Does the panel think that interest rates are on the up? What effect will this have on the Yen?

http://www.irisheconomy.ie/index.php/2010/02/05/property-scheme-tax-incentives/#comment-34902

Brian O’ Hanlon
Sorry to interrupt ……

“I suppose, the danger I feel in our discussion here, is that we mind find some way to forgive the builder(s) of these schemes.”

The builder(s) will sometimes maintain, it was planners in their local area who insisted the follow densification guidelines etc. The planners in turn will maintain, they followed national planning guidelines. We can’t lump it all on builders. Under pinning my blog entry ‘The Shoe Box King’ was a philosophy, which hopes to deal with the ‘who is to blame’ problem - but creating actual built prototype(s) which builders, local planners and national planners (and construction economists, surveyors etc) could all go and visit.

http://designcomment.blogspot.com/2010/02/shoe-box-king.html

You see, I have thought about this in multiple dimensions, the policy ‘vacuum’ we create in Ireland, and how to combat it. BOH.

Apologises for the length in advance, I’ll attempt to be specific and to the point.

You do make a very compelling argument Greg, indeed. I suppose, the danger I feel in our discussion here, is that we mind find some way to forgive the builder(s) of these schemes. Does that make any sense? To let them off the hook. I mean, even if it was only to symbolic-ally level a few estates and provide the photos for the newspapers, it might be worth squander-ing the capital. Maybe a couple of estates at various parts of the country?

Okay, on the sustainable/green meme - lets blow it up to the scale of Ireland as an island, and see what the real planners and thinkers are doing (not guys such as me). The Futures Academy at DIT, Bolton Street, is one such collection of academic thinkers, who pose an interesting counterpoint to things such as the national spatial strategy.

Conor Skehan in particular has advanced some study that I know about, which talks of a need for the spatial planning in Ireland to move, towards an eastern and western corridor. As opposed to the de-centralisation plan introduced several years back. I think the problem, it was felt by a range of land and construction professionals, was the de-centralisation thing - was a political scheme - rather than a fully tested spatial planning concept.

Twice The Size, Imagineering the Future of Irish Gateways, is the document (downloadable pdf) which received most publicity. It can be found at thefuturesacademy dot.ie website. Even the diagrams in the report, sort of give one an idea of what it is about.

(Mike Davis’s essay at Tomdispatch dot com, Mike Davis, Casino Capitalism, Obama, and Us, is about this too - in olden days, settlers had no analogue in their previous experience to deal with the Grand Canyon, they had no idea how to deal with it. So to with spatial planning in Ireland as driven by politics)

I guess the point I am making, is that in Ireland we always seem to be fire-fighting. Some way to keep momentum going behind, longer term strategies needs to be found. Even when we go through the doldrums. Hence, why I wrote those recent blog entries about Dust Bowls and Embryonic Economies and so forth.

The trouble is, I can’t grasp the overview of the situation in the way a George Lee, or a Constantin Gurdgiev, or a Colm McCarthy can. But what I can certainly grasp are things to do with project management, program management and human resources. (Those are problems that constantly come at you, when dealing with construction) If you like, I am like a canary when it comes to identifying urgency in those matters.

The whole green/sustainable meme strikes me as having a strong - motivational, lets start doing something, kind of slant to it. Indeed you are right, its insight in any strict economic sense, might be extremely shallow.

It reminds me of a book I once read - the researcher on a US military project, spent a lecture trying to explain his solution (to why the military’s helicopters kept crashing) in terms of basic mathematics and statistical functions. He was getting nowhere. But then the light bulb went off, and he said, he was solving the problem with ‘Fuzzy logic’. Instantly the review board approved his funding, because they had attended some conference, where it was proclaimed ‘fuzzy logic’ was the future. But of course, it is only a fancy label, on what are fairly fundamental maths principles.

BOH.

I have a difficulty with this “sustainable” / “green” / “smart” meme.

It seems like one gigantic excuse to forgive one gigantic misallocation of capital.

Why should a ghost estate of 50 complete houses in (say) Longford not be sustainable if they can be bought for €50,000 each?

The people who buy them will have no debt.

What is “unsustainable” about that? The people have skills (or can acquire them). We are in the age of nanosecond information transfer. We are told by are Dear Leader that we need to “move” to a “smart economy”.

OK, they don’t have solar panels and woodchip central heating. But hey, if you can buy one for€50,000 you might just have €10,000 to finish off the sewers and “save the planet”.

The suppression of price discovery can only lead to another misallocation of capital.

In one on my classes at Bolton Street, I remember Mick boasting about the builder in Co. Kerry he put out of business, when he made a mistake in the building’s design (a parish church). So my point is, there is something in the Irish mentality, which has been going ding-dong like this for ever and a day. BOH.

Thanks Greg, for that economic point of view.

The theoretical argument (if you read the l-o-n-g Dust Bowl blog entry I linked above) I tried to present was one strictly framed by urban and sustainable design theories - not by any kind of economic insight into the problem.

