Why there is so little house building in Ireland


You don’t improve standards in a market by killing the market.
There was a problem with the standards of bedsits. Now there are no bedsits. There is no market. They fulfilled a need within the broader housing market, a small but important social need. They haven’t been replaced by anything. Many of the people who needed them are now more marginalised, more isolated, but that’s ok because upper middleclass urbanites get to feel better about themselves for doing some right-on social engineering.
 
RainyDay said:
Would you like me to polish and varnish the stick for you to beat me with as well?
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Given it's the first time we've conversed and my question was a simple Demand/Supply question I find this quite rude.

RainyDay said:
Come on, it's a vague hypothetical, as 'all other things' are never equal. Is the number of bedsits significant across the whole market?
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From the link Brendan supplied about 3,000 bedsits are in play, so it's hardly hypothetical. I didn't ask you to quantify the changes in rents for the lower end of the market for 1 bed apartments, but rather which way rents would go. I think it's clear that you are just avoiding the question.
 

I'm sorry if it came across as rude. It wasn't intended to be rude. It was intended to be a bit funny or a bit smart, but these things don't always travel well in text form.

I did feel that it was an attempt to back me into a corner. If you have an opinion about the impact of the change on the market, why don't you give your own opinion, instead of trying to force out my opinion.
 
Interesting article in the Indo today from Dr John McCartney of Savills

Investors are not the enemy in the housing crisis and only building more units will fix it

and

http://www.independent.ie/opinion/c...ill-fix-it-30393837.html#sthash.M0mx01Kk.dpuf
 

Hang on, can we not follow that road a little further? In a functioning market, demand ought to stimulate new supply. Why hasn't that happened? The optimistic view is that there is a time lag between the one and the other, so all we need do is wait. The more cynical view is that it is government policy to keep prices high, and part of this is a choking off of supply. This is being done by a) drip feeding of NAMA properties into the market to take advantage of the rising prices, b) withholding credit from builders who might otherwise be in a position to supply the market, c) actively stymying repossessions which are the natural and necessary consequence of mortgage default.

That a) is happening, there can be no doubt. It is NAMA policy in order to meet its mandate. We (collectively, through our government) bought into that when the then Finance Minister had the brainwave that we "only" needed a 10% increase in prices over 10 years from 2009 to break even. Of course, prices fell precipitously from then, until the current spike.

Part b) is more complicated. The government does not directly control the supply of credit to builders, but its recapitalisation of the banks has not had the desired effect since the banks were far more damaged than was known at the time. Basically, the effort to prop up the banks and get credit moving in the economy has been a failure so far.

c) is an emotive issue that I'm not going to touch. However, it is presumably uncontroversial to say that an ability to repossess in a timely fashion will be factored into bank costs and willingness to supply credit.

I consider the whole thing a complete mess. Government policy is basically operating against our interests of lowering costs in the economy, increasing competitiveness, and promoting growth. The current government has done little more than continue the policies of the previous one, who completely misread the magnitude and implications of the crash, and set us on a path that will make recovery far more lengthy and difficult.

The only ray of light in this whole thing -- although it is cynical to say so -- is that when the current unsustainable "bubble" (or whatever one wants to call it, since there is much disagreement on it) bursts, as it inevitably must, a significant fraction of the people who get wiped out will be cash investors. I don't say this with any malice, I'm just noting that wealthier investor types spend proportionally less of their income into the economy, so rather them than the less well off. One hopes that repossessions will be more prompt than has been the case with our amateur BTL landlords so far.

(P.S. I hope this post doesn't violate the rules on discussing house prices, since I'm talking in generalities and not speculating about movements in any particular time frame).
 


Hi RainyDay,

Apology accepted, however I wasn't trying to force out your opinion, rather I was just asking you what your opinion was.

I'm not a property expert and would have little visibility on the Dublin market at this stage apart from what I would pick up generally. However, to me, 3,000 bedsits taken out of the market would seem significant. How much the needle moves for the rental prices for 1 beds is difficult to say however it would, IMO, have a tendendany to increase rents given the added demand.

