What we’ve had over the last few years is a large number of people (developers and builders) working to produce things for which there is little market. Arguing that they worked diligently or that it cost a lot to employ them to do this work and thus the price of the thing they produced should not fall below 40% (or whatever figure you want) of what it cost to produce it is simply nonsense, sorry.

@Zhou
Since MK made his original estimates in Sept08 Ireland has changed from a stumbling Celtic Tiger to a Weimar republic, and the Sterling fall is another nail in our coffin. Given this he would be wrong not to revise his estimate for property loans significantly upwards.

gotta say, the 264mio annual fee is irritating. Its small beer in the whole scheme of it, but its irritating. What the hell are ‘liquidation expenses’? We really can’t get these lower given the scale of the program? They make up around 70bps or so of the whole scheme on an NPV basis (back of the envelope - right?).

Irish banks should be the ones worried about counterparty risk??? I generally hear otherwise on these pages!

But to answer your question, a breakdown of the breadth of counterparty risks would be nice, but i doubt its in any way concentrated on a few particular counterparties. IRS are basically open ended on risk (unlike options), so the risk could swing both ways, but they could also look to get collateral agreements put in place if this was an issue. Either way, the derivatives are not some sort of smoking gun that many people hoped/feared they would be.

Counterparty risk in a volatile environment?

Nice work if you can get it.

80% are basic interest rate swaps. These are very simple to value. Even the caps and floors are fairly vanilla type instruments in the grander scheme of things. There’s nothing there that should be of worry to any of us.

Let us pray.

I do have a real problem with the Green policy attempt to include ’social gain’ into NAMA. Apart from the obvious point that Colm McCarthy raised of mission creep of the NTMA. If we define something too broadly and simply say ’social gain’, sure we leave the brief very open. But instead we could achieve more and faster, by setting out specific projects and then looking at if there are ’synergies’ or covalent bonds, to borrow a term from chemistry between them.

I passed out a quite strange looking scheme this evening, recently completed in Dublin 6 area. It doesn’t look quite like a set of townhouses. It doesn’t look like a nursing home either strangely. It looks like something in between. I think it may be a old folks housing development, beside an existing village centre in Dublin 6. I could be wrong, but lets pretend it is an old folks community development for sake for argument.

Any economist here will instantly see how interesting a concept that is. Many old people, and lets face it, we will all get there sooner or later, might be rattling around in large houses. They might be homes in high-value areas of Dublin. But even older people in D6 might experience a kind of poverty in terms of their living conditions, and connectivity to the local community from living in the big old house. Especially if their spouse is deceased also.

Any economist here will instantly see also their predicament. They may be unwilling to sell into this depressed market. On the other hand, there may be many families out there, who have the right combination of family size, income, job proximity etc to make much better use of the big old house in D6. It would seem to me that NAMA does represent a good opportunity to study models that might sort out this situation and share value all around.

It would be really good at the moment to take some available contracting capacity, and some idle ‘designer’ capacity to build a network of these older person’s community developments around the city. I haven’t thought about this in much detail, but I said I would throw the idea out there. I honestly believe the notion where families moved out to Kildare or Carlow and commuted to Dublin daily - if we really want a productive and smart economy, we need to seriously investigate some models right now for the use of our housing resources.

The ‘family’ house should not be something we should build anymore of in Dublin city for a long time to come. We have too many of those kinds of dwellings. What we need is to serve the un-served segments of the community with a new and innovative product, wrapped with the right management models etc. There is a whole mini-economy there which would be sustainable and very valuable to Dublin as a region. We need to put on our thinking hats.

Energy efficiency upgrading over terraces of houses etc, and lots of apartments blocks should not be incompatible with many of the social gain mechanisms I allured to above. Very much the contrary. But I do feel the Greens should start doing broad brush strokes like I have set out above, that could feed into NAMA as business plans, that could all be connected in some shape or fashion. That is the only way we will derive some useful return - financially, socially and otherwise - from NAMA.

On the high rise versus low rise - I listened to Conor Skehan talk a while back on the issue. He had done a bit of study into the issue himself. Having spoken to many, many people who actually are involved in the running and the management of whole cities - and how you pay for the maintenance and upgrade of those cities in terms of amenity, infrastructure, regulation, incentives, and on and on. Skehan heard from the most intelligent ‘city managers’ for want of a better phrase, that six stories maximum was the sweet spot. It combined the best of all advantages:

- Economy in terms of utility and service infrastructure.

- Efficient land usage.

- Healthy social mix and diversity.

- Feasibility of good compact development around transport. *

- Good strong urban streetscape and grain. Vibrant street activity.

- Payback for the developer per project and acceptable risk on projects.

- Great opportunities for designers to explore design issues etc.

There is probably more, if I could list them off the top of my head. But the basic point to bear in mind here, is that by going over six stories you are not really achieving any economies. Other costs and problems start to kick into the equation - both from the developers point of view and that of the city’s management.

* Revenues viable for the said transportation scheme - i.e. not like a bus winding its way around acres of housing estate - I mean, even if it was free, who wants to even bother. Public transport in that instance becomes a form of travel for the kiddies or the grannies and the would-be thugs.

