are. Our eviction laws are non existent. Failure to pay your mortgage or rent has no real consequences. Which is one of the reasons foreign banks are leaving the Irish market. Vat on the price of a house is significant where the purchaser has to include the that as part of the mortgage required. What people fail to realise is that if you lower Vat and other taxes relating to the construction sector this needs to be found elsewhere if you want to maintain social welfare levels and public services.

You can't have both, something needs to give.

I agree. The construction sector is structurally grossly inefficient. We shouldn't subsidise inefficient industries and sectors as it encourages them not to change, consolidate and modernise. We do it for farming and we do it in Healthcare and both are basket cases. We did it in construction for years, and still do it through grants for buyers, and look where we are.

The Horseman · 28 Sep 2021

Purple said:
Yes, and then prices rise as demand out strips supply, and then supply rises, assuming that there are no other constraints on the market.

The specs on cars and just about every other manufactured item have increased in the last 50 years but prices have dropped massively. This is due to improvements in productivity within those sectors. Construction is unique as an industry in that it has hardly seen any increases in productivity in the last 50 years. Increases in standards are not anywhere near the main reason prices have gone up.

Cars used to have no airbags, a solid steering column, no electronics, no ABS, very inefficient engines, they used to rust and belch black fumes and break down all the time. New cars are vastly superior and cheaper in real terms. Increases in standards are not anywhere near the main reason prices have gone up

I agree. The construction sector is structurally grossly inefficient. We shouldn't subsidise inefficient industries and sectors as it encourages them not to change, consolidate and modernise. We do it for farming and we do it in Healthcare and both are basket cases. We did it in construction for years, and still do it through grants for buyers, and look where we are.

Electric cars are by no means cheaper in real terms. You can't compare manufacturer goods to property. Property is more than the bricks and mortar.

It is the infrastructure that goes with it, the power supply, drainage, etc.

If you don't subsidise it then properties won't be built. If you want the state to build then the State must make some serious decisions. If people don't pay mortgage or rent evict them. I seen a comment on another either thread on this or on boards where DCC is owed a fortune in unpaid rent.

If you want to bring the cost of housing down and the State can do so by using economies of scale and then bypass the developer profit then deal with these issues. Remember it's all of those who play by the rules end up paying for those who don't.

WolfeTone · 28 Sep 2021

Maybe average house prices are not too expensive for average income earners.

Perhaps average houses, are priced too expensive for average income earners and families?

Average house being a 3 bed terrace or semi-detach.

Purple · 28 Sep 2021

The Horseman said:
Electric cars are by no means cheaper in real terms.

Modern Internal Combustion engine cars are a fraction of the real cost of what they were 40 years ago.

The Horseman said:
You can't compare manufacturer goods to property.

From a manufacture and supply perspective you certainly can. We build houses the same way we did 50 years ago. We biuld them to modern specifications but the construction method hasn't changed. It is changing now but it'll take years or decades for that to fully permeate the industry. Houses should be manufactured and assembled, not built.

The Horseman said:
Property is more than the bricks and mortar.

Yes it is. A good cigar is more than a smoke but it's still a cigar.

The Horseman said:
It is the infrastructure that goes with it, the power supply, drainage, etc.

And?

The Horseman said:
If you don't subsidise it then properties won't be built.

Why do you think that?

The Horseman said:
If you want the state to build then the State must make some serious decisions.

Agreed. I don't want the State to build. I want the State to finance the building of public housing and, if necessary, subsidise suppliers who use modern construction methods.

The Horseman said:
If people don't pay mortgage or rent evict them. I seen a comment on another either thread on this or on boards where DCC is owed a fortune in unpaid rent.

Agreed.

The Horseman said:
If you want to bring the cost of housing down and the State can do so by using economies of scale and then bypass the developer profit then deal with these issues. Remember it's all of those who play by the rules end up paying for those who don't.

Or they can shorted the planning process so the cost of finance is reduced.
Or they can CPO agricultural land, service it and sell it to developers, but only the ones using modern manufacturing methods.
Or they can modernise building standards so that factory built houses become the benchmark.
Or they can tax the bejesus out of anyone that hoards building land.

About half the price of a house is the construction price. As I've already pointed out within that building cost there is a totally unnecessary amount of labour and 30% of the materials ends up in landfill. Why on earth would we subsidise such a dysfunctional process and sector?

joe sod · 28 Sep 2021

The Horseman said:
The spec of houses has increased significantly over the last 50 yrs and someone has to pay for this increase.

I old enough to remember houses with no bathrooms inside. When we bought our family house in the mid 70's it came with nothing no central heating, no insulation, no garden wall, no shed, a very basic kitchen.

