Housing supply and demand

There is quite a bit of momentum currently – and thankfully, given the severity of the housing crisis – in the whole area of housing, rising prices and rents, and the lack of supply in Ireland’s urban centres. I had thought pretty much everyone involved was agreed that a lack of supply was indeed the root cause of rapidly rising rents and prices.

Hence my despair at reading this article in today’s Irish independent: Easy mortgages for first-time buyers are on the way. Shifting out demand to encourage supply seems to me to be like adding fuel to the fire in the hope that the fire brigade are more likely to turn up. The losers will be the very people the policy aims to help, first-time buyers who will be given more credit to bid against each other.

What is particularly disheartening is that it comes so soon after Ireland tried this before and it went so spectacularly wrong – while house price growth from 1995-2001 was driven by a combination of factors (including incomes growing faster than supply), house price growth 2001-2007 was driven almost exclusively by easy credit and that was where the damage was done.

As per last night’s Prime Time, if you want housing to be affordable, increase supply – it’s no more complicated than that. If supply is not forthcoming, we need to understand why, rather than push the price of housing further up. My suspicion is the current lack of supply is down to a complicated and overly prescriptive system of planning and building controls, coupled with an array of developer contributions and levies which shift the burden from existing to new residents. This could be replaced with a unified land use policy and a simple land value tax.

As for policy in relation to loan-to-value, pick a number (like 80%) as the maximum loan-to-value for anyone and stick with it. That way at least, policy won’t be responsible for turning a house price upswing into another bubble.

127 replies on “Housing supply and demand”

“The losers will be the very people the policy aims to help….”

Objection, Your Honour; assumes facts not in evidence. It’ll be good for developers and banks, will it not? The purpose of a system is what it does, as some sage was wont to say.

“if you want housing to be affordable, increase supply – it’s no more complicated than that.”

Supply isn’t the only factor in affordable housing. Tax has a big role to play in terms of incentivising (or not) ownership versus renting. Many markets are distorted/affected by individuals and corporations controlling multiple units. A simple free market in housing rarely exists, probably because it encourages speculation and hoarding.

I was amazed that the earlier report on the 9 news showing boarded up council houses didn’t interview a council official/rep to explain why this was so. The PT report (or at least what part of it I saw), had no explanation for these thousands of houses going unused and instead of focused on private builds. (not saying that’s not important but talking about building houses while thousands are unoccupied seemed like an incomplete conversation.

I presume the answer is that like the HSE using expensive agency nurses because they aren’t allowed hire staff, the councils can’t afford to bring the houses up to standard, and so the Dep of Social Welfare ends up spending money on rent allowance instead.

This would go some way towards relieving the supply issue which I think Ronan is right to focus on. Freeing up money to pay for a dwindling supply as a solution. Sigh.

@ Ninap

It’s true that supply isn’t the only problem but what major policies have been put in place that will move Ireland away from the UK orbit where supply restrictions have cut output to the 1920s level?

This genesis of this story is a deliberate politically inspired leak from a ministerial adviser – LTV of 95% and so on suggests that it was approved at the highest level.

Given that the Opposition parties have 2 years to put together appealing policy proposals that can always outdo the government parties, expect a Dutch auction situation similar to 1977 when FF was seeking a return to power.

Why is supply constrained? You forgot to mention:

1) Almost complete absence of repossessions even on BTL properties;
2) Negative equity;
3) Tracker mortgages.

@ Sarah Carey
Strange surely is the pussyfooting on BTL mortgages in arrears, with 70% funded by trackers.

The low rate of repossessions, rising rents in Dublin coupled with falling interest costs, and a period of two years for the Oireachtas to fix a loophole in a 2009 law, has given rise to speculation of political protection for some investors.

In some areas in Dublin, there was likely no fall in rents during the bust but monthly mortgage payments plunged.

ECB interest rates fell from 4.25% in July 2008 to 0.25% in November 2013.

I would be delighted, if for one moment I believed this was organic growth. But it isn’t. If it was, you Mr Lyons, could put your finger on precisely why we are experiencing the growth, penny for penny. Since you cannot, and it seems none of you economists can, tell the source all we have is the frothy slobber favoured by the TV chiefs that arrived in 2006. Since gone.
Who has the cash. Is the source from civil servants/exchequer vote in general like yourself. Can it go as rapidly as it came.
While the rubbish about the employment figures is quite simply one of the greatest lies spouted. What drop there is derives from people on the live register taking up self employment having been coerced by a civil service on the line of constitutionality if not like in the 50s across it.

While I would agree with Ninap that affordable housing needs more than just supply (housing has to be close to amenities and employment, well designed, well built and spacious enough for families) supply in Dublin is currently the main issue. We got it repeatedly wrong on housing policy in the capital, at first we discouraged medium to high rise development anywhere leafy or central (where people might want to live), then we allowed a slew of cramped flimsy apartments to be built which are totally unsuitable for small families (and added to supply in the loosest terms) and now we are trying to inflate a property bubble again.

“Help to Buy” with Irish characteristics has to unite both left and right in contempt for the government.

It is nothing more than a sop to banks and those who have housing investments – an utterly despicable policy on every level. Someone in the Torygraph called the UK scheme version “Help to Buy Votes” and that has it about right.

Housing scarcity is not good news–low prices are. Housing prices should not outstrip inflation in the long term,because except for land restricted sites,house prices should tend towards building costs plus normal economic profit.

The greatest bank and property crash in the history of mankind started with one house–Leinster House.

Interest rates are not going to be low forever. Very dangerous to buy a property thinking interest rates will be grand for the duration.

A home represents a highly leveraged exposure to a single,stationery,plot of property–about the riskiest asset one can imagine. The future is unknowable and people are irrational.

There is a real paradox with all of the latest property fluff


“True, the Bank has shown it is concerned about the risk of Britain’s property boom and consumer debt getting out of hand. This week, in an effort to prevent the housing market overheating, it ended its support for mortgages and personal loans through the Funding for Lending Scheme. But it is unlikely to hike rates soon.
Mike Amey, head of sterling portfolios at Pimco, says the Bank will not lift interest rates until 2015 and possibly 2016.
“The economy is simply not strong enough to withstand higher rates yet,” he argues”

Economies that are too weak for regular interest rates are in no position to run property booms.

Ronan, you’re either brave or foolish, but fairdos for publishing.

“On the other hand, rising rents are caused by a lack of accommodation in urban centres and reducing rents will discourage the provision of new accommodation, thereby making the problem worse.”

Lack of accommodation causes rising rents? How about, there is plenty of accommodation available, both for rental and purchase, but the latter is simply unaffordable for non-cash buyers (ie: need 20% cash deposit and have to borrow 80%), so ordinary folk are opting to rent – or live with mom and pop! And few folk prefer to rent an apartment long-term, to raise their family. Home formations is the metric to watch out for.

There is also the possibility that purchase accommodation is available at a more reasonable cost, but is located out in the ex-urbs where daily commuting would be significant financial hardship (wage deflation). That is, job location and home location are an uneconomic distant apart. Folk may act irrationally when spending E 250,000 on a home, but act quite rationally about spending E 30 each day on transport. Not to mention the psychological stress of the traveling. But that’s an externality.

Basically, sale price is not a valid economic signal in the Dublin residential housing sector. Residential property prices are ‘rigged’: the market has been manipulated and distorted for decades. Of the purchasers; what proportion are ‘cash’ buyers? What proportion are institutional investors? What proportion are ill-informed, out-of-country suckers? Rising incomes from the rental sector will hardly encourage any new construction, since the increased economic surplus will most likely be used either to deflate borrowings or incorporated into disposable income. Residential rents are at 2006 levels: residential house prices are where? You really do need to compare median price with median income – for each specific house-type sector and location.

“The cost base in construction includes capital, labour, land and regulation, as well as materials, whose prices are typically set on world markets.”

Ronan, you might like to re-think this. Its an unlikely, but perhaps plausible explanation. The classical Land-Labour-Capital paradigm of economic production went into the dustbin about 4 decades ago. And there is still only a faint suggestion that virtual credit and energy costs might be accepted as significant economic factors in the production of residential and commercial property.

In 2006 oil was, in 2013 terms, $67 bbl. Today a barrel of crude is wobbling back-and forth around the $100 mark. So what might be ‘gained’ by waged-labour deflation will be ‘lost’ in the increased costs of all building materials, the demand for which varies widely from region to region, that are produced using fossil fuels – and also in transporting them around the place. And for what its worth, the probability of any positive, Irish property related reforms, must be close to, if not actually, zero.

We are back in the 1995 to 2000 and the 2002 to 2006 property bubble. The advertising porn is in full Monty mode. And we know how that all ended. A reprise of that financial mess? Looks on the cards. But hold on! Perhaps the extraordinary popular delusion and the madness of the crowd may not re-occur. But will be confined to the football teams and not their mass support in the stadium. We should know by end of this year, or perhaps this time next year.

Cheers, Brian.

If prices are being driven by fundamentals, supply in this case, can someone tell me why rents are not growing as fast as buying prices?

Thanks all for the thoughts. Some comments…

None of those factors change the fundamental ratio of families to dwellings, which is what I am most concerned about. Repossessions of those in arrears (which I think you are calling for) would just be a shuffle of families and dwellings. Negative equity and trackers may be playing some role but really the issue is with empty nesters, not trader-uppers.

From my research on the Irish housing market over the period 1980-2012, the nominal interest rate is drowned out by the “real” interest rate, i.e. the mortgage rate (which swings from 3% to 7%) minus expectations (Which swing from +20% to -20%).

Good question – short answer is that rents are affected by one set of factors, i.e. fundamentals (income, supply and demographics), while prices are affected by two, fundamentals and asset considerations, which include LTVs (as per the Indo article) and the real interest rate (see my comment to Seafoid above). I hope to be able to go into more detail on this next week.


Are you reading Gregory O’Connor?

“What is particularly disheartening is that it comes so soon after Ireland tried this before and it went so spectacularly wrong – while house price growth from 1995-2001 was driven by a combination of factors (including incomes growing faster than supply), house price growth 2001-2007 was driven almost exclusively by easy credit and that was where the damage was done..”

Allowing banks have any say in the process of normalising mortgage debt distress when the expert economist in the field of property namely Ronan Lyons tells us that the house price growth which has led to all of our ills fell in the years in question namely ‘2001-2007’ – is a particularly bad policy as the mis pricing error was bank driven.

Imposing the standard insolvency process as the current system is set up to do was dead on arrival when the banks were the primary cause of the crazy prices in the first instance.

Ronan Lyons is right – the reason for the high rents in certain parts of the country is supply constraints – however readers should venture down to Carrick on Shannon, Longford, Cavan, Roscommon, Tullamore etc etc and you’ll get a much better perspective on what excessive supply can do to rental growth expectations and especially house price growth – I noticed for instance that rents fell in Co. Cavan and Co. Donegal for the period under review in the Daft.ie report.

What would increased credit supply do to a would be Co. Cavan house buyer ? Bugger all I’d venture as he/she is tripping over the damn things so he/she waits until rental yields normalise at about 7.5% which means prices continue to fall here and elsewhere where yields are below that level and where supply still outstrips demand.

I’d suggest that readers pay particular attention to page 10 of the report for it tells one all that’s relevant – yields have now normalised in many parts of the country and where supply is constrained -Dublin primarily – house prices may continue to rise against a rising rental background. This makes sense. What happened between 2001 and 2007/8 didn’t. In case you think I’m joking check out the index movement on page 5 from 2002 to mid 2007 – it went absolutely nowhere and yet house prices more than doubled in the same period.

‘We need house prices to go up another bit’ Minister Noonan a few weeks ago.
Save the banks, and save ‘our’ money in the banks. Those of you that have no money in the banks, don’t deserve saving.

So reflate the ‘boom’ in asset prices and suck in the remainder of the generation that have not left. But whatever you do, don’t touch the BTL investors, who are collecting the rising rents and not paying the ultra low trackers mortgages.

@Kevin Donoghue.
“The purpose of a system is what it does…” Exactly.

That article made me feel sick. The political support for bailing out the property owners seems to entering the realm of absurdity.

The little people are told we need to be ‘competitive’ in order to be ‘the best small country in the world to do business’, when in reality the policies being pursued are intent on making us ‘The best small country in the world to be a rent seeker’.

Or the the worst small country in the world for young families with only their labor to trade on.

Another worry is that all the talk of property supply shortages seems to be concentrating on 3-bed semis. One get’s the impression that supply ‘solution’ will involve pouring concrete over more of Leinster for yet more soulless energy inefficient commuter living.


“houses are only affordable if one of two conditions apply: they are cheap relative to household incomes, or debt service payments are low relative to income.
The first condition certainly does not apply in the UK. Over the past 50 years, the average ratio of house prices to income has been 3.4; it currently stands at 4.3. Houses are expensive and, with incomes now rising only slowly after more than half a decade of decline, are set to become more so.”

What are the ratios like for Ireland ?

@ John Foody

Most of the stuff built recently assumes cheap oil indefinitely.
It’s not good.

What happened to my comment of 12:25? It went into ‘moderation’ for some reason. Still having some diagnostics?

As for policy in relation to loan-to-value, pick a number (like 80%) as the maximum loan-to-value for anyone and stick with it. That way at least, policy won’t be responsible for turning a house price upswing into another bubble.

Too late. The givernment has decided the ratio will be 95%. I presume this is merely to avoid the optics of a 100% mortgage reintroduction.

Anyone who bothers to point out anything wrong with this is wasting their time cribbing and moaning on the sidelines, and may as well commit suicide. The eternal lesson of the last bubble-bust was that risk-taskers are always rewarded, and untermenschen savers will always be the ones footing the bill.

It’s time to go all in again gents, and the devil take the hindmost.

What is the view of the Financial Regulator on 95% LTV mortgages?

Given recent price volatility, what are the odds on a 95% mortgage being under water inside, say 24 months?

Note that Irish banks have been selling covered bonds consisting of pools of mortgages. Are these now, in effect, to be guaranteed by the Exchequer?

The Irish government guarantee of bank liabilities turned out very badly, now it wants to set up a guarantee of bank assets? It sounds a very poor decision in terms of prudential risk regulation, particularly for a small state in the Eurozone with weak banks and potentially fragile credit and property markets.

There is an apparent intention to restrict the subsidised mortgages to FTBs. Political lobbying hasn’t really started on that yet though…

I think there was a FTB grant in past of about 3K.

Local authorities and developers will gain from the state subsidy.

The state will be directly guaranteeing the loans rather than, later on, guaranteeing the banks that made them.

Regarding costs, the government have recently introduced a requirement that all items used during construction will have to be certified by a ‘certifier’ so people are going to be paid to pretend they know every item used complied.


Note also the effect of REITs, and Danske Bank, as part of its exit, I understand choosing to sell 600 properties from repos etc by inviting a small number of financial companies to bid for them. No ordinary punters.

Lonestar etc have directly lobbied Noonan to have Nama sell loans and associated property security directly rather than bother with locals.

There is facilitation of the acquisition of Irish residential property by large financial institutions in preference to a more traditional combination of local investors and owner occupiers.

95% LTV mortgages would be nuts in the Euro system. It’s not good old sterling where you can devalue anytime you find yourself in a bit of bother.

Repayments should be based on “normal” interest rates- eg if rates are well below 4% , punters should be required to repay at 4% with the excess over the actual rates going to pay off the capital.