One of the few ’sustainable’ ways in which to add value, or to extract equity, collateral, value or whatever from these developments - is a scheme, or concept worked out by Chris Cook. It is actually a scheme that is being looked at seriously by the same designers I mention above. That is, designers in Dublin who design/build these developments and live in them also.

There is a link here:

http://smarttaxes.org/2008/11/05/chris-cook-capital-partnerships/

Where you can download a quicktime movie file of Chris Cook describing his scheme.

Chris’s slides here:

http://www.slideshare.net/ChrisJCook/equity-shares-a-solution-to-the-credit-crash-presentation

YouTube has a couple of shorter clips from Chris Cook, which I haven’t looked at. You can find them easily by searching:

chris cook LLP feasta

I heard a very prominent architect of housing schemes in Dublin city speaking not so long ago, based on his experience of living in one of his own high density residential projects in Dublin city centre. I was surprised. I imagined he would be a guy who wouldn’t dream of apartment living himself, but it is surprising those designers who have tried out apartment living. It is also surprising those who have designed apartments but who have never lived in one themselves. There is food for thought. They still manage to write in journals about apartment living without having experienced it. I’ll come clean myself - I have never lived in an apartment in my life, so you can discount just about everything I write - but I have spoken to those with greater knowledge than myself.

Getting back to the prominent architect I heard speak about his own experienced. He noted that he was one of the few owner-occupiers in the entire complex. He would go to management company meetings and he would be almost the only one present at the meeting. There wasn’t a very high participation by those who were renting an apartment, in the shareholder meetings of the management company. The absentee owners of the apartments may be in a different country, and never showed up at meetings. Fixing a light bulb, dealing with refuse, security, rules anything was a huge problem. On the one hand you have high density complex and on the other hand, a group of people who rented and had nothing whatsoever to do with the management of that same place.

is the minister betting on something or is he banking on a sure thing?

As far as I can tell:
-Demographics are at best uncertain.

-Two person incomes per household are calculated for affordability, increased number of one person income households are used when calculating number of households.

-Average take home salary is expected to stay the same or increase even though tax take is expected to increase. Not quite sure how that will be possible. Especially since the new governor of the central bank had some thoughts about the salary levels in Ireland. Lower salaries was recommended

-US & UK currencies are falling in value -> Exports to those markets will face difficulties

-Native English speakers is not a big competitive advantage if the target market is not native English speaking

I really don’t see how the economy and population will grow to even support the current property prices. The uncertainty is too big for calling NAMA banking on a sure thing, NAMA is a gamble and it will damage the economy.

“Would you consider writing a letter to The Irish Times challenging MK’s ‘doom pornography’ as you so memorably called it? You certainly seem- to my untrained eyes at least- to have the wherewithal to do so.”

That is very flattering, Concubhar. Thank you. I’m not really a letter-writer. Statistics is my forte. I was pretty pathetic at English at school (failed O’Level English twice up north before passing it). Although I have some statistics expertise (I hope) and try to be meticulously accurate about statistics, most of the posts here, even from my opponents, are much better written in terms of English than I can manage.

However, there is a businessman I’ve been put in touch with through this site. He runs a prominent Recruitment Agency. He intends to do just what you say. He’s hoping to have an article in the Irish Times and other media outlets soon, challenging the doom-mongering in general (not just Morgan Kelly). I’ve never met him and I don’t know him personally. I’ve only communicated with him by email. I think he’s an English businessman living in Ireland a long time (although I’m not certain of that). I’ve been helping him out with the statistics. I look forward to reading his article in the Irish Times and elsewhere in the near future.

& are the extremes:
NAMA will break even vs NAMA will make a loss as per MK estimations?

The definites we have are:
NAMA to spend 54bn on purchasing loans.
Loans are valued on the premise that the property market will not fall further & will rise by 10% in 10 years

The valuation is difficult to estimate without going through the loans individually.
The assumption that the property market has bottomed out is for me hard to believe. Can those who believe it has bottomed out come up with some arguments for this?

& is having high rents beneficial for the productive economy as a whole or for the property owner? The pro-economy stance would likely be to not to starve growing businesses from capital by overcharging them rent. Stop NAMA, let the economy grow.

I agree with you about Kelly who is really interested in his own noteriety so does not debate, and, overpaid as he is as a Public Servant has not got a worry in the World unlike those of us in the real economy. BTW contrary to mythology here the Economist magazine was the first with the potential bad news on our property sector not Kelly and they persisted in stating it unlike a lot of commentators before it came to pass.

has someone been using either an edit or delete tool on the comments here? I’d swear that i briefly read a couple of comments there that have since been deleted….hmmmm…..

“The reason it matters that you question Morgan’s estimates as an anonymous poster is that he has a status which relates to his track record, and you don’t. If he makes an estimate and gets it wrong, that sticks with him forever.”

You do realise that this works the other way as well, right, that if he calls it right its sticks to him and his career prospects forever? This isn’t some altruistic endeavour being undertaken by him. I’ve just as much right to question his forecasts as he has to offer them. And as popular as this site has become, it doesn’t yet have the readership of the Irish Times. By being anonymous, I have absolutely NOTHING to gain, other than intellectual curiousity, by posting here.

