Why (the state) bailing out housing market is a bad idea..mcwilliams indo article

[raven]

Re: Why bailing out housing market is a very bad idea

The blame lies with one thing only and one thing only:

- Not having control over our interest rates.

That is it.

There are always a myriad of factors driving and swaying the market.
One device has stood the test of time in rationalizing inflation and the market against such factors. If we had had control of interest rates, the market could have been cooled and managed for more sustained growth for the benefit of all.
Acceding control of our interest rates to the ECB is the reason for the boom/bust situation that arose. All the other factors swaying the market could have been countered to a large extent if we had control over our interest rates.

I do believe DmcW did point this out very early on.

 

[MrMan]

Re: Why bailing out housing market is a very bad idea

I would say the blame lies squarely at the foot of the government. They reduced tax rates & brought in tax incentives to push property development (not to mention corruption). They let the central bank turn a blind eye to accepted lending practices (10% deposit saved, 3 times salary) and allowed very poor qualify housing to be built in locations with no community facilities. They were happy to go along for the ride as long as it meant extra money in the government coffers.

They can't argue that they were unable to intervene - not too long ago, they were able to bring in price controls for the price of a pint!

You still have to make a choice as a responsible adult to enter into a large debt or not, the country isn't in ruins as you might think from this thread.

 

[Jethro Tull]

Re: Why bailing out housing market is a very bad idea

You still have to make a choice as a responsible adult to enter into a large debt or not, the country isn't in ruins as you might think from this thread.

agreed, but one of the principle aims of financial regulation is to ensure consumers make informed, rational decisons and to attempt to solve informational assymetries. The central bank failed miserably in this instance, despite having the highest paid central banker in europe at the helm

People are not all singing all dabncing rational beings, especially when emotions are involved. Add in the financial scale of a house purchase and there is a need for far more regulation in personal lending that in most other consumer areas

 

[z109]

Re: Why bailing out housing market is a very bad idea

People give the same thought to buying a house that they do to buying a bag of chips - I want it. Greed and stupidity. Developers, bankers, estate agents - the same two factors apply.

 

[raven]

Re: Why bailing out housing market is a very bad idea

I would say the blame lies squarely at the foot of the government. They reduced tax rates & brought in tax incentives to push property development (not to mention corruption). They let the central bank turn a blind eye to accepted lending practices (10% deposit saved, 3 times salary) and allowed very poor qualify housing to be built in locations with no community facilities. They were happy to go along for the ride as long as it meant extra money in the government coffers.

They can't argue that they were unable to intervene - not too long ago, they were able to bring in price controls for the price of a pint!

I agree.

Generally people will stretch themselves to buy property, and a lot of people do well out of doing so. This is reality. Perhaps they are to blame themselves, perhaps they aren't, but it is generally what happens the world over.

The mess arises when they stretch themselves during times of cheap money. Markets will overheat, - this is economics 101 and history has shown this time and time again. It is the governments role to strive for sustainable growth not boom/bust cycles.

In the absence of having control over interest rates they should have regulated or used tax devices to try and cool the market. Of course this wouldn't have been popular given who they represent, but there you go, thats what you get with a spineless political party.

Instead, what did they do? -
They did the worst thing possible. They talked up the market, - they talked it up and up and up, when they should have been taking measures to cool the market.
Why? because they (Fianna Fail) place more importance on pleasing the Vested Interests (themselves in many cases) than the best interest of its citizens.

Anyone who votes them back in should hang their heads in shame. They stink and caused the mess we are in.

 

[MrMan]

Re: Why bailing out housing market is a very bad idea

People give the same thought to buying a house that they do to buying a bag of chips - I want it. Greed and stupidity. Developers, bankers, estate agents - the same two factors apply.

I understand your first point you think people in general are stupid, whats the developers, bankers, ea's bit about?

 

[webtax]

Re: Why bailing out housing market is a very bad idea

The blame lies with one thing only and one thing only:
- Not having control over our interest rates.
That is it.

You sure that's it? How do you explain the bubbles in the uk, us and japan?

You still have to make a choice as a responsible adult to enter into a large debt or not

People don't have free choice when it comes to housing - it's a basic essential. You may as well say people have a choice whether to pay the going price for food.
Take any young couple in the last 10 years wanting to start a family. They want to live near town, but the prices are sky high, and so is the rent so that the landlords can pay the mortgage. Governments failure to take any steps to control lending means they have no choice but to buy at inflated prices in a substandard location or wait for the affordable housing lottery.

 

[MrMan]

Re: Why bailing out housing market is a very bad idea

Regards FF hanging their heads, I don't recall any great calls from opposition to cool the market quite the opposite with Kenny calling for Cowen to change stamp duty rates and then saying he didn't do it in time. It would take great leadership to do whats in the interests of the people against the peoples wishes but the catch would be then they would no longer be the leaders.

 

[MrMan]

Re: Why bailing out housing market is a very bad idea

People don't have free choice when it comes to housing - it's a basic essential. You may as well say people have a choice whether to pay the going price for food.
Take any young couple in the last 10 years wanting to start a family. They want to live near town, but the prices are sky high, and so is the rent so that the landlords can pay the mortgage. Governments failure to take any steps to control lending means they have no choice but to buy at inflated prices in a substandard location or wait for the affordable housing lottery.