And max duration should be 25 years. If someone needs a 30 year duration to get an affordable mortgage they shouldn’t be borrowing.

fyi – prob worth a thread on the ‘real’ economy

SME sector’s contribution to economy one of lowest in Europe

‘Six years on, Ireland still has fewer small businesses than it did at the start of the global financial meltdown in 2008.

That’s according to the first ever Europe-wide study of small and medium enterprises (SMEs), carried out by professional services firm Mazars.

The pace of recovery among Europe’s 20 million small businesses has separated into three speeds, it found – and Ireland is firmly in the slowest category.’


Irish banks are pretty much abysmal and woefully ignorant in this area; any possibility of selling them off to the Danes, Dutch or Germans? Gettin pretty sik of property fethish at this stage since the clearances of the early 19th century. The CPI is open for membership!

Are house prices really guided by supply and demand?

I know I’ve posted this graph before but it never seems to attract a comment. It demonstrates how house prices have little to do with supply and demand, but a lot to do with on the bank manager’s loan agenda.

For when banks are deciding what project to create money for, they are keen to involve a real world asset. They are less keen on issuing money towards higher-risk productive purposes.

This is what pushes house prices up such that few under the age of forty can afford to buy a house. With mortgage durations encroaching on our retirement age there’s very little scope for perpetually expanding them and keeping this system going.

Positive Money have a good 2 minute video which demonstrates the above very well. Watch it here.

To make housing affordable, have the ECB create all euros and have the banks just do banking.

of course, there is a solution – something about ‘bringing the state back in’ – theme of a book by T. Stocpol methinks some time ago: Michael Taft might have read it:

By This Time Next Year We Could End Homelessness
Let’s start with the conclusion: if by this time next year if there are people still homeless, it’s because the Government made a policy choice. And the policy choice was to tolerate homelessness.

Now, back to the beginning.

The Government will be spending €7.1 billion this year. It won’t be spent on public services, or social protection or investment. And there will be no debate on it. There will be no current affairs programmes, no panel discussions, no commentaries in the print media. The Government will spend €7 billion this year and very few will know.

This €7 billion is being spent on paying down debt. It comes from the Government’s considerable cash balances. At the end of 2013, the Government held €18.5 billion in cash. This is made up of money that has already been borrowed and revenue from bank investments (e.g. bonds held in Bank of Ireland, etc.). The Government is taking the €7 billion and paying down Government debt to lower the debt/GDP ratio.

Read on: http://www.irishleftreview.org/2014/05/12/time-year-homelessness/

‘€3.5 billion would build approximately 20,000 social houses. This would house over 20 percent on the waiting list. And this programme could target the nearly 3,000 living in emergency accomodation.

This would make a significant impact on housing need in Ireland – though it would only be a beginning. More housing could be brought on stream if currently unsuitable social housing were brought back into the system – the average cost of rehabilitating social houses is €17,500.

The impact on employment would be considerable. 35,000 direct jobs would be created – that is, jobs on site. ‘


Does anyone have a breakdown of the current build costs for a typical house? I think the Construction Industry Federation recently suggested that it was in the region of 250k which seems enormous if it excludes things like premiums for land close to cities and profit. It would also seem very high by international standards, which will pose real competitiveness concerns if (as this response suggests) government policy is to increase demand rather than reduce supply costs

I can’t get over the sneaking suspicion there’s a Patrick Neary type character in the Department of Finance, accountant by training, who has worked out that the average first time buyer house is around €150k, so if banks would only lend a bit more, all these potential borrowers could afford a house……….struggling to make the intellectual leap that greater credit will only fuel house price inflation, with few additional houses being built

Noonan’s statement on Tuesday brings Bertie Ahern to mind:

“It is very difficult to envisage a young couple having more than 10 per cent of the price of a house as a deposit and at present they are being required to come up with something like 20 per cent.

“So we are examining it. It would be only for new houses, not for the second hand market.”

Either housing is too expensive, wages are too low or both



The same arguments were made in 2003/4 which gave rise to Stamp Duty rates being adjusted downward as far as I can recollect. That was a massive success, particularly for the first time buyer who ended up being fleeced on the price paid and then being fleeced again in having to cough up the Stamp Duty in the form of income tax rises from mid 2008 onwards. Fantastic.

I’d suggest Govts and property markets don’t make good partnerships one side nearly always get screwed – and then eventually both.

It’s much more likely that your DoF accountancy character is salivating over the paper improvements in the value of banks’ loan books that will come from pumping up prices.

A question for the minister. To make housing more affordable do you (a) make it easier to borrow large amounts of money (b) make it more difficult to borrow large amounts of money?

It isn’t that difficult.

In a democracy power comes from the ballot box. Politics is like war,there are three things you need to succeed. The first is money,the second is money and the third is money.
The people who provide the money which finances Irish politics are ,the builders,the developers and the construction and property interests. They own almost all Irish politicians. The payback for this financing is — a corrupt planning system,no residential rates,mortgage tax relief,section 23/24 etc tax breaks, tax relief schemes for –urban renewal,multi-story car parks,students accommodation,buildings used for third level education,hotels and holiday camps,holiday cottages,rural and urban renewal,park-and-ride facilities,sports injury clinics and child-care facilities.
State feudal commercial property leases i.e. upward-only rent reviews tied to long leases,are available to all the politicians pals.
Many of this group are alumni of The Galway Tent School of Economics. The politicians look after themselves first-then their property pals. The public interest is irrelevant to the politicians.
When Fine Gael and Labour did their u-turn on legacy upward-only rent review leases ,they were merely been consistent–looking after the interests of their financiers. Follow the Ansbacher men,follow the state landlords,follow the money,all roads lead to Leinster house.
The greatest bank and property crash in the history of mankind started with one house–Leinster House

David, I do not know about you, but the stuff published in ILR appears to me to be the selfie transcript of a somnolent punter, propped against a bar counter, sucking his pint and engaging in a slow, ungulating, intimate monologue with God knows whom. Its actually quite sad if this is the level of intellectual engagement with what are, significant, serious and reasonably complex social, political and economic issues*. Its really worrying. Have the authors no notion just how changed our Political Economic landscape has become? Appears not.

* [not in any particular order, nor even a complete listing]

Abuse of arable land
Whence a living income
Formation of new family homes
Population: location and density
Unfit for purpose national and local governance
Nature and number of waged-labour opportunities
The Permagrowth economic paradigm and its social outcomes
The social, political and economic consequences of virtual credit creation

There appear to be two contemporary, diametrically opposed, Political Economy agenda in respect of the re-distribution of the optimal available national and individual income according to one of the following formats:-

1. Toward those who command the highest incomes (the minority), or

2. Toward those who command the lower incomes (the majority)

No prize for guessing the ‘winners’ of this contest when the minority have written the rules and are acting as the referee and our elected politicians are acting as body-guards and bouncers for the minority.

Cheers, Brian.

@ Ronan Lyons

You and I’m sure all economists can see that this is an appalling idea. Aside from sounding off about it on the internet, would you consider a more direct approach and co-author an open letter to be circulated highlighting this stupidity? Putting it out there in the media and allowing the deserved derision to flow might focus the government minds.

Michael Noone comes out with some doozies here: http://www.irishtimes.com/business/economy/noonan-dismisses-fears-of-housing-bubble-1.1793791

““There is a supply-side problem in Dublin and there aren’t enough family homes.
“Now part of it is because they are not being built and another part of it is if they were being built people don’t have the money to buy them,” he said.

Ah, the poor people. They’ve no money to buy them, someone give them money so they can buy things they can’t afford!!

““It is very difficult to envisage a young couple having more than 10 per cent of the price of a house as a deposit and at present they are being required to come up with something like 20 per cent.”

20 percent? By whom? No bank operates 80% LTF for FTBs, to my knowledge. AIB will give you 92% ffs! This is just a blatant lie.

Look at it this way. It used to be that the Irish government was just captured by property businesses. That has changed. The government is now a property business itself, and behaves as one.

@Ronan Lyons

– Excellent. There is a lot of negativity out there in relation to these measures. To the jaded among us there was no surprise that the government’s commitment to helping home buyers extends to helping them borrow more, nothing else.

I meant to add that I wish this scheme the same level of success as the Home Choice Loan scheme achieved. Sincerely.

@Ronan Lyons

Clarification noted, read, and appreciated.

You note:
‘We could of course simply make it illegal for landlords to discriminate on the basis of Rent Allowance, being a 20-something professional or any other criteria we don’t like. But again, that doesn’t address the underlying issue and merely pushes the problem out of view. If those of us who do not have to depend on Rent Allowance want to help those who do, hiding the problem will not make it go away. To assuage our “middle class guilt”, for want of a better term, we need to look at the underlying issue of a lack of supply. And for that, as I argued on Monday, we need to look in particular at how the government controls planning and land use.’

Broadly agree. [p.s. as a postmetaphysical citizen_serf I have no empirical or experiential experience of ‘middle class guilt’ – but agree that it is theoretically possible that such a phenomenon exists! We don’t have an Index for it at The Blind Biddy Hedge School]

In terms of supply, the Michael Taft suggestion (backed up by NERI and Gov data) on a bozooka on building social housing [which is possible] would take many of these ‘rent allowance’ out of the market allowing rents to fall to reasonable ‘living’ levels, reducing costs of living, increasing competitiveness etc. To me, this is a no brainer; the measly amount presently allocated to bringing extant unoccupied social houses back to live_able condtion is abysmal, simply abysmal.

BCT may be correct; the proxy-gov may be a nama_ite property business in bed with its failed banks and primarily concerned with paying odious interest to the odious financial system and keeping up the illusions of abstract ordoliberal system metrics and to hell with the lower orders .

DKM today published its affordability index report for first time house buyers – still looking good as falling interest rates and price more than offset personal tax rises.


@ Yields or Bust

In April 2006 Bertie Ahern said that had listened for seven years to warnings and arguments about difficulties in the construction sector. “I think you have to look at the asset. This is the question: if you are borrowing ‘x’, if you sell the asset, if there’s a bit of a downturn, will you get ‘x’ back in return? That’s the issue. At the moment, there doesn’t seem to be an indication [of difficulties].

“I mean quite frankly, if you had taken the advice a year ago you would have lost a lot of money. Everybody said we’re going to see a huge downturn in 2005 linking into 2006 – they were entirely wrong.

“Really we should have an examination into why so many people got it so wrong. My view is there’s not a great problem. Really, the bad advice of last year given by so many has maybe made some people make mistakes, that they should have bought last year.”

@Michael Noonan

20% of €300,000 =€60,000
20% of €200,000 =€40,000
20% of €150,000= €30,000

A decent sized family dwelling can be build for €150,000, without counting site cost, permissions etc. Yet house in parts of Dublin cost 400,000. Why?
The State has loads of free land to build on, so has NAMA.

But is the policy objective to build housing for people, or to keep house prices high, so as to please the banks? Or to keep the price of building land high, lest a few developers and the CIF would start to whinge ‘unfair’.

Whose side are you on, Minister?


Pretty sure that back in 2012 I said here that the state was now “invested” in property and the financial sector with all that implies.

The fiscal logic is clear, this is both a subsidy for the banks (funded through house buyers) and reduces the losses on the NAMA property portfolio. Both of these things help free up funds to support the banking bailout debt burden we pay to our European partners.

We are eating our own young to satisfy the conditions of Eurozone membership.


Anyway I will save you the suspense. All of this would not be the biggest story on my blog except that Ponta Negra is marketed out of the office of Paradigm Global – a fund of hedge funds owned and controlled by Hunter Biden and James Biden. Hunter and James are the son and brother of Vice President Joe Biden respectively.’


Note: The Blind Biddy Hedge Fund has NO assocations whatsoever with Odious Fracking. The Minister for jobs announcements was in Texas recently, and a rumour is circulating that he might have sold an option on the fracking roights to Carlow to a Bush-associated fundie; the brudder is also spouting a lot on energy these days hmmmmm

Blind Bi

On the additional 60,000 jobs by 2020 that would give a total of 155,000 jobs building 25,000 Irish houses plus commercial & engineering, 110,000 workers built 39,000 housing units in 1997 & lots of commercial etc

I like hurling but why should the GAA get a €30m gift for the upgrading of the Páirc Uí Chaoimh Stadium in Cork from a cash-strapped government?

Economist Colm McCarthy has said the scheme is reminiscent of the 100% mortgages that caused debt problems for many borrowers during the boom.

Speaking on RTÉ’s News at One, Mr McCarthy said the proposal seems to suggest that the 15% deposit required by many banks from mortgage applicants is too much.

Instead, he said the Government is potentially proposing a loan-to-value ratio of 95% with “the taxpayer on the hook” for part of the deposit.

He said: “Until 15 or 20 years ago people were expected to save up 15% or 20% of the purchase price and then take out a mortgage for the balance.

“Going back to this idea that you don’t need any money down, or you need very little money to put down, seems to me to be revisiting the errors of the recent past.”

Mr McCarthy said supply of houses remains the bigger issue and zoning needs to be looked at.

grumpy’s link: Eternal Recurrance …

FFS take a few billion out of the kitty and build social housing NOW. This is supposed to be, nominally, a republic, which puts needs of citizens first, rather than what is, effectively, a ‘colony of the financial system’ which places the ordoliberal metrics and payment of 8/9 Billion in odious interest first. GET REAL!

@David O’Donnell

re quote
“He said: “Until 15 or 20 years ago people were expected to save up 15% or 20% of the purchase price and then take out a mortgage for the balance.”

IMHO, there is nothing absolutely wrong with a 95% mortgage on a house, provided the house is not overpriced and the borrower can afford it. But as Michael Hennigan points out.

“Either housing is too expensive, wages are too low or both”

Both IMHO, but houses prices are still way too high and of the two, houses prices should be forced down (through forcing down the site cost and tax cost), not forced up as seems to be government policy.
[And wages should certainly not be forced further down as appears to be the policy of Daft.ie]

Concerning first-time buyers’ ability to save for a deposit, there is recent evidence showing that those aged 21-35 (including many would-be first-time buyers) are increasingly disposed toward saving – see Figure 1: http://www.esri.ie/UserFiles/publications/JACB201415/RN20140101.pdf

It is difficult to see how the proposed measures can lead to higher supply of new-built dwellings. Lower LTV ratios are hardly a constraint on housebuilding when there is likely to be significant latent demand already.

@Joseph Ryan
I completely agree with your latter (non-bracketed) point but have no idea where you got your final remark! Daft.ie has no opinions on builders’ wages – why would it have?!

I certainly may have opinions on the same (in particular, I have yet to hear why Irish construction wages should be maintained about one quarter higher than those in Germany, given so many unemployed builders in Ireland) but in fact as it happens I tend to think this is secondary to the far bigger problem, land/taxes/planning.

@ Niall D: 300 mill for 7,000 dwellings = E 43,000 per site?

Then add the development charges. What will be built? Detached, semis, terraces, multistory? How much open space? Might end up being pricey – that is, above the median income. Interesting.

@ Joseph R: “IMHO, there is nothing absolutely wrong with a 95% mortgage ….”

Joe, there is this thing known as the Golden Rule of Mortgage Lending for residential homes, or the 20:28:32 Rule if you prefer.

It goes like this:- 20% cash down:
max 28% of your gross income to service mortgage:
max 32% of your gross income to service all house related costs, insurance, taxes and renovations.