Agree, I made exactly the same point in another thread, @Purple also makes a good point about cars being manufactured to higher spec now than 50 years ago. However one factor not taken into account with this comparison is that these higher spec cars have short life spans maybe 10 years then they are obsolete and not worth repairing, in fact it is this complexity that increases their obsolescence. If you ever watch classic car programs the cars from 50 years ago are much more desirable for amateur classic car enthusiasts precisely because they don't have this complexity.
A house is there for a century you can't scrap it and buy a new one after a decade like you can for a car

odyssey06 · 28 Sep 2021

joe sod said:
Agree, I made exactly the same point in another thread, @Purple also makes a good point about cars being manufactured to higher spec now than 50 years ago. However one factor not taken into account with this comparison is that these higher spec cars have short life spans maybe 10 years then they are obsolete and not worth repairing, in fact it is this complexity that increases their obsolescence. If you ever watch classic car programs the cars from 50 years ago are much more desirable for amateur classic car enthusiasts precisely because they don't have this complexity.
A house is there for a century you can't scrap it and buy a new one after a decade like you can for a car

We didn't have the NCT 50 years ago either though.
I think car longevity peaked in the late 1990s with better rust proofing etc and they were much safer and reliable than earlier era cars.
Emissions are putting a lot of those cars off the road, something never checked pre NCT.

It's the electronics with the spec of the cars reducing their lifespan now & complexity of repair cost.

Purple · 28 Sep 2021

joe sod said:
A house is there for a century you can't scrap it and buy a new one after a decade like you can for a car

That leads on to another point. Do we want houses to last 200 years? Look at the cost of upkeep, the bad use of space and energy waste on old houses. A 100 year old house has been completely re-plumbed and completely re-wired. All of the windows have been replaced at least once. All of the soffit and facia has been replaced (at least once). It has been re-insulated at least once.
The expensive bit is the site and ground works. Houses should be designed to be disassembled and recycled at they become obsolete. Houses last 70-100 years on average. Factory built wooden frame houses last exactly the same as a traditional block and wood house.

The Horseman · 28 Sep 2021

Purple said:
Modern Internal Combustion engine cars are a fraction of the real cost of what they were 40 years ago.

From a manufacture and supply perspective you certainly can. We build houses the same way we did 50 years ago. We biuld them to modern specifications but the construction method hasn't changed. It is changing now but it'll take years or decades for that to fully permeate the industry. Houses should be manufactured and assembled, not built.

Yes it is. A good cigar is more than a smoke but it's still a cigar.

And?

Why do you think that?

Agreed. I don't want the State to build. I want the State to finance the building of public housing and, if necessary, subsidise suppliers who use modern construction methods.

Agreed.

Or they can shorted the planning process so the cost of finance is reduced.
Or they can CPO agricultural land, service it and sell it to developers, but only the ones using modern manufacturing methods.
Or they can modernise building standards so that factory built houses become the benchmark.
Or they can tax the bejesus out of anyone that hoards building land.

About half the price of a house is the construction price. As I've already pointed out within that building cost there is a totally unnecessary amount of labour and 30% of the materials ends up in landfill. Why on earth would we subsidise such a dysfunctional process and sector?

You want the state to control the market. Markets don't work like that no matter how much you want them too. Entrepreneurs specialise in finding how to maximise profit.

Markets aim is profit maximisation. Why would a developer/builder build at a price lower than market price. The developer/builder will want the most income. If subsidised price is greater than income from market prices then they will go that way.

Deal with the issue of non payment of mortgages and rent and work your way backwards to the other issues. These issues are completely within the control of the govt to deal with. If banks can recoup properties from non paying owners/tenants they maybe more willing to loan and it might even encourage foreign banks back to Ireland.

The result is increased competition and reduced finance costs for developers/builders.

Leo · 28 Sep 2021

joe sod said:
However one factor not taken into account with this comparison is that these higher spec cars have short life spans maybe 10 years then they are obsolete and not worth repairing, in fact it is this complexity that increases their obsolescence.

Yet car warranties are now longer than they've ever been? And more than 46% of the cars on our roads are 10+ years old? Average age of cars still on the road here is 9 years.

It's not that cars are unrepairable or obsolete after 10 years now, it's down to the fact that efficient manufacturing has brought the up front price down to a level where even those with very limited funds can afford something better, so there is reduced demand for a lot of 10+ year old cars.

Purple · 28 Sep 2021

The Horseman said:
You want the state to control the market.