As an economist who like MK predicted the degree to which the property bubble would burst, can you explain the apparent divergence between MK’s predicted losses for the banks as of the day after the guarantee and his latest predictions as contained in the above linked IT article? No problem if you don’t have the time. In the meantime, yoganmahew is the only person who has sought to provide an explanation for this.

Allright - I apologise for calling you Eoin Bond. But what tends to happen to Morgan and others who stick their neck out is they get personally attacked.

The reason it matters that you question Morgan’s estimates as an anonymous poster is that he has a status which relates to his track record, and you don’t. If he makes an estimate and gets it wrong, that sticks with him forever.

It’s neither “childish” nor “lacking in understanding” nor “stupid” nor “counterproductive” to point this out, because it puts you in a different category to him.

Indeed, the idea that MK’s transparency counts for something vis-a-vis your anonymity is not unrelated to the issue of Nama itself. It is the very lack of transparency that is at issue here. The Ministry’s deliberate muddying of the waters is the reason why Morgan and the rest of us can’t know for sure what Nama is going to cost the taxpayer.

And thank you for (finally) answering my question.

as you might have guessed, i work for a bank. A bank that may at some stage in the future interact with NAMA. As such, my employer probably wouldn’t want me going round making any statements which might come back to embarass it or place it in a difficult situation in the future in this regard (whether pro or anti NAMA, pro or anti economy). Thats why i, and most of the other people employed by banks or similar on here, go via an anonymous title on this site. I would assume that many in the public sector do the same.

To make some repeated underhand suggestions that those going under pen names can’t contribute to the debate is both as stupid as it is counterproductive. It’s childish and completely lacking in any understanding of pragmatism to assume that everyone is in the same situation as you in terms of being able to back up their comments with their real names. As far as im aware, our real names are not required on here, so im not sure why its such an issue for you. But hey, if attaching the moniker ‘Bond’ to my name makes you giggle like a schoolgirl, then knock yourself out.

In answer to your question, no i did not foresee the housing market evolving as it has. However, Brian Lucey is quite honest about how he currently owns a large set of Anglo shares, so by your logic he doesn’t know what he’s talking about when it comes to the banks. I think your being unfair on Brian in that regard.

http://en.wikipedia.org/wiki/Ponzi_Scheme

MK hasn’t got the courage to come on this site?

What do you think this site is, the Thunderdome? Maybe he just has better things to do. Anyway, he has the courage to consistently publish in the country’s leading broadsheet. Still waiting for your IT contribution.

Most people called it right for a while but then those with money who wanted a house gave up and bought one. Many of them are better off today than if they hadn’t bought.

I don’t think build costs are relevant to how far prices wil fall. The level of debt of the vendor, the number of purchasers, the number of competing properties and the number of purchasers will be far more relevant.

Completed buildings cost money in loan repayments, maintenance and insurance. If uncompleted they cost money in site security, maintenance, insurance and/or demolition. This is leaving aside the issue of development levies. If not maintained they degrade.

In arriving at the average price of dwellings how does one factor in units costing the developer money which cannot be sold. They must surely be attributed a negative value. Maybe if 50,000 units are priced at -€20,000 then we can get to price drops of 75% for residential houses. BTW, I remember when the average house price was <£60K and I am not that old.

You are of course entitled to question his current forecasts, but the fact that he called it right has to count for something.

As an aside, I did call it right, though I am nowhere near MKs stature and hence no one except those who knew me personally can vouch for this.

At least I use my real name though.

You still didn’t answer the question - did YOU call it right.

My point about the GNP was that the 25% figure will depend on the denominator. You say in the neighbourhood of 140 bn to 160bn, but that is rose-tinted. If we go on the DoF own 2004 prices blind guess, it’s 126bn. And of course, the faster the economy shrinks, the bigger that percentage gets. So MK was prossible even being conservative with his estimate.

given that he keeps referring to 83% falls in Japan and a 75% fall in Irish farmland, i can only assume he is still broadly sticking with the 80% Irish property fall prediction. As both of us have noted, when you look at this in nominal price terms, and factor in build costs, the notion of a €60k average house price is of course far more difficult to justify once you close a textbook. Will some houses sell for 60k? I dunno, its in the outer realm of possibility i suppose. Will house prices in general fall to 60k (ie 1.7 x the average industrial wage)? Fantasy, pure fantasy.

Before the “but products can sell below cost!” gang above start getting on my back - yes some products do indeed sell below cost, generally as a result of either some sort of inherently poor cost planning that was always over real saleable values (unlikely given that a couple of million of housing transactions have occurred over existing cost price factors over the last decade), or as a result of large excess supply. There is obviously still a situation of large excess supply at the moment in this country, but i’d love for some of the econometrics specialists out there to show me what level of excess supply would be required to lead to AVERAGE house prices falling to levels roughly 40% of the cost price (and so replacement price) of the build, never mind including the land (so 30% or thereabouts of combined build costs and massively discounted land value).

btw: on the namabonds they don’t have to be monetized, so why is it constantly commented on as the full amount?