And this rule applies to a SINGLE wage earner only – NEVER to two! Never!

The logic behind this rule – and it had about 80 years of actuarial experience behind it, was that the lender MINIMIZED the probability of mortgage default since it was socially very undesirable. Some might call it Negative Moral Hazard – the lender was exercising a dual duty-of-fudiciary care, both to themselves and to their borrowers.

Historically (pre 1995 of so) the residential mortgage default rate was less than 1%. Today, it over 20% – and rising!!! Now, what flock of financial geniuses have we to thank for this social disaster?

Another piece of the logic behind the rule is that a prudent home mortgage lender can suffer near enough a 10% default rate, since they have a considerable financial buffer to protect them. In addition, lenders faced the prospect of bankruptcy (no state bailouts then) if they got their lending risk-model wrong. They were financially cautious and prudent.

The purchaser however, is entirely on their own. One serious financial hitch and they may experience real hardship. They have to have a deep income cushion, not a skimpy wisp.

There is absolutely no mystery whatsoever as to the cause of our recent residential housing boom and subsequent descent into default chaos. None! However, since the cause is hiding in plain sight, only the willfully blind fail to see it, and acknowledge it.

This explanation is only partial. It neglects the rationale of the lender to use such a risky mortgage loan model. Think carefully on this. Its not pleasant.

@Ronan Lyons

Firstly you are to be congratulated for challenging the basis for and reasoning behind the latest government proposal. It is also a pity that your site value tax, which is an excellent idea, was not taken up by policy makers.

In relation to Daft, I was merely reacting to the Daft rental report excerpt posted by @Grumpy

“Labour costs in construction fell once, in March 2011, when hourly rates were reduced by 7.5%. But in an economy where the average disposable income fell by 25% between 2006 and 2012, and where there are significant numbers of long-term unemployed construction workers, is that enough? More importantly, the minimum hourly rate for a basic operative in Ireland at €13.77 remains a quarter higher than in West Germany (€11.05, a figure which will rise to €11.30 by 2017). Department of Environment figures indicate that for every €1 of materials, €2 is paid in wages, so the wage rate in construction has a real effect on levels of construction.”

Perhaps my inference, from the above, that it is Daft policy to force down wages was incorrect, but a few points should be made about it.

General operatives comprise only a small portion of construction labour, so that disparities (25%) in that category alone, may make little overall differences to house building costs.

Secondly, I felt it was unfair to juxtaposition a fall is disposable (or net) income with a gross wage differential. I would also query the department estimate of a labour/material split of 2:1, suggesting that the labour split would be slightly below 50%, but I cannot back this up with data (just recent experience).

@Brian Woods

I take the point you are making re 80% being a safer figure for both borrower and lender and I should have added the words “per se” after my remark, ” “IMHO, there is nothing absolutely wrong with a 95% mortgage ….”

However the problem with the metrics you use, in the current environment where houses prices in Dublin are still way too high, is that people on average industrial wages have no hope of buying a place to live in, and have zero security in either tenure or affordability if they have to rent.
As I have a near relative in that situation, who received a sizeable rent increase notice under the door last January, I am slightly exercised by this issue.
To summarise, allow me to quote @John Foody above;

“The political support for bailing out the property owners seems to entering the realm of absurdity. “

It has been argued that a lack of housing supply has been driving up prices and rents in cities and that the means by which to address this is through increasing supply in this locality. I think this is the wrong conclusion to draw.

If we look at property prices in the counties surrounding Dublin though, we see the median prices are: Louth (115k), Meath (90k), Wicklow (89k), Kildare (184k) (from http://blog.daft.ie/2014/01/2013-property-price-register-analysis/). Given that we know that there has been dramatic construction during the boom, it seems unlikely to me that there is a shortage of supply overall.

The argument then is that it is in the wrong location, however this raises two points (1) why do people want to locate in Dublin and (2) why don’t they commute from further afield. If the answer to (1) is partially the increased employment opportunities and the answer to (2) is linked to transport cost in terms of time or money, then we need to think much more broadly than cramming an extra X houses into Dublin which serves to further centralise the population and perhaps further concentrate employment opportunities, while also further undercutting demand for houses outside of the region and thus has distributional issues also.

Instead of the simplistic response of `lets build more houses since the houses we have built are in the `wrong’ places’, perhaps we should try to make these other places more desirable, by improving transport links into the cities (and perhaps looking at whether we can use the existing transport infrastructure more efficiently) and decentralising employment opportunities (even just to the periphery of cities).

This would reduce demand in the cities, and increase demand in the peripheral counties helping homeowners in these areas and perhaps their communities also. Building houses in the city, may benefit developers and/or those that receive the houses, but at potentially significant costs to the wider community.

Concerning the ability of first-time buyers to save for a deposit, there is recent evidence that those aged 21-35 have been increasingly disposed toward saving. This could be driven by non-precautionary motives related to housing supply, see Figure 1: http://www.esri.ie/UserFiles/publications/JACB201415/RN20140101.pdf

It is very unclear how the proposed policy could bring about an increase in supply of new-built dwellings, as pointed out by others. Lower LTV ratios are unlikely to effect any constraint on housebuilding, especially when there is likely to be considerable latent demand already.

Further to Tony’s post, I have some more.
First a declaration/confession. I recall arguing several years ago that rent allowance should be capped. Since SW tenants comprised such a large proportion of the market I thought, sure what can the landlords do? They’ll have to take the RA.

I hadn’t counted on the apparent rise in private tenants.

So I’m just wondering…where have they come from? Are there more than say, 5 years ago? Is it Pete Lunn we need here to tell us about demographic changes? Is it a population burst in those 20 somethings? Are they people who should be buying but can’t because of limited credit, or the limited number of houses on the market because owners see the market still rising? In other words, this is not simply about building houses in the Dublin area, but using the ones already in situ. (which is why the thousands of council houses boarded up is a factor too).

And, as Michael Hennigan has observed, if all these houses are bursting with tenants forced to pay high rents, are the mortgages being properly serviced on them by their BTL landlords? And if not, why aren’t they being repossessed?


A Shannon Front Row remains on stand-by to take this guy into custody to recover a mere €20 Billion in odious unsecured bondholder debt; take the book, and his reference to his ‘Pal Hank’ with a pinch of salt:


Yes ILR can be a bit wacky at time; but it does throw up a few nuggets:

I regard Michael Taft as a serious empiricist in the British Tradition of Empiricism – as is Colm McCarthy IMHO; both are sound on ‘facts’.

@The Labour Party

Wise UP! a mere 200 million to privates; while 18 Billion in the kitty – and nearly 100,000 families without a home!

@Michael Taft


@ Joseph R: Thanks for that. Appreciated.

Actually the metrics I quoted are not the problem. Its the critters in charge of the mortgage lending and their allies in the various commercial and political sectors that are ‘pumping’ the prices that are the culprits. Its a mindset problem. Very difficult to challenge.

Dublin residential prices are – my opinion, 50% overpriced. However if you can find a valid estimate for the median wages in the Dublin postal areas, I fancy that 50% should be upped to 60% or even higher. Tricky problem.

The increase in rentals may not be due to under supply of residential home accommodation, but the brutal cost of purchasing. The Dublin housing market is quite odd – total sales are not ‘normal’, given the total number of residences and the probable number that should be being offered for sale, but are not. Buyers cannot afford them. If you believe your future income may be in jeopardy, you’re quite unlikely to buy.

Increasing the housing stock will not be a solution. Too long, too risky. It should go like this:

Crush the mortgage lenders until they squeek! Use legislation if necessary. Scrap the income tax on property – instead, impose VAT on all land sales, inter vivos transfers and bequests (there can be problems with bequests, but its tractable). Mandate lending for private residential homes as non-recourse, fixed interest rate, and self-amortizing over 30 years.

When all this is done, and its possible (though quite unlikely) then see what the housing needs are.

Cheers, Brian.

@ Tony

What you say is patently correct. However, doing anything sensible like you suggest would require some joined up thinking and, as a result, costs to one vested interest or another. Irish politicians do not do joined up thinking. Neither, it seems, does a majority of the electorate if Minister Noonan is correct in his view that what he proposes will lead to electoral advantage. He may have miscalculated. He certainly does not have his facts straight with regard to present bank lending policies.

As the old adage has it “fool me once, shame on you; fool me twice, shame on me!”. The central question is whether first-time buyers will put themselves into a lifetime of hock once again – for a property that may haves halved in value – and at such a short interval.

The stalling and manipulation of the BTL sector with regard to mortgage arrears is but another manifestation of the deep-seated malaise in the Irish body politic.


Fifty million for social housing – €50 miserly miserable mickey mouse million!!!!!!!!!

I’m speechless.

@The Labour Party

Have a Fig Leaf

@Fine Gael

Have a Fig Leaf


Wise Up!

Fifty miserly miserable million … & 19 Billion in the kitty.

@ Sarah Carey

Re: “I hadn’t counted on the apparent rise in private tenants. So I’m just wondering…where have they come from?”

It seems to be Govt policy to open the borders to Brazilians in particular – they tell me there is hardly a country in the world that it is so easy to get into, and certainly not an English-speaking one. They fill the apartment blocks, increase the rental prices (or turn ‘non-performing assets’ into ‘performing assets’). All without any discussion or any vote by the people of the country (or city). 28 countries in the EU, and if there aren’t enough from there then the Govt opens up access to people from other continents during a housing crisis.
One Brazilian friend who left Ireland 2 years ago told me recently that he has now huge numbers of friends who have come here, he said “Ireland is now a temple of Brazilians”. They themselves complain that there are too many Brazilians here and it’s harder to not speak Portuguese and so learn English.

The majority move on (I think after 2 years or so), but there is a continuous stream coming in, and increasing in number, from the source of almost 200m people in Brazil.
Some have said that they have no intention of going back, that Brazil is too hard/violent (if they are not from a wealthy backround I suppose), and when asked how that is possible they very openly explain that they have an Italian or Portuguese grandparent and so they can get an Italian/Portuguese passport, and therefore a EU passport.
“Do you have any interest in living in Italy / Portugal?” I have asked, and always the answer has been “no, I want to stay in Ireland” and sometimes they add in “and after ~3 years I will be able to go to university here for free”.

It is unusual that Italy and Portugal can give out passports to people from another continent who have no interest in living in Italy/Portugal, but then can get ~full rights in a 3rd country, Ireland. Not something that people intended I think?

But all part of Govt policy to increase property prices at all costs. It wouldn’t do to let capitalism work when it was going to benefit the non-propertied classes, would it?

The other parts of Govt policy to increase property prices at all costs includes Dublin Corporation insisting on ‘upgrades’ just NOW, removing bedsits / studios etc. (any other civilised country would have places for the tenants to move to, they wouldn’t just be dumped to fend for themselves, and especially not during a housing crisis).

And of course the very creation of NAMA, where the Govt & elites they represent use the peoples’ money to actually act against the interests of the people.

Ireland was of course never socialist, and it is no longer a capitalist country as capitalism was acting in the ‘wrong’ direction (helping the ordinary man to buy a home for €10k), and so now Ireland shows its true colours as what? As a feudal society where all of the rules are changed to protect elites and vested interests.

It’s not what the men and women went out for in 1916.

(And they’re even trying to steal the memory of that too…)

Regardless of the issues facing the private sector housing market at present (and ultimately price/rent increases will make supply feasible as long as dysfunction is ironed out of the system), it is an utter disgrace that Dublin City Council is planning the construction of just 35 new social housing units in the next three years.

In Belfast (city half the size of Dublin), they are planning 2,013 new units over the same period.
(scroll down to page 49)

@ Peadar Coleman

There were folks in the UK worried about an influx of Bulgarians and Romanians from Jan 1 after restrictions were removed on migration.

Yesterday it was reported taht the number had faleln by 4,000 in Q1.

@ All

In 2011 at the nadir of the recession, Dublin’s population rose by 83,000 from 2006, the peak of the bubble: +19,000 in Dublin City; +33,000 in Fingal (North) and +31,000 in Dublin South (inc Dun Laoghaire).

There is a more viable solution than band-aid.


You have to laugh at some of the media coverage of this. Arthur Beesley in the IT warns the govt to be wary of falling into the same pitfalls that FF did while trying to “control the market”. Control it?! They wanted and did unleash it, not control it.

So now we will have more “affordable” housing, made “affordable” by forcing more credit down the junkies necks.

@ Micheal Hennigan
Thanks for the link – a nice article.

Yes a lack of joined up thinking is a perennial problem. Another problem in my opinion is peoples willingness to seize upon a narrative e.g. the shortage of housing => build more houses, without critically asking what is causing the shortage and what is the best response to these drivers rather than addressing the symptoms.

Seems like the public sector are doing a bit for the UK construction industry in Ireland too through highlighting the opportunities here – as obviously not enough supply on the delivery side.


Good to see that Professor Brian Norton, President, Dublin Institute of Technology is identifying opportunities for the UK professional services sector in Ireland while for the past few years there has not been employment for his architectural and surveying graduates in Ireland.

Lack of joined up thinking more that a perennial problem.


“We have a very serious supply side problem. We’ve got a lot of young people in apartments, a lot of young people in rented accommodation, first baby, second baby, they now need a house and the supply isn’t there,” he said.

The concept of building enery efficent family apartments doesn’t get a look in.

@Jagdip Singh


Labour are in gov; and main party in Dublin local; & in a state of collective amnesia on its original intent & origins. Response to social housing is …. words fail me!

Can Sinn Fein take up the challenge? Yes in Belfast; in Dublin remains an open question? Sinn Fein in Gov? Only alternative at the mo for the serfs, imho.

@Brian Woods Snr.

Now that you have had time to recover from an understanable bout of ILR_itis …… I have serious issues with Sindo ideology but I still read a few articles from the very few worth reading:if I can overcome Sindo_itis methinks you can overcome this lil ol bout of ILR_itis!

Any comment on the merits, or otherwise, of the actual content in Michael Taft’s proposal on social housing and on supply?

fyi – on Terrible Tim

‘Sorry for the Vox-like explainer on all this, but I hope you can see the fact pattern I’ve built here. At every turn on housing — on mass refinancing, on principal reduction, on leverage for homeowners in the bankruptcy process, on forcing banks to write down mortgages, on a modern-day HOLC — the evidence points to Tim Geithner preferring whatever option put the least pressure on banks, rather than actually helping ordinary people. He made far more excuses to do nothing than any effort to make a difference. In fact, the programs were never meant to help homeowners, designed only to “foam the runway” for the banks, to spread out foreclosures and allow banks to absorb them. Homeowners are the foam being crushed by a jumbo jet in that analogy, squeezed for as many payments as possible before ultimately losing their home. And I don’t have to just focus on housing; this is indicative of Geithner’s worldview, which sees protecting the financial system at all costs as the only thing that matters.’


And he made millions suffer here. Shannon Front Row on stand-by …

Congratulations Mr Lyons on your excellent article.

As the co-author of the (now 10th Edition) Annual Demographia International Housing Affordability Survey ( http://www.demographia.com and archival website http://www.PerformanceUrbanPlanning.org ), it is remarkable to me why Ireland has failed to date to sort out its planning constraints to the building of affordable housing.

Housing should not exceed 3.0 times annual household incomes requiring mortgage loads of about 2.5 times in normal markets, where there are no planning impediments.

Unless Ireland sorts out its planning problems, it is setting itself up for a repeat of the 2007 / 08 events … just like California.