Where did you get that notion from? That's the last thing I want. I do want the State to be efficient in how it interacts with the market. At the moment the State in grossly inefficient and it passes on the cost of that inefficacy to the buyer in the form of development levies and the high cost of finance due to delays in planning.

The Horseman said:
Markets don't work like that no matter how much you want them too. Entrepreneurs specialise in finding how to maximise profit.

They specialise in finding profit in the market. The more dysfunctional the market the more profits can be made. If you can control supply you can earn supernormal profits (5th year economics, week 1)

The Horseman said:
Markets aim is profit maximisation. Why would a developer/builder build at a price lower than market price. The developer/builder will want the most income.

See above.

The Horseman said:
If subsidised price is greater than income from market prices then they will go that way.

What?

The Horseman said:
Deal with the issue of non payment of mortgages and rent and work your way backwards to the other issues. These issues are completely within the control of the govt to deal with. If banks can recoup properties from non paying owners/tenants they maybe more willing to loan and it might even encourage foreign banks back to Ireland.

I agree with you but that just places a burden on the people who aren't scroungers and thieves. It doesn't impact supply or prices.

The Horseman said:
The result is increased competition and reduced finance costs for developers/builders.

How so?
Developers who own the land want things as they are. They are making a fortune. Builders don't, they have the high cost of land and all the associated costs and risks.

Peanuts20 · 28 Sep 2021

Interesting if you do a search on myhome.ie, you can find 110 properties for €200k or less on it Dublin. Now some of them, to be honest, are not long term homes but in terms of getting started and "on the ladder" they are fine.

However, I can't help but wonder if the concept of the ladder went out the window for a lot of people after the crash of the Celtic Tiger and if they are jumping to desiring the forever home instead, having seen so many people fall into the negative equity trap?

reality also is that to buy a 2 bed apt in Dublin for 200k, you need a joint income of 50-60k or both of you (assuming it's a couple) working in a job that pays over €15 per hour. That excludes so many people. Reality is that if you work in retail or the services industry, buying in Dublin is a pipedream. 40 years ago, you'd have got the council house but they're just not there either now

odyssey06 · 28 Sep 2021

Peanuts20 said:
Interesting if you do a search on myhome.ie, you can find 110 properties for €200k or less on it Dublin. Now some of them, to be honest, are not long term homes but in terms of getting started and "on the ladder" they are fine.

However, I can't help but wonder if the concept of the ladder went out the window for a lot of people after the crash of the Celtic Tiger and if they are jumping to desiring the forever home instead, having seen so many people fall into the negative equity trap?

reality also is that to buy a 2 bed apt in Dublin for 200k, you need a joint income of 50-60k or both of you (assuming it's a couple) working in a job that pays over €15 per hour. That excludes so many people. Reality is that if you work in retail or the services industry, buying in Dublin is a pipedream. 40 years ago, you'd have got the council house but they're just not there either now

I don't think it has to be forever home, but apartments suffered more than houses in the last crash, and recovered more slowly.
For a lot of people it wasn't a rung onto the property ladder, it was a snake off it which trapped them in negative equity.

It might be more appropriate to talk about 'starter houses'.

The Horseman · 28 Sep 2021

Purple said:
Where did you get that notion from? That's the last thing I want. I do want the State to be efficient in how it interacts with the market. At the moment the State in grossly inefficient and it passes on the cost of that inefficacy to the buyer in the form of development levies and the high cost of finance due to delays in planning.

They specialise in finding profit in the market. The more dysfunctional the market the more profits can be made. If you can control supply you can earn supernormal profits (5th year economics, week 1)

See above.

What?

I agree with you but that just places a burden on the people who aren't scroungers and thieves. It doesn't impact supply or prices.

How so?
Developers who own the land want things as they are. They are making a fortune. Builders don't, they have the high cost of land and all the associated costs and risks.

If the state wants to be efficient then build themselves.

Thank you for the explanation of " supernormal profits" you should then understand when supernormal profits are earned new suppliers are attracted to the market to drive down supernormal profits to normal profits. 5th year economics week 2. Ie increased competition.

If you punish those who don't pay what they owe you free up property for those who will pay and you can use that income to invest in additional social housing supply.

Many developers can avail of economies of scale because banks won't loan for whole developments at the start because they are concerned they won't get paid which is why developments are released in phases. This impacts on the developers/builders costs as they could get better bulk discounts if they purchase for whole development.

Purple · 28 Sep 2021

The Horseman said:
If the state wants to be efficient then build themselves.

God no. The State is rubbish at just about everything. They should never build themselves. Imagine 20,000 builders who were also public servants. We've have to shoot them when we ran out of houses for them to build.