Of course you have a free choice. That young couple decide they want to live in the capital and every capital tends to be the most expensive place in a country to live. We can't always have what we want and what I would say that this and every other govt should be blamed for is developing such a small county into the hub of our national economy. Industry should be developed in the other gateways and spread the load.

 

[ubiquitous]

Re: Why bailing out housing market is a very bad idea

House prices were undervalued in 1999 in Ireland in comparison to Europe.

Most certainly untrue. I know 2 friends who bought homes for themselves in London in1999,, both in reasonable locations near tube stations, and both of whom paid Stg £70,000-£75,000 for their apartments. This sort of value was not available in Dublin in 1999. Yesterday I quoted and linked to a McWilliams article written in 2000 which cited the Irish Times "Take 5 at £XXX,000" feature which every week highlighted ordinary Irish properties at the same or dearer prices than superior Continental or British properties.

 

[webtax]

Re: Why bailing out housing market is a very bad idea

Of course you have a free choice. That young couple decide they want to live in the capital and every capital tends to be the most expensive place in a country to live.

If they are working in the capital (or cork/galway) and in jobs that are not available in other areas they have to live near the capital. What free choice are you referring to - live in a tent instead?

 

[MrMan]

Re: Why bailing out housing market is a very bad idea

If your job is specialised that it is only available in 3 areas in the country then hopefully it is well paid otherwise the choice is there to change. Renting has been affordable for a long time and if you can't afford a premium area then you simply walk backwards until the area meets your pay bracket. My point is just because you want to live somwhere doesn't mean that you should be able to afford to.

 

[ubiquitous]

Re: Why bailing out housing market is a very bad idea

Many people, including Gardai, Civil Servants and bank staff have limited flexibility in where they can work, and many in junior levels in such employments find that moving out of Dublin is not suitable for their career progression.

 

[raven]

Re: Why bailing out housing market is a very bad idea

You sure that's it? How do you explain the bubbles in the uk, us and japan?

Low interest rates. Set low for other reasons, - ie. trying to stimulate their ailing economies. The US and Japan were almost giving away free money to incite people to borrow to invest. Ireland on the other hand has had a strong economy.

 

[webtax]

Re: Why bailing out housing market is a very bad idea

If your job is specialised that it is only available in 3 areas in the country then hopefully it is well paid otherwise the choice is there to change. Renting has been affordable for a long time and if you can't afford a premium area then you simply walk backwards until the area meets your pay bracket. My point is just because you want to live somwhere doesn't mean that you should be able to afford to.

Plenty of jobs are specific to one location - pharmaceuticals to cork, ifsc to dublin etc. and people develop specialised skills in these areas which can mean they are unable to find employment in other parts of the country. Renting is not much cheaper than a mortgage (and a long way from being affordable) and is too insecure for most families with young children. So ftb's should all walk backwards to mullingar and have a two hours commute to their work/family/friends - some choice!

And since you think that young people have only themselves to blame take a look at the title of the thread again - proposals for the government to bail out the banks & property developers by stitching up ftb's again.

 

[Thomas22]

Re: Why bailing out housing market is a very bad idea

Low interest rates. Set low for other reasons, - ie. trying to stimulate their ailing economies. The US and Japan were almost giving away free money to incite people to borrow to invest. Ireland on the other hand has had a strong economy.

But our interest rates were far too low for our economy

 

[raven]

Re: Why bailing out housing market is a very bad idea

But our interest rates were far too low for our economy

Yes, that is the point I am making, ie. that too low interest rates were the primary cause of the boom/bust.

 

[tiger]

Re: Why bailing out housing market is a very bad idea

I agree that interest rates is probably the biggest single factor driving prices to their previous high, but not the only one. The government could have removed some of the incentives for the rental investor as well as some of the section XYZ schemes. The central bank could have insisted on stricter lending criteria, rather than allowing 100% mortgages and ridiculous salary multiples with a wink-nod attitude to loans from parents & credit unions and income from renting a room.

 

[webtax]

Re: Why bailing out housing market is a very bad idea

Low interest rates. Set low for other reasons, - ie. trying to stimulate their ailing economies. The US and Japan were almost giving away free money to incite people to borrow to invest. Ireland on the other hand has had a strong economy.

You might want to check up on Japan a bit more - it's housing boom went hand in hand with it's economic boom, same as in Ireland.
Interest rates are an ineffective tool for controlling house prices - look at the uk. Raising them to control house prices damages other areas of the economy, such as manufacturing by raising their costs & pushing of the price of sterling in countries they try to export to.
My argument is that the govt should have taken steps to limit borrowing to prudent levels of 3xearnings & 90% mortgage over 20/25 years max which would have controlled prices without harming the economy.

 

[z109]

Re: Why bailing out housing market is a very bad idea

I understand your first point you think people in general are stupid, whats the developers, bankers, ea's bit about?

They were all bitten by the same desire for a quick buck without considering the longer term implications to their business - greed and stupidity!