I got offered a job in Germany. After taxes and paying for accomodation I’d have the same amount of money to spend in Germany as I do in Ireland. However there is a big difference in the split between accomodation & taxes.

In Germany, the accomodation is cheaper but more money goes to the state in taxes.

For me as a private citizen it means that by paying the state more of my income I can hopefully expect better public services in Germany than in Ireland. I’ve never lived in Germany so I don’t know if it is true.

Ireland has a huge budget deficit, I expect that to addressed somehow and I do not think savings in expenditure will be enough. I believe the tax take has to increase. I believe an adjustment from low taxes & high cost of accomodation to higher taxes & lower cost of accomodation will be necessary & if the adjustment happens it might be painful for those who can’t lower their cost of accomodation.

The above may or may not affect the demographics in Ireland. The need for housing might be there, whether or not there will be a demand may or may not be another issue.

2008
Single Person
€35257 Gross
€30014 Net x 6.19 (€185786)

I’m single and earning slightly more than average pay.
I recently got a quote from a mortgage broker of €180k
So your 6 times Net is close enough.

File under anecdotal evidence

Bearing all that in mind … I have a figure of a ratio of 5.7 between median house prices and median household incomes for 2007 in Ireland, which was published by Demographia International. The average Irish house price that year was around €310k, and the median will certainly have been less. If the sustainable ratio between mean household income and median house price at that point was 3, it follows that the sustainable median house price at that time was less than €163k.

Take the Demographia number with a grain of salt as large or small as you like.

Just following through on John’s logic …

Still I don’t see how the bottom of the property market can be called now.

@John

The big jump between 2006 and 2009 in the CSO’s estimate of the number of households is striking. It reflects the equally-surprising estimated growth in the population aged 20-29.

@JC

I think many economists did point to the responsiveness of migration to the performance of the Irish economy and the weakness of the argument about “strong demographic fundamentals” but these warnings had no impact when irrational exuberance was running strong.

2008

Single Person
€35257 Gross
€30014 Net x 6.19 (€185786)

Married Couple
€35257 Gross
€31884 Net x 6.19 (€197361)

2009 B2

Single Person
€35257 Gross
€28604 Net x 6.19 (€177058)

Married Couple
€35257 Gross
€30434 Net x 6.19 (€188386)

2010 ???

It is crazy at a time when the state is about to purchase €47bn worth of property loans that we don’t have up to date stats on this.

You know more about this than I do (I hope!), but Dublin and the other main cities could be less of a problem than provincial Ireland proper. There should be a market eventually for the excess houses and apartments in Dublin and surrounding counties, also Cork etc if prices/rents fall enough. But what about West and North Midlands, North West, North Munster, West Coast? These areas are 100 kms and more from Dublin, adult population seems to be static/falling for the next few years, and there is no local demand for much of what has been built (high density stuff more appropriate to infill sites in Inchicore).

There are hundreds of empty completed developments littered all over the towns and villages in these areas which have been built because planning permission and credit were available, but there seems to me to be no market, and no realistic prospect of a market, even at fire-sale prices, for the kind of stuff that was built.

We really need a national over-view study which nails down the nature and composition of the unsold stock, and the demand prospects by locality. One irony is that the local demand in many areas seems to be for the bungalow-on-half-an-acre, precisely what planners have discouraged.

I’m wary of trusting models and statistics. Averages can hide too much information & I’m thinking that the average first time buyer comes from a small section of the total population. But it might not be possible to verify that theory.

I’ve studied both accounting and statistics. Both have entertaining stories about how reliable they are. Economics is probably worse than both

From the report:
“Two popular benchmarks that identify the extent housing has become overvalued in the past are housing prices relative to per capita income and housing prices relative to the owners’ equivalent rent.”

It is possible to use two popular but different benchmarks, depending on what result is wished for a different benchmark can be used.

At least here it seems both indicate that the property market has not yet bottomed out.

You can read all about it in this paper.

http://www.realclearmarkets.com/HowFarWillHousingPricesFall.pdf

Its for the U. States, but I expect its fairly similar here.

The figure most commonly quoted figure for ‘affordability factor’ is 3.0, not 2.5. However, its important to note that this refers to household income, not individual income. Household income is much higher because most households nowadays have two income earners.

In the above paper, the author calculates the long-term ratio of house prices in the U. States to ‘per capita disposable income’ rather than to ‘household income’ because (he says) the former is available on a monthly basis, while the latter is only available on an annual basis.

His figures don’t make good reading for those who think that the average house price in Ireland should fall to €150,000 or even less. He calculates that, averaged over the period from 1970 to July 2008 (when the paper was published), the average house price in the U. States was 6.19 times per capita disposable income, with the all-time low of 5.55 being hit in December 1990.