The Annual Demographia International Housing Affordability Surveys and other clear evidence from around the world need to be researched and discussed with great urgency in Ireland.

Why repeat the mistake of history ? Wasn’t once enough ?

Hugh Pavletich
Co author Annual Demographia International Housing Affordability Survey
New Zealand

Hi David, I’ll have to get a more potent narcotic, but fairdos to you. I junked the Indo about 20 years ago. Dreadful rag. I only buy the IT on a Sat (for the TV pages!).

I’m in a flat rage with the Irish Labour Party. The leadership have betrayed their own rank-and-file and their electoral support. Its utterly shameful. They deserve annihilation, and I hope they get it.

My ‘problem’ with the ILR is not with the persons, but with their really soft-in-the-political-loafers policies. They’re antique, outdated and useless. The socialists won the battles, but the Whites (now wearing Red jerseys) have forced a massive Kursk-like salient – and we know what happened next. And it will, unless the socialists energize and mobilize the masses onto the streets and behave like the citizens of Reykjavik, day-in, day-out until our party politicians become so afraid, they concede. Can you see that happening? Neither can I. Leadership vacuum. Not good.

No specific commentary, except that entirely new, and quite noisy efforts will have to be made. Its ‘gloves off’ time. Unless our existing residential lending paradigm is crushed – and forced back to pre-90s practices, social housing is a pipe-dream. And what does one do with the crackpots who want lower wages? Somethings are really out of social whack.

As for SF. I would respectfully suggest (not to you) that folk have a very careful read of Polyanyi – chap. 12 of ‘The Great Transformation’. Might change their minds somewhat about National Socialists.

Appreciate the comments. I’m endeavoring to persevere! Well, be back at this one.

Cheers, Brian.

ps: Typo in my 3:44 of yesterday: Its Chapter 20 – (not 12), in ‘The Great Transformation.


@ Ronan Lyons,

I suggested this to Colm McCarthy, and others (who I believed might have enough intelligence to actually understand), a number of years ago,… that the only real economic insights,… that explained anything about the behaviour that we all witnessed in Ireland between the late 1990’s and the late 2000’s,… were those forwarded by John Geanakoplos at Yale University (a professor who approaches his knowledge area of economics, in the tradition of that school, in an approach that teaches the students there about both economics and finance).

What we have had in the modern form of ‘economics’ as a discipline, is a separation between finance and economics, unfortunately.

Coming out of that approach, what Geanakoplos could do, was suggest an alternative to the rigidity of the supply and demand perception that most economists (and property professionals in Ireland especially), try to work with,.. and develop variants to it, which describe un-explained phenomena.

For example, in Ireland, at the commercial property scale (the ‘market’ in which the infamous Irish ‘builders’, and property developers operated),… as some of these developers became larger and larger in terms of their balance sheets,.. and a very small few of them (now in NAMA), tended to dominate,… what happened was that with less ‘buyers’ in that market, prices in the Irish market for commercial real estate,… continued to rocket upwards.

What the humble property professionals of places such as Bolton Street or Limerick Institutes of Technology, were always thought in school, was that as numbers of buyers DECREASE, so should prices DECREASE.

But we had a very strange phenomenon, in Ireland for many years, that as a small few ‘large’ developers began to control the market,… the prices in the commercial real estate market (or in the exchange prices for development land in Dublin), kept going upwards.

In effect, what we observed in Dublin in the 2000’s, was that as the number of buyers DECREASED, the prices INCREASED.

This is not what the graduates from property faculties in Bolton Street or Limerick Institute of Technology, were ever taught in school, and hence the property professionals are not able to explain. More over, the phenomenon seems to have been simply brushed aside by property professionals, despite the fact that we have NAMA, and all of these discounted loans, discounted property and general de-leveraging going on all over the place.

It was Geanakoplos however, who manages to erase that artificially imposed ‘boundary’ between things like the UCD economics department, and the Smurfit school of finance,… and put the ‘Humpty Dumpty’, back together again,… it is that sort of an academic, who is able to explain the phenomenon that we all witnessed here in Ireland, and destroyed the banking system,… and which our property professionals from Bolton Street, still haven’t acknowledged, much less come to terms with (and probably never will either).

I suggested to Colm McCarthy and others, a few years ago, that it would have made sense to allocate resources at university towards an improvement in learning and understanding about this (which does involve the combination, rather than the separation of economics and finance disciplines). That is, a proper insight into how a ‘banking’ system, or a Real Estate Investment Trust functions, from the finance side,… and also a recognition of the DANGER, inherent of the application of this economist’s SUPPLY-DEMAND logic in isolation, to explain the behaviour of markets (in real estate, with the use of very high leverage), in Ireland.

I would have suggested, that there can be no proper ‘banking inquiry’, or account of the events in Ireland between 2000 and 2008,… in the absence of a lot of basic primary research into the matters that I mentioned above, on the part of the academic institutions on the island of Ireland. In short, another whole ‘chapter’ has to be written, which the property professionals and economists on the island of Ireland, do not have access to at present.

Ireland in the 2000’s became almost a laboratory for the study of the ‘Leverage Cycle’ theory, which Geanakoplos wrote about and understood through his various published papers. No banking inquiry in Ireland, will ever be able to explain its findings, in the absence of understanding about this body of knowledge. But at least, given the data that a banking inquiry will assemble, it will be there for future researchers to utilize (and hopefully for future generations of real estate professionals who will some day understand something about ‘Leverage Cycles’, and their impact on the operations of markets). BOH.

@ Ronan Lyons,

On the 15th may 2014, Colm McCarthy was interviewed with Fine Gael TD Damian English (chair of the committee on enterprise and innovation), by RTE PrimeTime’s David McCullagh.

McCarthy was correct in his point about there being ‘no market’, in Dublin, for housing (planning being given for housing in the commuter belt outside of Dublin city, where some of our worst ‘ghost estate’ problems now exist,… and Dublin itself continues to be, this very ‘low density’ capital city, compared to other cities across the whole of Europe). McCarthy also made the point, of the disconnection in the market in housing, between Dublin and other parts of the country, in recent times (he mentioned a relatively recent date of 1975, and cited several pieces of legislation, programs and planning acts, that resulted in the difficulties for house building in Dublin city, for the last number of decades).

This was an excellent point, I think, and it goes to show how long it can take also, for these chickens to come home to roost.

I might point out, that in 2009, as the full extent of the financial crisis in Ireland was being laid bare (and NAMA was only in legislation ‘draft’ stage), that already at that point, some of the leading architects experienced in the area of residential development in Dublin city,… were already at that stage predicting the shortage of housing supply in Dublin, that would become a problem in a very short period of time.

I know this, because I attended various events in the capital city at that time (one at which Ronan himself was present at, and a speaker I recall), where those experienced and highly qualified property professionals were making their point about construction of housing in Dublin city.

The point is that, we do know about these problems a long, long time in advance (whether these highly experienced property professionals are ever listened to or not, is questionable). The individual in question, I know, who spoke jointly with Ronan Lyons in early 2009, was a past president of the RIAI. But judging from events in recent weeks, to do with the ‘Self-Build’ controversy in Ireland, and the passing of the recent legislation for ‘Self-Buiders’ in the republic of Ireland by minister for Environment, Phil Hogan,… I have noticed that the only public forum, where property professionals such as past presidents of the RIAI can get their message listened to,… was on the Joe Duffy show on RTE radio.

I find it strange to say the least (and it is no criticism of some of the outstanding work that has been done by the team at RTE’s PrimeTime and various other shows), . . . that no RIAI president at all, has ever appeared or been allowed to offer a view.

In other words, we train these professionals in places such as UCD or Bolton Street, to be the professionals who will design and prepare our ‘planning permissions’, and build most of the housing stock that exists on the island of Ireland. But as far as requesting an opinion or input from these same highly qualified, highly experienced professionals goes,… such as in 2009, when we should have been developing our housing, and construction strategy for 2014,.. we do expect these same professionals to be completely silent (with the exception of early afternoon radio phone-in shows).

This strikes me as being quite strange.

I have sat at listened/watched over the past several years since the financial crisis in Ireland, and watched as numerous economics department academics have appeared on Sunday morning talk shows, late night panel debates, and Prime Time broadcasts. I’ve never seen a single architect from a construction department in Ireland, appearing anywhere.

Whose fault is this?

Are architects just extremely media shy?

Is there something in their ‘code’ that prevents them from doing interviews? I find it strange, given their strong ability to predict very practical problems in advance, of their happening,… has a very strong negative correlation, with their being listened to in media.

I don’t understand it.

Perhaps the lowest point of all for me, did come in 2009, when the head of the Construction Industry Federation, Tom Parlon somehow ended up on the same lunchtime radio show with the then minister for the Environment, and leader of the Green party, John Gormley.

On that radio program, I was gob-smacked as the minister for the Environment (tasked with so many aspects of policy in regards to housing and everything else), did refuse on that occasion to take an comments or suggestions from the head of the Construction Industry Federation.

I knew, exactly, at that point in early 2009 also, as the financial crisis broke, and as all of the developers/builders were going out of business, one by one,… that as sure as day, the biggest problem in Ireland we would have in regards to a sustainable production of affordable property, ever, was the non-existence of a communication between the most important stakeholders.

I had assumed back then in my naivety, that somewhere, in some room in government, that all of these key people were sitting down together to at least analyze the problem, and that some plan for the future would emerge out of it. We talk about the lack of finance for construction development now, and the whole stack of problems that exist today,… and most of it originated as a failure in communication, that was so apparent on a Lunchtime national radio broadcast, from four or five years ago.

It just repeats the same point that I was making about ex. presidents of the RIAI, and their apparently lack of inclusion in policy too. It is all the same problem, and it is all to do with non-existent communication, and political point scoring (on the parts of public representatives, who are all paid a shocking amount by the state, to attempt to fix things). BOH.

@ Ronan Lyons,

There is one important facet to all of this, which I will try to fill in, as briefly as I possibly can here. Obviously, in other countries, where construction industry federations, and institutes of property professionals exist,… they must face similar challenges.

As early as the early 2000’s, then Taoiseach Bertie Ahern of Fianna Fail was trying to tackle some of these challenges, I do recall. It was a time, in which the Irish State was struggling to deliver some key pieces of national infrastructure, and they were running in to various kinds of difficulties, where the Irish State was the CLIENT, for those public projects.

During the early to mid 2000’s, the Irish department of finance took it upon themselves to reform the way in which construction procurement was carried out on the island of Ireland. We began to see the implementation of that new system from 2007 on wards, where the Irish State was the CLIENT, in a construction project setting (much of it had to do with EU directives regarding ‘procurement’ in a general sense too,.. even the provision to public libraries of books, or photocopy paper, all comes in underneath this heading of ‘public procurement’ policy,… in addition to things such as bridges, roads, water, sewage etc).

Based on my study of what happens in the United Kingdom, to take one example, is that a separation occurred within the apparatus of the State, between the department which operated as a CLIENT, for public works projects, . . . and a department or agency, which operated as an advocate for the construction industry.

In other words, within the British national government apparatus, one has this body, which advocates on behalf of the construction industry, where the roll out of new standards, new technology, new policies are concerned.

It streamlines the entire thing, I reckon.

Because, in the recent Fine Gael and Labour parties, Construction 2020, policy that we see in Ireland, the Taoiseach Enda Kenny, noted I think that he had spoken to up to forty different stakeholders, and received input from them all.

This does take an awful amount of leg work, and man-hours, for senior government ministers, deputies and officials to do. What we don’t have in Ireland is a centralized ‘clearing house’ for matters, which directly after policy around construction.

What we do have in Ireland are several departments (and portfolios) – Finance, Healthcare, Transport, Environment, Communications, Energy, Education – all of which need to act as CLIENTS, in some instances, and deal with things that are more to do with advocacy for the construction industry, on the other.

(Not to mention the many quango’s and state agencies that must also interact with the construction industry,… Enterprise Ireland, or the Industrial Development Authority, Shannon Development, etc to name but a few,…)

All of these departments are very large consumer of construction industry service, advice, planning and operational resources.

But what happens is that communication between the ‘forty stakeholders’, as Enda Kenny referred to in his recent launch of Construction 2020, can become painful. Because there is no ADVOCATE, for the construction industry, as exists in Great Britain,… which has a separate mandate,.. and is separate from the State’s role as a CLIENT, to the construction industry, in the case of public works.

This is one thing that we could and should learn from the British, I believe, in terms of stream-lining and improving the relationship between the Irish State and the construction industry (and it’s various professional sub-disciplines).

This thing of going out to talk to ‘forty different stakeholders’, every time we want to have a discussion about construction related policy in Ireland (whether it be personally spear-headed by An Taoiseach’s office or not), is not sustainable. And we would wish to avoid the situation, where the minister for Environment and CIF directors are not communicating at times of crisis, too.

I would compare it industrial policy (or agricultural policy).

For example, we have the Industrial Authority of Ireland, which deals with foreign direct investment. We have Enterprise Ireland, which deals with nurture and development of domestic enterprise. Each has a different focus and a different task. In that sense, in industrial policy making, the Enterprise Ireland acts almost like the ‘advocate’ that I mentioned, for enterprise trying to send exports out. The IDA, acts almost as the advocate on behalf of foreign companies, which are trying to expand into Ireland.

But in both cases, they both serve a function as a sort of ‘clearing house’. And the value of that, is that it greatly reduces the amount of cross-communication which needs to exist, to develop future domestic or foreign industrial policies. We don’t have the same ‘logic’ applied to construction in Ireland apparently,… and we always get back to the same thing, the forty different stakeholders.

We have done a lot of work, on the Public Construction CLIENT, end of things. But that Public Construction Industry ADVOCATE, is a role that we haven’t fully developed yet in Ireland,… and as a result of that, some major innovations in construction, that have been introduced in the United Kingdom (or are on a time line for introduction at this moment), have not even gotten ‘off the ground’, yet in this country. Things that could save the industry, and the society in Ireland as a whole, a lot of money into the future.

The emphasis in Ireland has been no carrot, and all stick. The imposition of very strict terms in public works construction contracts,… but very little attention to introduction of modern systems, and technologies in construction,… that have just as much, or more, ability to introduce savings, and make it more feasible for construction companies to make profits, they need from trading, to sustain themselves. BOH.


To understand the psychological, psychoanalytical & historical of fascism and how it develops, read: “Fear of Freedom”, Erick Fromm (1942 – Roudledge ed. 1991)

Fromm lived in Germany in the 30s and wisely skedaddled in a timely fashion to New York with Adorno, Horkeimer and others from the Frankfurt School. I’m familar with Polanyi – his tacit/explicit has created a lot of fruitless confusion. That said, a serious intellectual and generalist erudite mind. BTW, I have a few problems with Popper as well! amazing really that scientists such as yourself can get a bit of an education – why can’t the economists? Strange!

p.s. Michael Taft would love to hear from you! On the 40th anniversary of the Dublin & Monaghan bombings one might ask who were the fascists on the island around that time?

Tony wrote,

Instead of the simplistic response of `lets build more houses since the houses we have built are in the `wrong’ places’, perhaps we should try to make these other places more desirable, by improving transport links into the cities (and perhaps looking at whether we can use the existing transport infrastructure more efficiently) and decentralising employment opportunities (even just to the periphery of cities).