One of the old Sept ‘09 blogs of mine I dug up was this one.

http://designcomment.blogspot.com/2009/09/ghost-towns.html

(It is weird reading one’s own blog entries - you go, kind of, did I really think that?)

Reading about the ‘ghost towns’ and the hairdresser I told of, in that blog, it made me realise something. In the Celtic Tiger, with home prices rising in Dublin, the Dublin inhabitants raced out into the hinterland with their money bags.

It made me think of the traditional rural-urban divide in Irish society, and the un-supress-able desire of country cute hoors to get one over, on their city based cousins.

I don’t know how that fits into your ‘use-of-capital’ based arguments, but I said I would mention it. To me, many ghosts towns, still don’t qualify as capital, but rather as booby trap devices for un-knowing Dub’s to fall into.

BOH.

I am absolutely against bulldozing houses.

The capital may have been misallocated but nevertheless it has been allocated.

The logic of bulldozing houses surely also applies to office blocks and shopping centres.

All that will do is drive rents and prices up.

The last thing we need.

We need price discovery.

We need to utilise the capital even if it has been misallocated.

The whole purpose of NAMA, and now the NTMA and NPRF, is to hinder price discovery.

Who benefits?

Not the Citizen/Taxpayer.

“As Elizabeth Warren has said in her reports on the middle class family in the United States: families are not buying homes, they are buying schools.”

That is something much more sensible, to assist the plight of mortgagees I would imagine - building those schools.

Are we getting too hung up on NAMA-like work outs, and all kinds of fidgety financial gadgets?

“In my opinion, if something is called a collection of ‘empty houses’, then bulldoze it down.

The reality of the matter is, you cannot bulldoze down a community.”

http://designcomment.blogspot.com/2010/02/living-in-dust-bowl.html

Thanks for that. I do value your input.

If a person believes a nanogram of the asset-twaddle peddled by ‘public-private pirates’ in respect of residential property - homes to raise your family in, not to be ‘flipped’ for investment - then they are an utter fool.

B Peter

The Golden Rule of Mortgages: 20% cash down; 28% of gross income on home repayments; 36% MAX on all repayments (car, card, mortgage, insurance and residential taxes). Stray outside these limits and you risk insolvency!

Ever wonder why repossessions were so low when the Golden Rule was obeyed? About 1% I believe. Residential lending model was structured around the Rule. The outrageous lending practices of last 7 years trashed the Rule. Repos are heading for …? - double digits? That’s a Boom - as in Bust!

‘In the Long Run the possible is inevitable’: (Karl Popper). I believe we are approaching the beginning of the end of the Long Run. Hope I’m wrong.

B Peter

I find it funny, the funding industry based in Ireland’s IFSC is jumping up and down on radio this Saturday morning.

The Public Private Partnership for housing on public land(s) in Dublin city - it relates to the Islamic Finance provisions in the new Finance bill. There are models for inclusive housing, which relate very much, to systems of finance that have less to do with interest, and more to do with assets. This is one of the missing components in much of what we do, regarding property in Ireland.

I linked Chris Cook’s lecture in the ‘Mortgage Modifications’ thread earlier, worth a watch.

I agree entirely that “affordability” at say X times median income is the only way of valuing the “common” housing stock. There will always be exceptions to the common of course.

I would say that X could equal 3.5 and at a stretch (young professional) up to 4.5.

I would also suggest that lenders should stress test affordability on the mortgage term using the yield of sovereign bonds equivalent to the term of the mortgage. And then add margin.

What absolutely astounds me is that the asking prices for “common” houses in Dublin still 10 times median income.

It seems to me that politicians are anxiously awaiting the tooth fairy (massive global growth for the next have decade) while the pain just gets worse and worse.

I think there is a complete failure (officially at any rate) to recognise the massive structural global shift facilitated by mountains of cheap money.

This will end badly.

Heard any talk of green shots lately?

I didn’t think you were having a dig.

It is just that I am of the opinion (a minority one I’ll grant you) that the debt/credit problem is bigger than residential mortgages, development and land loans, Ireland, Europe & America.

There will be a reckoning and it won’t be pleasant.

The politicians should prepare for a State of Emergency.

Its this predicament (cramming down the unpayable mortgage debts) that’s sticking in some peoples’ craws. My intuition is that a Debt Jubilee will eventuate - the legislators will have no other option if they want to be re-elected. Unlike financial institutions, the taxpayers cannot (legally), conjure up their own money supply to pay the principal + accumulating interest. Rock and a Hard Place?

” … “… until the market caught up.” Not going to happen as it did in times past; (for a number of reasons - which can keep for another time).

The median price of res. prop. will decline for a considerable time. Estimating this is v-difficult (3 yr?) - ’till the med. price approximates x2.5 times the median wage for a specific location, and you put a 20% cash deposit on the table. Also, no more funny money mezannine loans for stamp duty and fees either. Large Rock and very Hard Place!

