Sorry about the overly technical title to this little entry. I want to ask a question rather than make an informed contribution to the discussion. Here is the question:
Why is the Irish government effectively withholding information about house prices from the public at large?
As house sales prices began to fall in 2008, a relatively minor legal-technical glitch prevented estate agents and newspapers from publicly revealing the prices of completed sales. The government could have easily fixed this legal glitch with new legislation, and also could have improved the system to allow full, complete disclosure of all house sales prices. Rather than fix the legal glitch, the government has scrupulously maintained the new status quo, imposing an effective news blackout on house sales prices.
My question: why and for whom?
The absence of price information has probably slowed the house price correction, since it plays into the behavioural bias of potential sellers who psychologically tend to resist price falls (behavioural finance researchers refer to “framing” and the “disposition effect”). The resulting disequilibrium in housing supply-demand has slowed completed sales to a crawl. This, in turn, has done damage to a range of industries and occupations: home furnishings, real estate brokerage, the legal profession, and newspapers, among others. These industries/occupations would have been hit by the recession in any case, but the lack of house pricing clarity made the situation worse for them.
As a basic principle of economics, price information release is almost always welfare-enhancing. There are some special conditions when this is not true, but as a general principal it seems pretty solid. So not having house price information goes against the public interest. It must be done for the benefit or one or more special interests, or for political purposes.
One big beneficiary is bankrupt or near-bankrupt property developers. The lack of price clarity makes their true value more volatile and uncertain. This allows them to play for time even if, using true but unobservable house/property prices, some or all of their businesses are currently bankrupt.
Today’s papers note that banks are also see themselves as benefitting from house price obscurity. Perhaps, if revelation of true property prices also would make them bankrupt, they can use the lack of price clarity to play for time. But in the case of publicly-traded bank shares and debt securities won’t the investment community see through this obscurity and (if anything) over-correct for this obvious information blackout? See, e.g., Douglas Diamond’s classic piece, The Optimal Release of Information by Firms.
Are there other beneficiaries or other reasons? What is the true driver of this odd piece of (implicit) government policy, or should it be called non-policy? The economic competence of the government could be queried, so perhaps it is simply bad decision-making on their part? I do not know the answer.