By simply removing the market for bedsits without replacing it with something else, you are forcing those who were living in bedsits to pay extra for 1 bed apartments. (There probably are 1 bed apartments as cheap as bedsits on the market, but as 1 bed apartments are generally considered higher up the ladder and more aspirational, these apartments are probably in a worse location. Otherwise the bedsits would have been empty already ).

Just to be clear, I don't think many people like bedsits and the fact that they're gone is probably a good thing from a living standards persepctive, just like getting rid of the tenements in Dublin's inner-city was. However, regarding the tenements, families were housed elsewhere, whereas those living in bedsits are on their own. IMO a lot of people living in bedsits ARE the most vulnerable in society and by removing the bedsits, I wonder have we thrown the baby out with the bath water?

Feel free to offer your own opinion about which way you would expect rents to move for 1 beds, I'm not going to force you to

Firefly.
 

Hi Brendan,

He makes a point and he may well be right, however, with respect, estate agents would flog their grandmothers so anything they produce, often guised as "research" by people with elevated titles, should at best be used as kindling.

Firefly.
 
Firefly said:
He makes a point and he may well be right, however, with respect, estate agents would flog their grandmothers so anything they produce, often guised as "research" by people with elevated titles, should at best be used as kindling.
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Hi Firefly

Is that "with respect" to me or to estate agents?

If an auctioneer expresses his opinion that house prices will rise by 50% over the next 5 years, I discount it entirely.

However, they can give us an insight into some areas e.g. the demand for the different types of houses and apartments; whether the buyers are cash buyers or mortgage buyers. I would not accept what they say uncritically, but I would listen to it.

For a few reasons, I think this article is a valuable contribution.

Dr McCarthy has a very good background in this area, including a long stint with the CSO compiling house price statistics. Check out his research on the It seems to be analytic and evidence based.

This argument is expressed very well and stands independently of the source:

 

Hi Brendan,

The "with respect" was aimed at you for providing a link to an estate agent

The individual in question is probably very good and well versed in his subject matter, however "he who pays the piper calls the tune" comes to mind. A bad analogy I know but would you put any faith in research refuting global warming by experts from Koch industries for example?

Savills are clearly a vested interest and given the track record of estate agents in the last decade I would take anything they say with a pinch of salt.

Firefly.
 
Firefly said:
Savills are clearly a vested interest and given the track record of estate agents in the last decade I would take anything they say with a pinch of salt.

Firefly.
Click to expand...

OK, let me put it another way, do you agree or disagree with the following statement

"because, while investors account for one element of demand in the sales market, they also represent the supply side of the rented market. One-third of Ireland's households rely on rental accommodation. And, just as tight supply is forcing up house prices, a scarcity of rental properties is driving up rents"

Would your opinion change

1) If an estate agent said it?
2) If some independent economist, whom you trust, said it?
3) If some anonymous contributor on askaboutmoney said it?
 


Hi Brendan,

I don't have a problem with the statement and having just read the article it is quite a decent article in my opinion. The only thing I would say is that "facts" are presented and there is "Drilling deeper into the data" however I can't see any reference to the data source

The problem I have is that the media and estate agents are tied to the hip regarding the property market. Regarding estate agents; their income is directly related to the amount of houses they sell. People don't buy houses if they believe that prices will fall further, but do when prices are rising. Prices are rising and now all of a sudden we are getting drip-fed article after article from the estate agents. Where were all these reports and research when prices were falling dramatically?

Look at the heading under the main photograph (not written I presume by the author) which emotively reads:

"Given what we have been through" - setting the scene, poor us.

"it is not surprising that the current recovery in house prices has captured the nation's attention." - recovery? Sounds like a good thing and property had a disease or something? Do we really want house prices to rise, pulling in more money that could go to business investment and bringing the next generation into debt?

"Amidst the furore about rising prices" - furore? really? This is just a further attempt to panic people.


Brendan Burgess said:
Would your opinion change
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Most definitely!