Back in the day, when the national spatial strategy was developed, and a combination of three towns in the midlands of Ireland, was identified then as being an area, where a lot of potential existed there,… to develop it as a counter point, to the further centralisation in Dublin city,… an old class mate of mine, from Bolton Street, architect Paddy Little set up his new practice there (and Paddy has since engaged in advanced studies of his own, into spatial strategy and urban development). It was an odd thing to do, because Paddy had been a Dublin native and trained professional architect growing up, who made a counter-intuitive move from many others on the island, and moved westward to where he believed the real future of re-development in the country was. As far as I know, he is still based in county Offaly and has been working a lot in recent, on this vision and project of his. I thought I would mention it, because the ideas that you expressed and his, would seem to be somewhat in alignment. BOH.

Re: Northern Ireland compared to Republic of Ireland.

Jagdip Singh wrote:

. . . . it is an utter disgrace that Dublin City Council is planning the construction of just 35 new social housing units in the next three years.

There is a real problem here, indeed, and it relates to that problem which I tried to describe or outline above, in so far as I was able,… of the total and absolute failure, or non-existence of communication channels between the necessary ‘stake holders’ that need to be involved, in the planning of these programs.

There is a big problem, when you have an architectural profession in Ireland, who are prepared to sit by, and simply accept the fact, that 35 new social housing units are planned in the next three years. Social housing building in Ireland is a strange one, because often what we find in the architectural awards each year, are these half dozen, or a dozen new social housing units taking awards and stuff, for excellence in design and construction. That is, what does get produced in terms of social housing, is only a very small niche thing, where height of design excellence are exclusivity seem to be the main criteria for those projects.

It is a weird inversion of sorts, where you would think that the high end luxury housing, would be the rare thing,… but in Ireland, in fact it is the opposite, and we often find our most talented and innovative design architects are the ones who get to build this tiny attribution of social housing units. Social housing in Ireland is not viewed amongst property professionals as an opportunity for application of new and efficient modern, construction management techniques,… but instead is viewed as a kind of niche in the market, for the application of interesting and curious new ‘designs’ for housing. Sort of like a little laboratory for housing carried out on a minute scale. I’ll bet you, if you do a survey of all of the social housing development in Ireland carried out over the last decade, you will also find some of the highest standards in terms of housing design.

Social housing policy in Ireland, has fallen in to that very small and very strange niche, for some reason.

The fact that Belfast city alone can pump out 2,000 of the units that you mentioned this year alone, is no accident. It is like running a Toyota car manufacturing plant, or anything else like that. It doesn’t happen on its own, by good fortune, or praying to any particular God, or combination of God’s.

It happens because some places, have more emphasis on, and are better at production management, at a scale, than others are. In the United Kingdom, construction management and planning is a science, unlike here in Ireland. I was shocked recently, during the time I spent in a construction faculty in Ireland, that nearly all of those who earned advanced Masters Level and Phd level qualifications in construction,… all obtained those merits, while doing their studies distance-based, to colleges in London, Manchester, Edinburgh etc.

There is simply no center for excellence in Real Estate, Construction Management or virtually anything else, of any significance here in Ireland. As a consequence, we are completely incapable or organizing our resources, to do much of anything, like you described above in your comment. We simply don’t have the people.

We are blessed here in Ireland, with the excellence that we have achieved in our ‘trades’, such as plasterers, bricklayers, plumbers, electricians and so on. The best any where in the whole world. We have that sort of strange combination in Ireland, of levels of excellence down at the trade levels, and a lack of construction management expertise at higher ones (and I get back to that point about the stagnation to do with the same, around things like the architectural profession, especially as far as it regards social housing output). We can do some of the best social housing development in the world, at the scale of two dozen units,… but at the scale of a hundred or a few hundred units,… we don’t compete in that space at all.

It is like the difference between home made jam jars, and super market scale of production. It is like we produce 15 jars of the best home made jam each year, made from the finest plums and honey, and berries. And then, for the rest of the year, the shelf for jam, is completely vacant.

There is a very, very simple reason why countries such as the United Kingdom have excelled, where Ireland has failed. And it has much to do with the above. We don’t even compensate our people here in Ireland, who are qualified and able to exercise construction management and real estate planning properly. Having a qualification in construction management here in Ireland, is like have a one way ticket to the poor house. That kind of skill simply is not rewarded (in fact, a lack of skill in construction management, is what is often rewarded). The same culture does not exist at all in Northern Ireland or in Great Britain – and maybe it has something to do with the fact – that they experienced such a scary shortage of housing in many large cities after WWII.

Most of the profit in the construction game in Ireland, winds up in the pockets of many people who add very little value. In some way or another, the profit is funneled down a rabbit hole of land owners, who stock pile that particular component of production (particularly in Dublin), banks rolling over finance and so on or huge land banks all over the city,… in order to keep supply of land scarce and off the market.

At some stage in the twentieth century, we decided that agricultural science was important in Ireland. But we never developed construction in the same way as we did things like agriculture. Construction was always something else, that was there to be ‘used and abused’. And it still is. BOH.

David, much obliged for that. I’ll get Fromm. Mind you those 1920s – 1940s versions were quantitatively and quantitatively different from our current lot. I simply do not trust them with my liberty. We may be a constitutional republic, but our government is an elected dictatorship. Our 1970’s versions? Please, I voted for the shaggers, though they did have to mark their own homework from the get go. The heirs presumptive are still in their playpen – and threaten to toss their toys out if they get scolded.

Scientists are just a bunch of inquisitive nerdy nerds! We’ve nowt all else to do but cogitate all day. Thought folk knew that. In my case, being a retired person, the prospect of being marooned at home all day was a very uninviting prospect. The campus beckoned. It was fun – apart from those exams!

As I said, we’ll be back at this residential property thingy. Thursday’s IT had a 30 page supplement of polychromic, kaleidoscopic, full-frontal, residential advertising porn. Hope they all achieve those low-yield asking prices.

Cheers, Brian.

Re: Social Housing Development when delivered ‘at Scale’

@ Jagdip,

Just to take that figure that Jagdip gave, of the 2,000 social housing units being built in Belfast city, over the next three years. It depends on how one wishes to deliver social housing in Dublin city. In the 1970’s what we did, was we built Tallaght. That is how we did things. That produces a certain social environment and a certain sense of community, that works for some people and doesn’t for others. The question is, do we want to go back again to that model?

Split the 2,000 figure say, down into 100 or more, decent sized schemes (that would involved numerous general contractors and dozens of skill construction professionals).

In total, I estimate, it would consume, around 20 acres of land at very high densities, excluding roads, infrastructure and open spaces. The great thing about the high density schemes, is that one can fit the hundred units on an acre, excluding roads, open public spaces and infrastructure (you are not talking about New York city kind of verticality and scale either, but a modest sort of ‘six storey’ type of development with streets that are well define and distinctly ‘urban’, in quality).

So for the 2,000 social housing units, assuming that we aren’t talking about high density apartment schemes etc (which Colm McCarthy mentioned on the ‘News at One’ radio program, a lot of residential zoned land in Dublin, had planning for high density apartments), to deliver the 2,000 social housing units over three years, would consume around 40 acres of land at medium densities, or say 50-60 acres including for public amenity spaces, access road infrastructure and all of that.

At low densities, that amount of social housing could consume any where between 50 and 100 acres of land (and that is where one does run into problems, because this is how we ‘built’ housing in Dublin city for a long, long time unfortunately). It depends, as I said, on what kind of city that one wishes to build (and who designs it, the builder like in Dublin of the 1970s, or the trained architect and urban planner of today).

To put it in some context, there is I estimate about 35,000 acres of land between the canals in Dublin city centre alone. The OSI notes reports that there are 230,00 acres of land & water in Dublin county alone. We are really only looking for 50 acres (one tenth of a percentage of all land between the canals), in order to accommodate the 2,000 social housing units built in the next three years, as Jagdip mentions. Based on these numbers, one does have to wonder why anyone working in Dublin at all, has to drive from Carlow or Westmeath.

To develop schemes that are less land intensive, one has to design solutions that work at higher densities. One cannot achieve that, without inclusion of help from good professionals in architecture, planning, engineering, cost control and construction management. The professional fees for development do go up in that scheme of things, compared to building rows of semi-detached homes across acres and acres in west Dublin, . . . but also, with the denser scheme, one has far less need to borrow and finance the land overhead costs (one does not have to go looking for prairie sized spaces, as politicians in the 1970’s did in Ireland, in Tallaght, Clondalkin, Clonsilla and generally all over the edge of Dublin city. BOH.

Brian O’ Hanlon Says:
April 21st, 2011 at 9:49 pm
John Corcoran says,

It would have been impossible to have had a commercial property bubble and crash with normal eurozone lease law. The Society of Chartered Surveyors lobbied for these toxic leases and were the mouthpiece for the landlords/speculators and their valuations were the greatest work of fiction in world property history. Please remember the banks lent tens of billions against these valuations and these toxic commercial leases.

Good paragraph. It more more less sums up the truth about Ireland. I agree with the logic as presented. What was very, very interesting to me, when my NAMA developer boss’s business crashed in late 2008, how the Chartered Surveyors all seemed to hold their jobs, as every other professional was fired abruptly. It was kind of like, we must send the kids to bed now. This is adult’s stuff. It really became clear to myself, of where the power lies in the Irish property scene. It is a lesson that I encountered the hard way, a lesson I will not forget tomorrow or the day after. BOH.


Watch that conversion factor for hectares and square meters (10,000 and not 1,000,…. like kilometers to meters for linear quantities). I am not a spatial planner by trade, so you will forgive me for not being used to working with these very large geographical numbers.

There are 3,500 acres of land between the canals in Dublin city centre, and this does feel about right. Because the pressure put on DESIGN, to accommodate housing units at densities of between 50 and 100 units per acre,… is sort of important, when we build. It can be done however, and work.

In other words, the 2,000 social housing units that Jagdip refers to in Belfast city, would consume 1.5% of all land area that is available between the canals in Dublin city centre. This is a significant proportion of that amount of land, and one can understand therefore, why it is difficult to accommodate such housing at lower densities in central areas of the city.

But again, this has been done in locations as central as Yorke Street (just beside St. Stephen’s Green), right in the middle of the city, up until recently. Yorke Street was one of the few real examples of social housing building ‘at scale’ though in recent times in Dublin,… and since then, we haven’t seen any schemes like that undertaken. BOH.

In other words, if one provides quite high density and well designed housing solutions (for smaller sized tenants), between the canals in Dublin city, the 2,000 housing units can be accommodated in an area as small as a half a percentage of the total area available.

This is why we tend to follow the higher density models in these central locations,… and I just feel that it is important to understand this point,… when Colm McCarthy or someone else, mentions that we have too many sites in Dublin county as a whole that are planned for apartment building, rather than three-bed family homes.

It’s a subtle point, but one worth bearing in mind. Someone else, who has a little time here, might be able to do a similar calculation for a typical 1970’s housing scheme in Tallaght or Clondalkin (most of the time, bad in those days, they flung together housing at low density, without building schools, or roads, or even having bus stops). I.e. Zero amenities. I presume that that is not the preferred model any longer. BOH.

Looking at it very quickly, Labour party themselves put the four seat Dublin south west constituency population at roughly 150,000 inhabitants. Bearing in mind that the Tallaght area itself is a much smaller part of that larger constituency, and based upon a rough area calculation for great Tallaght of say 5,000 acres (that is accurate enough for the exist ‘built’ area on the exist maps, west of the M50 motoway).

This comes in at under 10 persons per acre. Bearing in mind that much of Tallaght is not residential. There is a lot of it commercial, and roads, infrastructure, open space etc. You have hospitals and all of that. But still, the density there is not much more than 20 persons per acre.

What I suggested above, as being the middle-of-the-road, medium density solution for the 2,000 social housing units, would achieve up to 40 housing units on the acre, or perhaps between 70 to 100 people per acre. And that still isn’t going to a very high density (40 housing units per acre would not require six storey development say). It really does give one an idea of our land usage in parts of peripheral Dublin city at present.

I hope that the above, might be of some help to economists, who might be trying to figure out the meaning behind some of these numbers. Anyone, using very basic maths, can extrapolate out from the above, to bridge between the 2,000 social housing units that Jagdip refers to,… and the 8,000 plus social & non-social housing units production in Dublin city,… which the Construction Industry Federation spoke about on RTE’s PrimeTime show the other evening. BOH.

Re: Rental Streams from Residential

One last thing, to put it into perspective, and I’ll leave it. Just to emphasize the points that I made above, and also to put readers here in mind of the ‘contrasts’, that exist between different densities, in different parts of the city known as Dublin.

Down in parts of the docklands in Dublin, we are accommodating between three and four hundred inhabitants per the acre in some cases. Clearly, that is not a long term residential solution, but it is one in which many younger people do spend some part of their lives. These are the units which can command the €1,400 per month rents etc.

What we see in these parts of Dublin city at the moment, are rent rolls, somewhere in the region of €200k per month, per acre of residential developed land.

Obviously, the bubble in rental prices for residential Dublin, could be managed a lot better. But here is the thing,… from a landlord or developer’s point of view (who may never, have put these high density units on the market to sell, but have always been managed developments),… to bring rents back down to an affordable level, would mean a loss of income of roughly three quarters of a million euro per year, per acre of residential development.

What it would mean though, is that for each individual inhabitant in the said developments (who are trying to save up the necessary 20% deposit, over a five or six year period, for their first residential home mortgage),… if the residential landlords in the Docklands area, and all over Dublin city, were handled by whatever powers that be,… you would see a net saving of two to three thousand euros per annum for the inhabitants of those schemes,… and over a period of several years, that does amount to the 20% deposit, that Colm McCarthy described on RTE PrimeTime (where both spouses who were working, for a number of years, were able to save some money).

It was Fine Gael deputy, Damian English, who pointed out, that young people are saving nothing,… because it is all going into rents. Each extra million generated off each acre of developed residential projects in Dublin’s docklands, adds to the bottom line of those indebted builders, and goes some ways towards repaying the loans that they took out during the Celtic Tiger era.

Best solution in terms of it all,.. full and thorough banking inquiry needed, and collection of as much quality data as possible, to allow future makers of policy in Ireland, to have something to work off of. BOH.

Re: Further Clarification and a Need for a very thorough Banking Inquiry

We used to achieve well above 10,000 square meters per acre of net usable area in residential schemes in Docklands land in Dublin in the 2000’s.

Taking a figure of under €20 million for construction costs to generate this amount of residential space, the price of development land per acre now is open to a lot of speculation. (At the height we saw as much as €100 million paid per acre paid for development land in Ballsbridge in Dublin city, and the same site recently sold for only €10 million an acre, 10% of what was originally paid)

But even if we take that figure of €10 million an acre, and add in a generous margin for fees, finance etc, we still arrive at €40 million price tag, all in.

This scheme might generate as high as €2 million per year in residential rental income (excluding any commercial rents generated from ground floors etc, or parking space fees). This represents a 5% yield for one’s effort. But the major part of that yield is going to be dependent upon high rental levels in Dublin city, that we don’t like very much – leading to erosion of competitiveness of the Irish economy as a whole.

There are taxes and fees of all kinds, and that 5% yield figure, realistically, is a lot lower. Clearly though, this €100 million per acre price hike, of the mid 2000’s in Ireland for residential zoned land in Ballsbridge, does need some looking at,… as a part of the up coming banking inquiry. It would be hard to see how any borrower in Ireland, regardless of the economic climate, could be expected to remain above water, when his cost of materials was that high.