So, if some bright spark from one of our universities can work out what the figure for ‘per capita disposable income’ is in Ireland, we could estimate fairly accurately to what extent house prices in Ireland are currently over-valued, if at all. Perhaps Morgan Kelly could undertake the task.

According to the CSO, gross national income per capita in Ireland in 2008 was €35,257. That figure is fairly similar to the figures that Tom Ronayne gave for average earnings. But, to make it comparable with the calculations that the above paper was doing for the U. States, one would need to reduce it by whatever the average income tax take is, to make it ‘per capita disposable income’, rather than just ‘per capita income’. I don’t know that tax figure, but in Ireland its exceptionally low compared with most countries.

On that basis, I’d say the average house price in Ireland should be about €200,000 to €210,000 to match the average 6.19 long-term average ratio that the above paper calculated for the U. States.

Thanks for the stats. I was hoping to have someone disagreeing with my assumptions but this helps as well.

The affordability factor of 2.5 is something I’ve seen before, I can’t remember where. Could you help me out with that & tell me where that comes from? I believe the factor could be argued to be larger in Ireland due to the lower taxes resulting in higher disposable income?

As for the low taxes, I know there have been promises that there will not be tax increases but I suspect that the government will have to take some measures to deal with the budget deficit.

The options seems to be:
-Lowering the salary of almost 15-20% of the working population (public sector) which could result in a lower average salary.
and/or
-Increasing tax take.

Neither seems to be good for the property market.

You say “talk of strong demographic underpinnings of the housing market was understandable, although economists never lost sight of the responsiveness of migration to the performance of the Irish economy and the unusually open nature of our labour market”.

Does this make any sense? Talk of strong demographic underpinnings can only be understandable if economists did exactly what you say they didn’t do, ie:loose sight of responsiveness to migration. I know plenty of economists who did exactly that. “Look at the trends” they told us, “we are exceptional”.

The reality is that we have no real idea where the Irish economy will be in 2 years time, not to mind ten, and I’m tired of these extrapolations from the depths of a crisis. Too many variables, some in our control like smart policy making, others completely outside of our control like the price of oil, or global economic recovery. I really don’t buy all the doom laden prophecies.

For that reason I choose to believe we will learn from this mess and drag ourselves out sooner rather than later. Ireland’s natural advantages, of which there are many, will come to the fore in an increasingly resource scarce world.

Hotels are clearly not an option (in fact, some are turning into apartments) but any other suggestions along the following lines?
- knocking down walls and turning one-beds into 2/3 bedroom units, suitable for communities of post-retirement downsizers
- a bit more of a stretch but turning some of these entire developments into nursing homes?
- intergenerational outsourcing: dirt-cheap accommodation a starting point for attracting IDA projects/setting up new IDA parks, etc.

Or do we have to start looking long and hard at demolition given facts such as, with half the population, Connacht/Ulster saw more homes built during the boom than Dublin?

The most recent CSO stats on earnings are in their 2007 National Employment Survey published in July this year. Yes, earnings vary by age as they do by a range of other factors (e.g., qualifications, sector, occupation etc). In 2007 average annual earnings across all employees were €37,726: for 25 to 29 year olds the figure is €32,677 and for 30 to 39 year olds the figure is €41,322. For simplicity, assuming no major change since 2007 - and taking the annual average for the 30 to 39 year olds being representative of the current income of FTBs - gives a single person access to a mortgage of just over €103,305. Assuming a couple both on annual average gives them access to a mortgage of €144,627. This assumes mortgage calculated at 2.5 times income of main earner plus income of second earner. The implications for house prices “affordable” for the average working person / couple are clear.

1. To maintain the current prices it is necessary with new entrants.

2. The new entrants are making their purchasing decisions based on their need and the affordability of the property

3. Potential new entrants into the property market are mostly among the young.

4. Unemployment rates are higher among the young.

5. Young people in employment are making less than their older colleagues

6. Banks will base their lending decisions on lenders ability to repay more than the value of the underlying security.

If the assumptions above are correct then I’d say that the property market has further to fall.

Are there any statistics available for average income (including the unemployed) for the agebracket with the traditional first time buyers?

Does this then give rise to NAMA (ie. us) owning all that excess stock, if/when the borrowers default on the excess credit?

If so, we should now be watching for the state to use all kinds of means to ensure that we get “value” for this stock (ie. the growth in value that NAMA proponents hope for) - distortions of investment in infrastructure eg. METRO North, a new LUAS line to serve Ballsbridge to add value to the sites that An Bord Pleanála refused permission on the grounds that it was in breach of the then Dublin City Development Plan, siting of schools?

It is not only the planners that have questions to answer.