The Horseman said:
Thank you for the explanation of " supernormal profits" you should then understand when supernormal profits are earned new suppliers are attracted to the market to drive down supernormal profits to normal profits. 5th year economics week 2. Ie increased competition.

Where are these new suppliers going to get development land?
That's what's in shortest supply and that's where the supernormal profits are being made. The market is cornered.

The Horseman said:
If you punish those who don't pay what they owe you free up property for those who will pay and you can use that income to invest in additional social housing supply.

Yea, to house the people who have just been evicted for not paying their rent. We don't do the whole Poor House thing anymore. Maybe we should but that's a whole different ball of wax.

The Horseman said:
Many developers can avail of economies of scale because banks won't loan for whole developments at the start because they are concerned they won't get paid which is why developments are released in phases. This impacts on the developers/builders costs as they could get better bulk discounts if they purchase for whole development.

Yep, so the State CPO'ing land and/or releasing serviced State owned land would shorted the cycle. So would factory built houses. The issue isn't just the interest rate but the time it takes to get planning permission and the construction time. Both of those problems can be addressed. That reduces the risk and so the risk premium on the finance drops.

time to plan · 28 Sep 2021

cremeegg said:
Do we? Are house prices high ? What is your basis for this rather extraordinary claim, I know that's what it says in the papers, but that does not really mean it is true.

The average house price is in the region of €300,000, the monthly repayments on a loan for this house is approx. €1,200, this is 18% the gross income of a couple both working full time on the average wage.

It is neither 'true' or 'false'. It can't be as it is really a value judgment. House prices are not too high if you've just inherited a house, but they are too high if you are a single parent in Dublin working for a below average wage.

The Horseman · 28 Sep 2021

Purple said:
God no. The State is rubbish at just about everything. They should never build themselves. Imagine 20,000 builders who were also public servants. We've have to shoot them when we ran out of houses for them to build.

Where are these new suppliers going to get development land?
That's what's in shortest supply and that's where the supernormal profits are being made. The market is cornered.

Yea, to house the people who have just been evicted for not paying their rent. We don't do the whole Poor House thing anymore. Maybe we should but that's a whole different ball of wax.

Yep, so the State CPO'ing land and/or releasing serviced State owned land would shorted the cycle. So would factory built houses. The issue isn't just the interest rate but the time it takes to get planning permission and the construction time. Both of those problems can be addressed. That reduces the risk and so the risk premium on the finance drops.

OK so why were developers building and selling enmasse (before the change in the law) to institutional investors.

Simple they were guaranteed their prices and were able to get bulk deals etc for inputs.

Developers don't care who they sell to once they get paid which goes back to my point of not being able to access finance for whole developments.

There is no concerted conspiracy between developers. With the increasing anti developer agenda why would they run the risk of seeing the value of land decrease by the imposition of increased taxes etc. That does not make business sense.

Purple · 28 Sep 2021

The Horseman said:
OK so why were developers building and selling enmasse (before the change in the law) to institutional investors.

Simple they were guaranteed their prices and were able to get bulk deals etc for inputs.

Developers don't care who they sell to once they get paid which goes back to my point of not being able to access finance for whole developments.

Yes, and the State is the main tenant. If the State wasn’t scooping them up they wouldn’t be nearly as attractive a proposition.

The Horseman said:
There is no concerted conspiracy between developers. With the increasing anti developer agenda why would they run the risk of seeing the value of land decrease by the imposition of increased taxes etc. That does not make business sense.

I know there’s no plot by developers, they are just making sound business decisions given the market conditions.

kinnjohn · 28 Sep 2021

The Irish Government should concentrate and plan on having a Glut of housing for people on the average industrial wage in our cities, to control prices over all other housing needs, along with good transport system,

Someone posted that there were 110 properties for less than 200K for sale on myhome. ie,

110 homes for sale for under 200K in Dublin is about as useful as an ashtray on a motorbike to make housing affordable to people on an average industrial wage,
in rural Ireland, we have local needs when it comes to housing
Why can't we have local needs for people working in Dublin below a certain income,

Housing units are getting smaller in cities over the EU as families got smaller,

Smaller units would also attract retired people to downsize,

570000 fewer people are living in Dublin than was forecasted in 2005 so where has the original plans for this population growth gone to,

The Horseman · 28 Sep 2021

Purple said:
Yes, and the State is the main tenant. If the State wasn’t scooping them up they wouldn’t be nearly as attractive a proposition.

I know there’s no plot by developers, they are just making sound business decisions given the market conditions.

So the issue is the State not the developer or the cost of property. These properties would find a natural market price if it was not for the States interference.

It is a fallacy that house prices are too high in Ireland

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