Brendan Burgess said:
1) If an estate agent said it?
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I'd put my fingers in my ears for the reasons I've already outlined.

Brendan Burgess said:
2) If some independent economist, whom you trust, said it?
Click to expand...
Not many out there but I would certainly listen and then make up my own mind.

Brendan Burgess said:
3) If some anonymous contributor on askaboutmoney said it?
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Not one anonymous contributor but in the aggregate absolutely. Before the "Sentiment" thread was closed on askaboutmoney there were a growing number of contributers who were right on the money about what was going to happen. They were far more accurate than anything than came from either the media or the estate agents who were advising us about a "soft-landing" among other things.

Firefly.
 
The problem here is one of ideology. The state is seeking to make housing available to those with a social need but not the financial means to acquire it. This is a good thing. The problem is that they are looking to do it by manipulating the demand side of the market. The state should seek to making housing as cheap as possible for everyone. Lower the tax on houses, cap the income multiples and mortgage terms that banks can offer, ensure development land is made available and help the construction industry adopt modern work practices and building techniques. If houses were 25% cheaper to build and 20% cheaper to buy then a large part of the social housing need would disappear.

The solution to a supply side issue is not to increase the money available on the demand side.
 

b) the withholding of credit

Would it be in the banks interest not to loan, that seems to be the current situation on two fronts, they are under stress tests and seem to limit their ability to loan and they don't want houses built as they are waiting for property rises to sort out the buy to let mess.

c) the failure of the involvency system can be laid directly at the banks lobbying government. They don't want to reposses until property rises to a level that will give them a profit.

If the current property rises bust as you seem certain of, then you're probably wrong on cash investors losing out. If they haven't borrowed then there is no issue, they can wait until the next bubble, if they have borrowed, they will probably have borrowed prudently, though watching the celtic tiger mess, or forced to by banks and will have properties that are mortgaged to a level that is easily covered by the rent.

We're not allowed speculate on house prices, but houses don't get built overnight.
 
Firefly said:
Savills are clearly a vested interest and given the track record of estate agents in the last decade I would take anything they say with a pinch of salt.
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While I agree with that, the man in question is correct, in my opinion, about investors supplying rental properties. Both investers and home owners are needed for a properly functioning market. The last time they stopped investors, after Bacon, it was a catastrophy.
 
c) the failure of the involvency system can be laid directly at the banks lobbying government. They don't want to reposses until property rises to a level that will give them a profit.
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Why would this be seen as a problem? General bank strategy is to maximise loan recoveries. In the context of BTL exposures where repayment capacity is not evident, the only alternative recovery source is a sale of the security. Taking a view that property price rises will continue at a higher rate than interest costs (assuming that interest is not being covered) it is perfectly reasonable to delay putting properties on the market. Given that in most cases the rental income is sufficient to cover he interest and possibly a small portion of the capital this strategy is advisable. i.e. you leverage your way out of a loss making portfolio.
 
Brendan Burgess said:
Would your opinion change


2) If some independent economist, whom you trust, said it?
Click to expand...

No economist, no matter how talented or independent can be trusted.

They have a 50/50 chance of being right some of the time. They also have a 50/50 change of bring wrong a lot of the time.
 

Hi Bronte,

I agree about the need for investors supplying rental properties. Why after Bacon was it a disaster - I can't seem the remember the details but I do remember thinking at the time that the property bubble might have been deflated at the time rather than reversing the actions under Bacon and allowing the whole thing to inflate further?

Firefly.
 
When they implemented Bacon's proposal that investors should no longer be allowed write off mortgage interest relief it caused property sales to fall and rents to rocket. It was so catastrophic that it was reversed within about 3 years (might have the time line wrong).

Governments should stop interfering was my conclusion after that.

We discussed it in 2009 here:

http://www.askaboutmoney.com/showthread.php?t=110905

and this thread, where accountanat poster Tommy McGibney makes a good point at post 14

http://www.askaboutmoney.com/showthread.php?t=176467
 
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