I therefore, return back to my very original contention to Colm McCarthy, of a few years back,.. that what we really saw in Ireland in the 2000’s was a smaller group of highly leveraged, risk taking, borrowers,… who drove up prices between themselves. And as I said, the only lens to see that through, is the one of finance, and in particular leveraged finance, and not that silly lens of supply and demand, which economists still insist upon using.

Finally, over and out. BOH.

Re: Boom Time Residential Development Land Price

Looking at that deal at Ballsbridge from the mid 2000’s, at €100 million per acre, for a two acre site,… working to this hypothetical five percent yield on investment. I think that one would need to accommodate, close to a thousand people per acre paying rent at the highest rates.

That is, it would need around 40,000 square meters of net constructed livable space per acre (or almost 80,000 square meters of residential space over the entire two acres), built over 30 storeys. We are talking about something the scale of Dundrum Shopping centre in other words, with a construction price tag of around a quarter of a billion euros.

And that is for a five per cent yield per annum only.

Builders did operate with those kinds of calculation, during the ‘boom’ in Ireland. They could borrow as much money from Irish banks, as they liked.

It is difficult for many, who worked in property in Ireland a decade ago, to figure out how to operate in today’s market. This same plot in Ballsbridge sold for a tenth of the price per acre in 2013. Builders can now only raise at most 60% of the finance they require for construction of projects (even where they already own the site, in an attractive area), as the young builder interviewed on RTE’s PrimeTime, the other evening said.

The difference between the construction industry in Ireland today, and that of less than ten years ago – is like the difference between planet Jupiter and Mars. Need we say it again? Banking Inquiry needed? BOH.

While Ernie’s point way up at the top of this thread may not impact the fundamental ratio of families to dwellings, it can significantly affect the price level in the market.

There is not just supply and demand in a market, there is also ability to pay. Currently, with lack of repossessions there’s an illusory ability to pay. People who are not paying and will not pay for the houses they’re in are effectively enable to keep pretending that they can pay, thereby raising the overall market price. The market today is still being forced to live with the price rises forced by yesterday’s lending.

Hugh, the Irish residential property sector – I cannot call it a market, is so tightly rigged, manipulated and distorted that the economic theory of Supply v Demand – with the appropriate price signal, is completely invalidated.

To use a cricket analogy: the residential mortgage lenders are batting and bowling at the same time. In effect, they are simultaneously Demander (interest income) and Supplier (fiat credit).

Now money created ex-nihilo has no prior, so there is a philosophical issue along the lines of Locke-style ownership. Is something which is created from nothing then the private property of the creator? I though only The Almighty could make this claim.

residential property repossessions – other than in the BTL sector, holiday and second homes, and the few residential properties beyond the three Standard Deviation price limit, will not ‘cure’ the mess. It will simply make it worse. Thought this was obvious. Maybe not.

What is required are unconditional write-downs and write-offs of all non-performing residential property loans – where the property is occupied by the owner as their principle private residence. And the Government declares it will not backstop a single one of these downgrades. Our government is a sovereign? I hope so.

“Promises are given according to motive, but fulfilled according to circumstance.” [Igor Gouzenko – ‘Fall of a Titan’]

The downgrades have to be followed through with a draconian set of regulations that will permanently castrate the residential property lenders – they will only be able to lend a multiple of one for any deposits they hold. They can beseech the ECB for additional fiat credit if they need it, but the Irish government declares its not our taxpayers who will pony up in any default. Actually, there would, in practice, be very few non-performing residential property loans by then.

This matter has a longish way to go yet. Shutter Island comes to mind.

@Brian – I think you and I have different ideas of what ought to be done on write-offs.

Nevertheless, the lack of repossessions can still be a factor in keeping prices higher than they would otherwise be. The level of supply and demand is not – unlike what Ronan seemed to imply – the only factor in where the price level settles.

Hugh, we do ‘see’ things differently. No real matter. Thanks all the same.

I ‘see’ supply as being of the fiat credit needed for purchase, not the actual number and nature of the dwellings being offered for sale and demand being the interest income of the lenders, not the population of persons who wish to purchase a home. Quirky. But there it is.

I’m not asserting, since I have no plausible argument to support it, that repossessions have NO effect. So, I’ll stick with my so far, failed to be disproven, Null Hypothesis.

I’m running a ‘quick-and-dirty’ analysis of the res properties listed for sale in last Thursday’s IT property supplement. Its mind blowing!

Re: Balance Sheets and Banking System in regards to Dublin Residential Supply

To take that figure that the Construction Industry Federation suggested of eight thousand housing units being needed to offer a sensible supply of housing units to the Dublin city market, I would estimate that land area of around 5,000 acres would take around two decades to build through. And an area of land of that size would quite easily accommodate the amount of building of homes per annum, which the Construction Industry Federation talked about in Dublin city alone.

5,000 acres is about the size of the built-up greater Tallaght area at the moment.

What does it all mean in terms of the balance sheets of our banking system in Ireland?

In terms of construction costs alone, for the 8,000 homes per annum in Dublin city, we are talking between one and two billions worth of construction costs per year (say two billion euros including all professional fees), and a lending system that is capable of working around that figure.

I don’t know whether that is NAMA, or private banks, or PPP’s, or REIT’s, or some combination of those, to offer financing. This one or two billion per annum, in Dublin city, also excludes finance for development land.

Lets look at those costs of development land in Dublin city (because it does get interesting there).

At around €2 million per acre, in 2014, it is easy to arrive at an estimated value of seven billion euros for 3,500 acres (that is the same area that is between the canals), for land, inside the county boundary anywhere in the county of Dublin and within commuting distance using good public transportation of any workplace, anywhere in the area.

€ 7,000,000,000

That excludes the cost of roads upgrading, and the cost of upgrading of utilities and basic services to the land (that has to be undertaken by local authorities). Whether you collect those fees by planning levies or whatever, is all open to debate.

Seven billion euros is a very easy figure, to work around for land costs, and should not put that much stress on a banking system. We still would not have to go to county Meath to buy that land. But why did the banking system in Ireland at the end of the 2008 (on the night of the infamous ‘banking guarantee’,) get as large as it did?

At an estimated value of €10 million per acre for development land now between the canals in Dublin city in 2013/14, (down by 90% since the peak of the boom), one could still purchase 3,500 acres for around thirty five billion euros.

€ 35,000,000,000

Okay, one does require a robust, competitive and healthy Irish banking system to handle that (that is, exclusive of any construction costs). And then let’s double the price per acre of land in Dublin city centre, compared to today’s 2013/14 benchmark, and the value of the land between the canals in Dublin rises to seventy billion euros.

€ 70,000,000,000

Then, we can see, that we are in the territory that Irish (and foreign) banks found themselves in, in the period between the introduction of the euro in 2002, and the collapse of the banking system in late 2008. You can see, the impact that land valuations do have on the balance sheets of financial institutions. But this is still not the end of the story. BOH.

Re: Questions for a Banking Inquiry

Here is an important point to remember (in terms of any banking inquiry).

3,500 acres between the canals in Dublin city, was never valued in the region of €100 billion during the Irish property bubble. What we saw back then, in Ireland, in the bubble period of the 2000’s,… was that the land in Dublin city centre of approx. 3,500 acres,… if one was to place it all as a figure carried on the loan books of the banking ssytem,… it would reach a value of ten times the 2013/14 value.

The Irish banks were valuing this land in the whole of Dublin city centre (without any buildings on it at all), in the region of three hundred and fifty billion euros, or a multiple of the size of the Irish national GDP.

€ 350,000,000,000

The real problem with that valuation for land in Dublin city centre, is that it makes it very difficult for property developers to achieve acceptable yields for the risks that are undertaking in their projects.

In order to generate a conservative yield of 10% on such a risky investment (which would not be off the charts, because of the amount of risk involved in construction), before taxes, insurance and management charges,…. the value put on development land in Dublin city was away too high.

Bear in mind that Ireland’s Gross Domestic Product, never broke the ceiling of €200 billion in the late 2000’s (even when we were building 90,000 homes per annum during the bubble, and had close to zero unemployment).

Irish Gross Domestic Product, has been reducing down to around €150 billion in recent times, with austerity, higher taxes etc (and this is still falling as I understand it).

The valuation of development land in Dublin city centre, during the boom era, was marked up to twice the value of the Irish GDP in 2014.

This is one of the best reasons why we do need a banking inquiry, and we don’t fully understand today, why that happened (everyone today is going around claiming ‘they know what happened’. In other words, we are now all economic geniuses (that is what the Icelander’s also believed).

The value of a supply of 3,500 acres of residential development land even in Dublin city centre (if one were to put that whole value of that development land on the loan books of an Irish banking system), should have been at most around half the value of our national GDP.

Somewhere in the region of 70 to 80 billion euros.

That is for 3,500 acres of land at the highest value inside the canals, or between 5,000 and 10,000 acres of land, anywhere outside the canals and inside the boundaries of Dublin county.

No one is saying that one has to put the entire value of that supply of residential development land on the balance sheets of Irish banks, all at one time.

But that figure of 70 to 80 billion euros, is the outside limit, of what it should cost (for a whole two decades worth of supply of residential building land for the whole of Dublin city). And it should never have climbed up to the region of €350 billion, as it did do in the mid 2000’s. Because when that happens, where land in Ballsbridge was costing €100 million an acre, there was something fundamentally wrong with the system (the fundamentals were very far from being okay). BOH.

Foot note:

The infamous Irish Glass Bottle site, which no doubt former Taoiseach and so on, will be asked about in a banking inquiry, doesn’t seem any where near as mental, looking at it, compared to what happened around Ballsbridge in the mid 2000’s.

After stamp duties and other charges, a cost of approx. €17 million an acre was paid for 25 acres of land in Ringsend (and that cost was kept down, owing the considerable ‘clean-up costs’ of industrial waste, that did come with that land. But even so, it was still a small fraction of what was paid for land in Ballsbridge at that time.

It is strange, therefore that the Irish Glass Bottle site deal (which of course did involve the public purse), attracted the level of ire that it did after the crash. The worst factor about the whole deal, I guess, was that the land of 25 acres was re-valued at less than two million euros per acre in 2011, only a few years after the initial deal involving Anglo Irish bank, had been brokered.

You can do your home work though, and bearing in mind that highest prices gained for development land per acre was €10 million, in recent times, if all land in Dublin had been purchased at around Irish Glass Bottle, site price levels,… we would all be much better off now. BOH.

Re: Housing Densities

Some additional cursory analysis.

Looking quickly again, at those housing densities, where much less urban solutions are chosen (more back towards the ‘open field’ kind of 1970’s model of house construction). Give it 15 houses per the acre say, that would consume 530 acres per annum roughly (excluding roads, open space amenity etc), to deliver those 8,000 to the Dublin housing market, which the Construction Industry Federation mentioned.

And taking that hypothetical 5,000 acre allocation (which is only two percent of the land & water area of the whole county of Dublin), that will suffice for ten years worth of construction.

The problem with this later solution could be, that the land consumed happens to be cheaper land that is further out into the hinterland of Dublin city, and less well served by transport and other amenities. In other words, there are benefits to a housing policy for the great Dublin area, which does involve use of land resources that are more expensive, and less far out. What that does in effect, is that it will make public services such as bus and railways more profitable, and also more affordable (as more and more people use the service).

Clearly, in the 1970’s in Ireland, we did get lured into some trap, where the idea of generating construction activity was dominant. We acquired an awful lot of cheap land, that was very remote from the rest of the city, and in turn that led to large populations being transplanted to those areas,… and the subsequent loss of revenues to public transport and so forth.

What is really shocking though, about so-called NAMA Land, is that it took the model developed for housing in the 1970’s in west Dublin, . . . and it extended that to the next level entirely. Homes in NAMA Land, were seen as they were being built, somehow, as commuter belt homes to the Dublin urban area. In other words, it was the zenith, in terms of the old 1970’s housing development concept, of acquiring the land at the most dirt cheap price possible, . . . and not providing ‘zero amenities’, on that occasion, but instead providing less than zero amenities, somewhere in the middle of county Cavan of Longford.

Hard to know again, how we got sucked into that (because it was a lot of Dublin builders and developers, who developed that land in Longford etc, with planning permissions, and flipped over the sites to local boyos). Probably another good candidate, as a case study, as professor Alan Aherne would have suggested for a future banking inquiry (another ‘model’ of how we construction houses, different, but no less destructive than spending €100 million acre in the middle of Ballsbridge). BOH.

I listened to the Minister for his brudder’s industrial sector waffling on about social housing yesterday .. blah blah

I listened to Minister for Housing – Jan O’Sullivan – this afternoon attempting to defend the un-defend-able ……

and I listened to Peter McVerry this morning with Miriam and Eamon, who reminded us what life was like in Derry in the 0s/60s

And I note NO substantive comment on the suggestion By Michal Taft above on how to address social housing crisis ….. so I repeat some of it here:

This €7 billion is being spent on paying down debt. It comes from the Government’s considerable cash balances. At the end of 2013, the Government held €18.5 billion in cash. This is made up of money that has already been borrowed and revenue from bank investments (e.g. bonds held in Bank of Ireland, etc.). The Government is taking the €7 billion and paying down Government debt to lower the debt/GDP ratio.

Read on: http://www.irishleftreview.org/2014/05/12/time-year-homelessness/

‘€3.5 billion would build approximately 20,000 social houses. This would house over 20 percent on the waiting list. And this programme could target the nearly 3,000 living in emergency accomodation.

This would make a significant impact on housing need in Ireland – though it would only be a beginning. More housing could be brought on stream if currently unsuitable social housing were brought back into the system – the average cost of rehabilitating social houses is €17,500.

The impact on employment would be considerable. 35,000 direct jobs would be created – that is, jobs on site. ‘


@Minister Jan O’Sullivan

You have a reputation as a decent, hardworking, and caring politician. In the spirit of the stonemason James Kemmy – you have been provided with pepples for the housing crisis …. a gross insult, from this Gov and the Minister for Finance in your own constituency:

Take the honourable action to highlight this disgrace – RESIGN. There is another party which would welcome you – and a possible path back to government in the future.

Results of a ‘quick-and-dirty’ analysis of 148 res properties (houses only) listed for sale in last Thursday’s IT property supplement for Dublin postal districts (4, 6, 6w, 8, 14, 16 and 18) and South Co. Dublin. Probably tells us more about the location of IT readers than the properties! There were only 3 properties listed for north of river.

The list is: district: count of properties: mean price and median price. [Apols: I cannot embed a proper table. Any suggestions?]

D4: 14: 1,062,000: 950,000
D6: 25: 1,132,000: 1,000,000
D6W: 5: 556,000: 550,000
D8: 6: 614,000: 672,000
D14: 18: 795,000: 687,000
D16: 5: 516,000: 500,000
D18: 4: 1,113,000: 1,145,000
SD: 68: 865,000: 875,000

The mean and median prices for the 148:

858,000 and 795,000 respectively

Re: Don’t Laugh too Hard: Irish Economists who try to understand Land

Economist have, in my opinion (and it includes central banking govenors and all and sundry, have done an atrocious job, post-crisis here in Ireland, in this regards. Dismal.

The problem, as I mentioned, that we have here in Ireland, is zero communication and exchange of points of view. What we have here in Ireland are a whole bunch of academic and private sector economists who try to understand land and development policy. And a whole load of land and development professionals, who try to understand economics. Never the twain shall meet, and there is a heavy price indeed, to be paid for this failure.