This means a deep level of Neg Eq for many homeowners. Selling would incur such future costs as to prevent the purchase of an alternative residence - unless we are ‘fortunate enough’ to have a significant and sustained increase in the money supply - cash, not another bout of virtual credit.

So I guess its “extend and pretend” for some time. “Debt until Death” - lovely!!!

B Peter

“the bad debts of those who borrowed too much and now cannot pay it back.”

I think a better starting group might be those who were fine until they lost their jobs in the past couple of years - through no fault of their own - and can’t pay back because their income fell by 70-80% overnight.

The stupid and greedy can get to the back of the queue and we’ll see if they can be dealt with afterwards…..

I’m not against creative solutions to the residential mortgage problem and I would certainly like to see one that doesn’t involve tapping the Citizen/Taxpayer to pay off the bad debts of those who borrowed too much and now cannot pay it back.

But that is the rub is it not. Many of these debts cannot be paid back … ever.

The banks and building societies will engage with the regulator in loan modifications because the quid pro quo will be that the regulator will overlook the impaired nature of the mortgage.

So as long as the mortgage is performing (under the terms of the modification) no write-downs will be required.

It’s extend and pretend.

Will rolled-up interest be counted as revenue by the banks?

That’s what they did with development loans, until the market caught up.

I think “Senior” mortgages only work because they are very low Loan to Value.

If the mortgagor is already in trouble and the mortgage liability is greater that the security value there would seem little point in that type of product.

The banks might like it though.

New marketing campaign.

“Debt until Death”

e.g. whereby the mortgage holder, instead of receiving a lump sum or income as normally happens with these plans, gets, say, 50% of their current mortgage written off in exchange for some kind of ’settling up’ on death or moving into long term care - or on sale of property if earlier?

Let’s face it, if where I live in North Co. Dublin is anything to go by, property values have dropped by about 50% in reality, regardless of what anyone’s stats say.

Obviously, if the mortgage holder can’t even afford 50% of their existing mortgage then, as Karl points out, the mortgage co. will have to take the house.

Could be set up/backed/controlled by government and outsourced to a private company (with a good reputation natch) already in this field who have the systems, admin. expertise, etc..

It would obviously need to be closely regulated so that it doesn’t turn into a shark pool - I reckon if it were set up equitably, you could find a win/win situation for both mortgage provider and holder.

It would be better for the providers than having to administer a large scale default and write so much off. And it would stop the ‘moral hazard’ whiners/’why should my taxes bail out others?’ moaners if the holder still eventually paid.

I think what really does need to be avoided is setting up this ‘expert panel’ to advise the government and we find it’s made up of people who are only really interested in ensuring the mortgage providers get the best of the deal. The word is ‘equitable’ not ‘plunder’.

I will put something up in more detail on my blog over the next few days.

“Maybe they will do a good job reforming these laws. And porcines may aviate….”

There are so many flying porcines (or is that prokys) in Ireland that global warming will be cured as they block out the light of the Sun.

“The regulator said in a statement last night: “The Financial Regulator is of the view that lenders should only seek repossession in less than 12 months in very exceptional circumstances and when all reasonable attempts to encourage engagement by the borrower have failed.””

http://www.independent.ie/business/personal-finance/latest-news/debt-lifeline-for-thousands-in-bank-repossession-ban-2051105.html

Regulator overturns contract law.

Judicial review anyone?

B Peter

I will point out that these ideas sort of come out of the ‘Green’ movement, even though they are to do with finance. The green movements focus on sustainability has as much to do with finance as much as anything else. The working prototypes which I suggest the government might develop, through collaborative young peoples’ efforts hired on contract by the state, would evolve according to sound financial as well as design ideas. In a way, everyone at IE, in this thread, is concerned with and discussing sound green-collar employment opportunities and visions. Enjoy, BOH.

I posted something there a minute or two ago, which will be approved by the moderator in a while. It is a couple of videos, describing some of the work, which architects and urban planners are engaged in at the moment. It looks at solutions, or ways out of Ireland’s debt crisis, regarding residential developments as we tend to build/manage them in Ireland. You may find the videos I linked of interest. I don’t know too much about this research, but I said I would mention it, as it is on-going and of relevance to the current thread.

There is an industry in reorganizing debt. Money is to be made and suckers fleeced. The strong of stomach prey on the weak of credit.

Eventually, rolling up credit and other debt kills off another consumer and too frequently, we have a killing and suicide. I expect to hear of families slaughtered as debts get too great and the husband, occasionally the wife, snaps. But in Ireland, I do not expect to read of their debts, as banking is sacrosanct. So we can ignore the problem, as it doesn’t exist…. it can be interred with them.

The Celtic Tiger, eating its young.

BOH
You do realize that the pendulum will do what it does and no one can stop it? It is not within the power of any government to stop it. Not even Karl Whelan can stop it overshooting and for a long time. It will feel longer for those who have to live through it.