Out here in leafy Dun Laoghaire, it appears the Council ramped up the density of new developments. It is not unknown to walk through a mature estate of semi-ds (yes we do have some) and run into a brand spanking (half empty) aparmtment block.

In addition, I wonder if the council collected all the levies due to it. Bet not

You could say, so, that some units are “marginally attached” to the housing stock!!!

1. On previous experience of less severe downturns in Ireland, and on say a five-year view, zero net outflow is optimistic;

2. Brendan raises the issue of the composition of excess stock of housing units - especially their appeal to FTBs, given the age composition of household formation. The problem is compounded by the excess stock’s location, and suitability for local markets, given disappearance of immigrant rental demand. Some excess stock (eg apartments and high-density terraced and semi-det) in parts of provincial Ireland does not enjoy any natural local demand, as far as I can see.

3. All the unsuitable excess stock got built due to excess credit etc etc, but every single eyesore development got planning permission. Surely our good friends the planners have a few questions to answer?

Brendan, do you mean individuals aged 20-29?

With your infinitely greater experience, reputation and status in this field than a nonentity like me, would you be able to get any reliable figures from the CSO regarding the increase in the number of households in Ireland since 2006?

I’m sure you’ll agree that it is very unsatisfactory that the last official figure published by the CSO for the number of households in Ireland relates to April 2006 (the date of the last census), which is now almost 3.5 years ago. In N. Ireland, and in most EU countries, figures are published annually for the number of households. If this was done here, it wouldn’t be necessary to project the increase in the number of households between 2006 and 2011 based on 2006 census data. Instead, the actual number would be known up to 2009, and any projection to 2011 would be much more accurate.

As it happens, I emailed the CSO last week and asked them if they could give me any estimates for the number of households in Ireland since 2006 based on their QNHS series, even though they didn’t publish them officially. To my great surprise, they replied in the affirmative and sent me the following figures. However, they did say that they weren’t as reliable as most of the figures they publish (presumably why they don’t publish them officially) and should be treated with caution. Here they are anyway:

2006 Q1: 1,501.8
2006 Q2: 1,504.6
2006 Q3: 1,492.7
2006 Q4: 1,518.6

2007 Q1: 1,528.5
2007 Q2: 1,532.1
2007 Q3: 1,545.5
2007 Q4: 1,574.9

2008 Q1: 1,582.6
2008 Q2: 1,581.9
2008 Q3: 1,601.6
2008 Q4: 1,599.5

2009 Q1: 1,632.7

If these figures are accurate (and, as I say, they need to be treated with caution even though they are from the CSO), the number of households in Ireland has continued to rise since 2006 at well over 40,000 annually, rather than the 22,500 (approximately) shown in the graph. If that is the case (and, to repeat, it may not be reliable), the difference may be due to the effect of falling household size resulting from increasing separation and divorce. If my reading of the narrative is correct (and apologies if it is not), this very important factor was omitted from the projections shown in the graph.

The CSO emailed me those figures last week, before the latest QNHS was published yesterday. I emailed them yesterday and asked if they could update them to 2009 Q2, but no reply yet. Whatever, it is an absurd situation that people are having basically to guesstimate the number of households in Ireland in 2009 from 2006 data, when the actual number (or a very good estimate of it) must be floating around somewhere in the CSO. Surely the Government at least could gain access to it?

Particularly worhty of note, I think, in the context of unemployment over 10%, is that potential Irish emigrants face easier access to labour markets in the EU now than they did in previous years. Not only are there more places to go in a bigger EU, but there is a single currency, Bologna Process recognition for qualifications and English has been more firmly established as the lingua franca in continental labour markets, particularly high up the value chain where the cohorts are most likely to impact on housing demand. Plus, there’s Ryanair to get them there cheaply (and on time!)

As you have alluded to, this resounds on the natural rate of increase, too, making the assumption of zero net migration not just strong, but also very sensitive. Migrants tend to be of child bearing age, so birth rates will take a hammering if young women leave.

On the opposite end of the spectrum, I would wonder what the likely impacts of deteriorating economic conditions and health care quality will have on death rates. More older people dying means more of the housing stock emptying out more quickly, I would have thought.

You say not to assume that net emigration will continue. Fair enough. But you base your figures on 2006, near peak immigration. My point being, I suppose, that we should probably consider a level of population as ‘base’ with a slice on top that is ‘transient’ and migrates on economic concerns.

Having left in the 1980s (as a child) and returned in 2000 (as an adult, though some might disagree) I am well aware of people of my generation with a much more flexible attitude to migration. The wonder, to my mind, of the last ten years is not that so many other EU immigrants arrived (comparative economics make it a rational decision), but that so many Irish returned. This is a unique occurrence in the history of the state. Now that the ‘great moderation’ of the Irish boom-bust cycle has turned out to be mythical, is this likely to be a recurring feature?