Alan Aherne was interviewed briefly on RTE radio by Claire Byrne and her panels yesterday afternoon. Aherne is someone who has dedicated a lot more time to studying the Irish problems and debts, crisis etc, than many have done. He did mention some thing though, in his comments on radio that certain builders in Dublin would have acquired ‘land banks’ as purchases made back in the 1990s (in other words, well before the ‘boom’ in development land prices in Dublin and Ireland as a whole).

The point that Aherne was making, was that these builders should easily be able to start construction now, and deliver product to the market for housing in Dublin, because their cost of inputs is that low. In other words, they are de-leveraged, as opposed to being highly leveraged.

However, what Aherne was saying depends on several presumptions. It depends on the notion, that people who happen to acquire land at a favourable price per acre, are also the people who are willing to take on risks associated with building construction of any kind. That is not a given. Even a house builder who operated quite a lot twenty years ago, may have moved on from that kind of enterprise today. Colm McCarthy mentioned things called ‘stranded assets’, on the balance sheets of some state owned monopoly companies that manage important utilities.

A lot of land around Dublin, is like a stranded asset on the balance sheets of some companies.

When Aherne talks about the need for builders who purchased land in Dublin at 1990’s prices, he somewhat misses the point. As soon as these lands, exchange hands again, at an opportune time they get converted back into today’s prices (from the point of view of whomever is taking on the risks of construction).

And anyhow, companies that tend to own development land in Dublin, tend to treat that asset as being like ‘gold’. That is, it is there as a kind of ballast, or reserve within the organisation (a risk buffer if you like), which can be called upon at some stage, if one needs to present it as collateral, where one needs to borrow. The more valuable that the land appears to be getting, the more and more that people who happen to own land (regardless of what price per acre they acquired the land at), tend to play a wait and see game.

And in any case, it is just silly to try to lump together land speculators, with builders in any case. It is like saying that donkeys and horses, generally look the same, therefore they are the same species. In reality, those in the business of speculating on the risk of buying/selling land, tend to operate in a different universe, from those who speculate on the risks to do with construction and planning. They are chalk and cheese, and for Mr. Aherne to simply lump the two together, just displays in Ireland, the real lack of a conversation going on at the moment, between professionals who are birds of a different feather. BOH.

Re: What are the lessons we should have learned?

We have been prevented in Ireland, from really learning the lessons of the crisis, because of the fact that economists in general are too strong a lobby, and drown out all other voices. And to be honest, economists don’t really have a handle on how land markets operate, or should.

What I would like to see though, and it would greatly assist in the operation of the market for land in places such as Dublin in Ireland, is more use of derivatives and taxation. We probably do need to hold a lot less of the real tangible asset, on the balance sheets of credit institutions in Ireland.

Whether the acre of land, in Dublin is recorded as collateral, or a liability in terms of a loan to purchase land, or whatever,… it is simply a bad idea to have too much ‘land’, rattling around inside of the Irish banking system.

The inflation factors are just too high, and dangerous, to ever be kept in control,… even with the best will in the world, and the best banking expertise in the world. Ireland will never have the best banking expertise, because even the highest paid bankers in Ireland, earn only a small portion of what their equivalents earn in Great Britain and elsewhere.

What we can do, instead, of relying on bankers to manage things like development land, a thing on their balance sheet, which might decide it wants to inflate or deflate in very short periods of time, by factors of up to ten,… we can do things to reduce the amount of this asset that ends up on the balance sheets of our credit supply institutions.

(I have tried to describe above, where keeping a two decade’s worth of supply of development land for Dublin residential market alone, on the balance sheet of our banking system, can imply a volatility in the value of that asset,… of anywhere between a few billion euros and a few hundred billion euros,… for the exact same thing)

This is exactly why, when I listen to so-called banking experts, such as Alan Aherne, try to conceptualize about development land, and prices that these entities that he refers to as builder’s, paid for those assets in the 1990’s,… I really do have to get fearful.

We should look at two things therefore.

Land Taxation is one way to burn the fingers, simultaneously of anyone who tries to speculate in the market for development land in Dublin city. It doesn’t have very many fans (the argument might be, that builder’s will rush out to county Meath and so on, where they face less exposure to land taxation).

The main point about land taxation though, is when you look at the level of extremely dangerous volatility that land speculation can introduce into the Irish financial system (and it’s the main reason why we are in such a mess), is that land taxation, can actually blunt the edge off of that.

I am not saying for a minute that land taxation is perfect.

But when that pocket of land between the canals in Dublin city centre, begins to rocket upwards, through the ceiling of €100 billion, and race towards two and three billions in value (much of it appearing all of a shot, the balance sheets of lending institutions unfortunately),… and you get land changing hands in Ballsbridge at well above ten and twenty million euros an acre,… then the governments of the time, do have to race in with the fire hoses, and hose down the markets, with generous helpings of land taxation.

There has to be a point, at which that ‘kicks seriously into action’ – which obviously did not happen under previous Fianna Fail governments. We should learn the lesson of this in a future banking inquiry, and put in the fire departments that are needed to deal with this sort of a calamity. Because one thing is for sure, the Chartered Surveyors of Ireland, aren’t capable of doing anything about such fires, or any other property professional body either.

The other thing that we can seriously look at doing in Ireland, is to develop futures and options systems of trading in development land assets for the capital city in Dublin,… in other words, traders deal less with the tangible asset,… and more at arm lengths from that, and it in turn can be financed through our banking and credit system – without blowing up the world, ever quarter of a century.

But the main thing is that we don’t allow things to get onto the balance sheets of our banking system, which have the ability to inflate as grotesquely, and destructively, as do things like land. When economists think about development land in Dublin county, think of it less as a raw material, or mere factor of production used and consumed by this creature that they call the builder. Instead, look at it more in terms of the way that they do look at gold (and all of the associated reasons that were made, for removal of monetary systems, from gold as standard, several decades back). BOH.

@ DO’D: I am wary and skeptical of any, and all, so-called solutions to the maddening complex issue of homelessness and the need to provide so-called social housing.

The homelessness issue is an obscene political and social disgrace. Its unconscionable and unnecessary. Its become intractable due to either willfull blindness or incompetence – but more likely its due to sheer bloody-minded, political cowardice.

It is a serious hindrance when one realizes that many homeless persons have significant medical and psychological issues – including substance abuse. You need a multi-task approach to their problem. Simplistic, linear proposals just fail the sniff test.

The social housing issue is another matter entirely. You are not dealing with sick and impoverished persons who can barely help themselves. Philosophically, you need to get your mind around the idea that some folk simply do not have (nor likely will have) the necessary level of personal income to afford to save for a deposit, purchase their own home, then pay down a mortgage over the next 30 years. Why they lack that income is itself a separate and vexing issue. Effectively, you are asking the taxpayers to pay a proportion of the cost of housing some of their fellow citizens. You need to put that question directly to the taxpayers. Leaving it to the choice of elected representatives is simply presenting them with a political football, which they will pass back-and-forth between themselves.

MT just does not appear to possess a clear and politically unfettered view of the above two issues: they’re very, very complex. And that’s the hard part: getting your head around the notion that they are indeed very complex. Because when that inconvenient concept becomes part of your mindset – you tend to be quite quiet, and measure your comments and proposals accordingly.

I do not know why you keep on about the ILP. They are now a political lost cause. The leadership was presented with a once-in-a-political-lifetime opportunity after the 2011 election. They chickened out! They bailed themselves in, and are now collecting the spoils. Let them rot.

I’ve opined about this before. But I expect that we will have two, possibly three, inconclusive parliamentary elections in as many years (a reprise of the 1980s), before the shape of parliamentary parties, with reformed social policies, emerge. I hope.

In the meantime some folk want our government to borrow more! I despair.

Cheers, Brian.

What you write is covered by anti-trust legislation in the USA. They experienced in the years after the Civil War the development of fewer and fewer and larger and larger ‘industrialists’ slash speculators. That saw then that few men controlling the economic development of the State was a recipe for utter disaster as occurred.
One thing that was different with our lated economic cock-up was that the English economy was doing the same thing. In the past when we went through a liquidity boom it was due to a flight of capital to the Irish Banks. Usually the assets in the UK would more than cover the failures here.
But in truth, one of the things that’s always worried me is loose cash sloshing about. And I get profoundly scared when I hear that local booms are occurring when there is little of no cause that can be decerned.
Yes, a bit of it is explainable. Most isn’t.

VincentH wrote,

One thing that was different with our lated economic cock-up was that the English economy was doing the same thing.

Had it not been for the British (and as economist Colm McCarthy did point out on RTE PrimeTime, in America also), it is viewed as this terrible imposition on first time buyers to expect anyone to save towards a deposit to buy a property), . . . in Ireland would not have had a ‘lead’ to follow.

The property speculative bubble, which did occur in Ireland, might never have reached the heights that it did, . . . save for the fact, that we were emulating our British neighbours in many respects.

The industrialists or speculators who operated out of Ireland (our modern-day version of the Rockefellers, Vanderbilts, Morgans and Carnegie’s), were experienced at trading in property across the water in the United Kingdom as well as here in Ireland.

Likewise, a lot of the lenders, whom the Irish builders were dealing with in the United Kingdom, were becoming active in the Irish property market too.

I know that the plan, as recently as October 2008, when we had our property developers conference, and our society of chartered surveyors annual conference etc, . . . and bear in mind, that this is after the infamous banking guarantee that everyone talks about, . . . was to figure out how Irish builders and banks could expand beyond Ireland and in to trading in eastern Europe.

David Drumm of Anglo, for example was a keynote speaker about Banking, at home and abroad, at the chartered surveyors annual conference in October 2008, at University College Dublin.

The Irish property market had become congested and Irish banks as well as their borrowers needed more room to stretch their legs, in the wide open spaces of the Caucasuses.

In late 2008, the recent credit crunch, as it was termed, was joked about, and seen as a minor blip on the road to further greatness of the Irish banking and property industry. We just needed to get those four million taxpayers, to put their weight behind the wheel, just a little bit more.

But the party was still going on, in full swing.

You still had a lot of ‘solvent’ banking borrowers or customers, who had put down €100 per acre for land in areas such as Ballsbridge.

A banking manager here in Dublin in 2008 would have looked at a ‘business plan’, and looked at that builder’s collateral.

I see, that you own an acre of development land in Ballsbridge! That’s excellent! That’s worth what? A hundred million say. We can extend you sixty million, again that asset as security. Great!

Next thing, those evil people on fora such as the Irish Economy blog were talking it down.

It’s a land price bubble. Not so!

Instead of having 150% security on their loan (very prudent indeed), . . . suddenly, it doesn’t lot as prudent, the Irish banks realize they might only have 15 to 20% security on loans.

Shocking. Temporary glitch though.

The executive at the office of the financial regulator is on RTE’s PrimeTime, trying to quench out the fires, . . . we are so well capitalized, better than any bank in Europe, able to absorb any shocks, . . . and so on.

This is why I say, that any mechanism, whether through a futures exchange, or options trading, or taxation measures (land taxation at the most extreme parts of the cycle is good, in that it applies to speculators who are with domestic and foreign banks), that takes the edge off the worst effects of development land asset price volatility, is something that we do need to introduce.

Until then, we are always at some kind of risk. BOH.

@ VincentH,

Remember, that Anglo were selling commercial real estate mortgage securitization products on the London stock exchange, backed up by Irish commercial real estate assets.

They were busy working on the necessary legislation, in order to introduce such products on to the Irish stock exchange here in the late 2000’s.

It is similar to the ‘push and pull’ strategy being introduced by the Fine Gael and Labour coalition in Ireland at the moment. I.e. It is not enough to shovel credit towards, builders, to create product on one end, . . . you have to shovel credit towards, buyers, on the other end too, in order to collect the product as it falls off the end of the conveyor belt that you have established.

What happens with commercial real estate asset securitization, . . . is that it lessens the time (and risk), it takes to dispose of commercial real estate product at the other end.

When you extend a lot of credit (as in hundreds of millions at a time), towards borrowers to create commercial real estate assets, you don’t have to find a single pension fund, or other buyer to take that asset away from you at the other end, . . . if you can securitize the income generated from that commercial real estate asset. You can source our lots and lots of ‘little buyers’ (maybe even smaller pension funds, or one’s who don’t want to commit themselves to actually owning the piece of real estate), on markets such as the London stock exchange – and the Irish one, as they tried to do at Anglo.

It is a push and pull, strategy.

You not only push the credit into the creation of real estate assets, you also pull the product much faster off the end of the assembly line too. This is what the Fine Gael and Labour coalition strategy is now at the moment. It’s about engineering a demand, for a supply, which they intend to create.

You can argue about the relative merits of it.

But what I don’t see anywhere, is the kind of engineering, to deal with the level of volatility that ends up, inside the Irish credit supply system, because of development land price inflation, . . . and how that volatility then transmits itself, from there, to many other areas of society and the broad economy.

It is like the economists, and policy makers here in Ireland, still refuse to recognize that. I don’t fully understand why. BOH.

Re: Questions for a Banking Inquiry and for Irish Economists in General

Every time a new higher benchmark for development land was set in Dublin, as a result of some new banking credit fueled transaction, work would cease on a lot of other projects that were going ‘through the pipeline’.

Looked at from the point of view of designers of projects, it used to be very inconvenient. Every time the market for development land went up, designers were sent ‘back to the drawing board’ (literally), and expected to find ways to add more storeys of accommodation, on to existing designs.

Land owners, saw that their land was too valuable to be ‘given away’, and the old housing design scheme would get scrapped. As the land market in Dublin rose, it felt to developers as if they had more and more money to squander on design, and more time to do so. This is how so many leveraged borrowers got caught, with so much borrowings on their books in Dublin, by 2008.

Instead of building anything, they just got into the habit (owing to the land price inflation), of going out spending higher amounts for development land, at a higher price per acre. But very little construction of actual product, happened.

What economists do not understand, is that land ownership is no more than an option to make use of ‘air space’. Land is a factor of production, with more than two dimensions.

What happened in locations such as Ballsbridge, was that housing construction never commenced, despite all of the huffing and puffing, at the time, and even though such high prices for land had been paid. Why?

In order to keep the cost of air space, low, having paid Ballsbridge prices for land, developers were looking to build over twenty storeys.

With a building height of thirty storeys, at land prices of €100 million per acre, a cubic foot of airspace, was selling retail at (to the apartment unit buyer), at fifteen euros. Price per cubic foot of ‘air space’, means just that. The cost of that air space, to the purchaser of the residential unit, WITHOUT a single cent’s worth of construction (construction costs are additional, to the cost of ‘air space’).

Ownership of development land (in two dimensions), must be understood as an option to make use of ‘air space’ (in three).

If one reduced density of development, to under twenty storeys, retail price, of a cubic foot of airspace increased tenfold, to a cost of maybe one hundred and fifty euros a square foot (excluding construction costs to the buyer of the unit).

And so on.

As one reduces development density in Ballsbridge, down to a mere ten storeys, the buyer of the unit must pay up to five hundred euros for the privilege of access to each square foot of that ‘air space’.

Every time a transaction takes place that affects the value of the underlying development land, the developer feels they have to re-check the whole design again, to ensure that they are not leaving money on the table.

There is always a suspicion on the part of developers, that they can tweak more out of density. Architects, engineers and surveyors get sent back to the drawing board, but never get to build anything.

Recently, I watched on television that Irish developers in Soho in Manhattan in New York city, are doing gymnastics with the three dimensional zoning laws of that city. But I have yet to see one brick being laid on top of another. It involves paper, a lot of hot air and not much else.

The credit lending institutions in Ireland and so-called ‘builders’ get into a game of playing around with paper design, never build anything – and it all tends to get really expensive – as development land values increase.

It becomes a very addictive sort of game of Sudoko, which is funded through the Irish banking system.

Hundreds and hundreds of millions of euros change hands, not a single miserable housing unit gets produced. Furthermore, the Dublin market gets starved of product, and the price of units further sky-rockets, and in turn the price of land sky-rockets, and then the supply of product slows down even more, . . as ‘builders’, are extended more credit, to buy more land and produce more imaginary housing units.

It is just not as simple as economist Colm McCarthy tried to explain.

The volatility of the price of land in the Dublin market, dictates the delay in supply of housing that we observe in reality. This is what economists do not grasp. Those who invested in land in Ballsbridge recently, to acquire it at a full tenth of the peak price, are more than happy to sit on the fence too. The point that Alan Ahearne makes, that lower costs of input, lead to higher outputs of product, simply does not apply. On the contrary, lower costs of input, lead to more waiting game, and more and more paper Sudoko.

But very little in the way of housing product.

What Irish economists do not understand, is when you do anything to reduce the levels of volatility in the price of the underlying asset of residential development land in Dublin (regardless of the means of which you do it by, land taxation, options trading or futures markets), you automatically solve the problem of lack of supply of housing units to the market.

You reduce the amount of ‘choices’ available to the players involved – you kick the paper Sudoko players out of the market – and whoever is left, simply has to get on with something. BOH.

Re: A distinction between Real Estate and Construction

We do not always make that distinction in Ireland.

People in Ireland focus on 93,000 home construction completions in 2006. The focus on this figure draws our attention away from something else. You break down that 93,000 figure, and you understand that far less of the the Irish banking system’s lending capacity was tied up in that, than you would think.

The land used to build a lot of the 93,000 houses was not in Dublin. During the ‘building boom’, in Ireland, we had problems producing housing units in Dublin. We under-produced. We had an awful lot of paper projects, and very few real ones. We probably built more housing units in Dublin in the 1970’s, than we did in the ‘building boom’. The so-called overhang of property in 2009 in Dublin that we had created, only lasted a couple of years, and vanished.

The vast majority of the Irish banking system’s lending capacity, was chewed up in the 2000’s, in lending activity (in trading of acres of development land at €100 million in Dublin), that resulted in no housing completions at all.

Colm McCarthy points out, that planning permissions attached to residential zoned land in Dublin county can be too restrictive, or too prescriptive. It creates problems of delay in the supply of new product to the residential property market of Dublin city and county. He is partially correct, but not fully correct.

Look all over Dublin city. Uncompleted ‘Point Village’, old Veterinary college site, Jury’s land, the ‘Glass Bottle site’. What we tend to find, are billions of euros changing hands in a series of deals (financed by Irish lends), and the net outcome is that not a single housing unit is produced. In other words, close, but no cigar. A lot of trading of assets, going on, and not a whole lot to show for it.

You can see in the case of ‘assets’ traded by the Irish in London – Battersea Power Station, hotels, land, what not. All using resources of lending made available through the Irish banking system (which results in no real construction, either in Ireland or in the United Kingdom).

People do not make a distinction between the activities known as ‘construction’, and ‘real estate’. They are different things, involving a very different cast of characters and set of skills. In Ireland, we did not create a bubble in construction. What we did do, was we created a bubble in the real estate industry (trading both domestic and foreign real estate assets). The crisis in real estate industry, fed into construction, and marked the destruction of it. The supply crisis that we now face in Ireland in 2014, is as a result of the decimation of the construction industry, that came about as a result of the collapse of real estate. BOH.

BOH’s posts of 5.34 and 5.35 are worth a read.

In particular I suggest the emphasis on land price volatility is pertinent.

Re: Housing Supply Metrics

@ Grumpy,

This thing of shortage of supply, has become a huge problem now in many ‘destination’ cities throughout the world. For example, in the years of the so-called ‘housing bubble’ (between 2000 and 2006/7), in the city of New York, five boroughs, there were twenty five thousand new home completions per year.

That was when there was a so-called ‘housing bubble’ happening in the United States.

To put that number of home completions into perspective, in the five boroughs district in New York city, which is around 300,000 acres, or slightly larger than the area of Dublin county, . . . there are roughly two and a half million households, as it stands.

In other words, 25,000 home completions in the five boroughs district of New York city, per year, is a replenishment of about one percent of the total stock of housing each year (it barely keeps up with the pace of decay of old housing stock, over a hundred year period).

There is a population of around eight million in that five boroughs district alone. In other words, Ireland as a country of between four and five million people was delivering almost four times the number of home completions per year, by the late 2000’s, as a thriving urban district two times its size in population was able to deliver, . . . in a period in north America, which was described as a ‘housing bubble’.

I raise the comparison here between Dublin city and New York city, because they are often compared to one another, when it comes to the issue of inflation of residential rents.

Apparently in Ireland, we have almost two million households at the moment, for a population of five million say (that is almost two million ESB meters). But in New York city broader district, they have that number of households packed into an area, a little larger than the size of Dublin county.

The point to remember, is that the performance in regards to house building is not any better in the great cities, compared to how it is in Dublin in Ireland. The bulk of the housing stock that now does exist in the greater New York city area, was completed under Federal building programs, in subsidized housing, undertaken by John F. Kennedy and Lydon B. Johnston, back in the 1960’s decade (back in those days, New York city was able to pump out 70,000 home completions per year).

Although, from what I can tell, the population of New York city has been roughly stable at over seven million since the 1930s (it began to creep over the eight million mark, at around 2000, but has been relatively stable since then).

This problem of delivering housing stock on time, and in enough volumes to the world’s most thriving cities, is one that they all do share today unfortunately. Some reasons that were cited for the improvement in delivery of homes to New York city under the presidents that are mentioned, was that the Federal government, was able to simply ‘free up’ land at the stroke of a pen, and make the house building almost happen.

But even for a population of seven million inhabitants packed into an area the size of Dublin county, in the 1960’s Federal housing building programs, . . . the Americans never reached that same height as we did here in Ireland of 93,000 home completions per year in the late 2000s, . . for a population in Ireland, that is about half what New York had then.

It is safe to say that Ireland did have a housing bubble. But it just didn’t happen in Dublin, ironically, where the banks did extend the most amount of credit in order to buy up residential zoned land. I keep saying it, this is something that the banking inquiry, in Ireland, should examine above and beyond, anything else. BOH.

Re: Comparison with London Electoral districts

Having looked at New York city, London is another example worth mentioning (and it was mentioned by a lot of Irish developers during our property bubble, who wanted to emulate certain aspects of London’s urban environment).

In terms of population, London and New York, are a couple of the few ‘mega cities’ that are now left (the large, very dense cities are all in Asian and in the southern hemisphere in the 21st century it seems).

The media in Ireland in May 2014, was full of coverage about ‘local elections’. It does provide the opportunity to highlight some things.

And maybe this does get back again, to what some builders in places such as Ballsbridge were aiming to achieve. Dublin city has a population of around 850,000 between its four local authority districts – South Dublin, Fingal, DunLaoghaire Rathdown and Dublin City.

Fingal county council district is by far the largest of the four districts in terms of land area, although Dublin City council (with almost 30,000 acres of land), has almost twice the population with 327,000 inhabitants.

Yes, we probably do achieve good density in that central part of Dublin city.

That is almost eleven inhabitants per acre of land.

And to be honest, Dublin City Council local authority, with its 327,000 inhabitants is as big as the largest boroughs in the 32 in London (Barnet borough on the northern outskirts of London city, is the largest with almost 350,000 inhabitants, for an area somewhat smaller than that of Dublin City council’s 30,000 acres).

The thing to bear in mind though is this.

In terms of urban density in the city of London, boroughs such as Westminister on the north, and Lambeth on the south are about as density as it gets, with well over 40 inhabitants per acre in each of them. That is four times as much as we do, in the most densely inhabited parts of Dublin city.

In fact, if Dublin was created at similar densities as Westminister and Lambeth boroughs in London, the entire 850,000 population of Dublin’s four local authority districts, could be accommodated in an area roughly the size of the 30,000 acres that exists inside the existing Dublin city council boundary.

Forget about Tallaght, or Dun Laoghaire, or Santry or Dundrum.

At the density that they presently do in London city centre, we wouldn’t even need the suburbs.

Just on the point of the ‘Dublin Docklands’ area, which also arose in news in the media in Ireland recently. I’d say there isn’t 2,000 acres in the whole thing. But it is still a substantial area of land available, close to the city centre in Dublin.

A basic calculation would tell you, that if we were to aim to achieve urban densities anywhere like those, in the centre of London, achieving upwards of fifty thousands inhabitants in the docklands area of Dublin, should not be a huge problem. That is if we wanted to.

But it is worth the while of any aspiring planners and policy makers, who do find themselves in places such as Barnet, of Camden, or any of these boroughs in London some time soon, to think of what it feels like in terms of density, and whether it ‘works’ from an environmental perspective or not.

That is up to the individual to think about.

There are few places in London that achieve anything less than twenty inhabitants per an acre of land. There are districts like Newham for example in the east docklands part of London city, that have 26 inhabitants per acre, they occupy a footprint approximately the size of Limerick city, and well over twice the population of Limerick or Cork city.

In terms of urban densities, Cork city actual does pencil out one of the worst in the whole of Ireland. Densities in Cork city, might be well under ten inhabitants per acre in many cases. I don’t understand what exactly Cork city did incorrectly in its planning.

But it is worth bearing in mind, that one single borough like Newham in London city’s 32 boroughs, easily accommodates the population of both Limerick and Cork city combined. And here in Ireland, we tend to think of these two regional urban centers being such complex places to manage and make work.

A little bit of perspective is important to have in many cases. In terms of urban density, strangely enough Limerick city does better than Dublin City council, with closer to thirteen inhabitants per acre of built urban land (compared to eleven inhabitants per acre inside boundary of Dublin City council, if one averages it out over the entire district). BOH.

Re: Urban Areas and Election Registers

Of course, all of the above in relation to London boroughs or Dublin city local authorities, only refers to numbers that are registered to vote.

This does exclude a large part of the population who aren’t registered to vote in Britain or Ireland (maybe people who work/live in cities, but are not registered to vote in cities, . . native/foreign students for example, make up a large transient population in many cities now), or are not of age to vote (all of the children, babies and teenagers, which do make up such a large hunk of populations in cities also).

Someone can correct me on this, if necessary, as to what is contained in those population figures per district, quoted for the local elections. BOH.

Re: Urban Density Metrics

Colm McCarthy talked about urban density in relation to Dublin city and it’s development over the past few decades – and how one looks at policy, in relation to the future.

In a November 1998 RIAI/IPI joint conference held (around the time of the ‘Bacon reports’), there were three metrics used to assess density in urban environments.

Probably the one that best fits with economist Colm McCarthy’s observations, is the standard one known as ‘gross population density’, GPD, or simply ‘gross density’, which is measured in population per square kilometer.

Just looking at London, in general it is around 5,000 inhabitants per square kilometer. In the more dense areas of Dublin city, we achieve only about half of that. Although, Dr. Gribbin who presented a paper in the November 1998 conference in Dublin, did suggest that 4,000 inhabitants per square kilometer, is achieved in parts of Dublin City Council’s local authority district. Again, confirming this speculation I made above, that Dublin City Council area is not that unlike a borough in the outskirts of London.

At the 50,000 population figure that I speculated about, in the seven square kilometers or so, that exists in Dublin’s docklands area – that is around 7,000 inhabitants per square kilometer.

But again, Dr. Gribbin who has studied urban densities over several decades, did observe in 1998, that cities such as Grenoble in France (population of only 150,000), does achieve densities of up to 9,000 inhabitants per square kilometer in places.

Just to note also, for those who might be thinking about this kind of thing – the other major metrics employed by the work shops and speakers at the November 1998 conference in Dublin city, were bed spaces per acre, and ‘plot ratio’ (or simply, the net usable square footage achieved per acre of site area).

To just take examples that people might be familiar with at the moment in Dublin city – old Portobello or the equivalents in north of Dublin city – do achieve impressive 100 bed spaces per acre, at only two stories, . . with plot ratios of well over 1 is to 0.5.

Dr. Peter Bacon in his 1998 paper, did concentrate a lot on the bed spaces per acre, metric (economist Karl Whelan here, often criticized Dr. Bacon, for gaining commissions to do studies into ‘hotel’ viability, for the government in recent years, but Dr. Bacon does have a track record in research in this particular area).

Dr. Bacon does refer to densities in Dublin docklands area of over 300 bed spaces per acre, and we did achieve those metrics in development in the docklands area, consistently throughout the 2000’s decade, for what we did build.

But the metric for urban density in housing that was used in the November 1998 conference (and it is the one that auctioneers, constantly refer back to, when trying to sell development land), is dwelling units per hectare.

There is a small caveat here, because at the time of 1998, I think that occupants per dwelling unit in Dublin city was at around three, but declining gradually, as it is doing throughout much of the developed world. So do bear that in mind when thinking about dwelling units per hectare.

Again, to refer back to Portobello example of historical housing solutions built in Dublin city, going back over a century, 30 dwelling units per hectare was nothing unusual in that sort of urban housing development. I think the above, is worthy of some thought, and it puts a little bit more flesh on what economist Colm McCarthy was talking about, in his various comments about housing policy for Dublin city in the future.

I would also point out, that in terms of issues of vehicle miles travelled, or VMT, and in terms of sustainable public urban transport, that no. of dwellings per hectare is a key metric, that urban designers use and think about (there are particular densities, which are created in north America according to Cervero of UC Berkeley, who spoke in November 1998, that offer the worst of both worlds, un-economic densities for public transport, and huge vehicular traffic congestion).

In other words, there are good reasons, why in Dublin city as a whole, we should manage our planning efforts in many dimensions or urban density – in dwellings per acre, gross population density or in bed spaces per acre, and plot ratios. There is a good bit of science behind it all, and designers, are part of the solution, as well as developers. We have been lucky with having some good design in Ireland, but financially, our model for development of housing, was never fit for purpose (and a lot of that had to do with market dysfunctionality, where development land is concerned, owing to massive manipulation by our banking institutions). BOH.

Warning to users: No straight conversions

Something else, that readers should be aware of, in terms of urban density conversation.

There are really no straight conversions as far as I can fathom, between that metric of dwellings per hectare, which auctioneers and property professionals in the newspapers like using, when selling development land, . . and the other important metrics that were used in the RIAI/IPI conference of November 1998, . . where they talked about gross population density, or gross density (population per square kilometer).

The gross density metric, of five, six, seven thousand per square kilometer includes a lot of roads, infrastructure, open space and other ‘stuff’ that happens within that square kilometer of urban environment.

The dwellings per hectare, that the property professionals like using, is based only on the land area that is for sale by auction.

In other words, you take that impressive 30 dwellings per hectare, of old terraced areas of Dublin city like Portobello, would equate to 9,000 inhabitants per square kilometer, if one was to develop an entire city like that (and still only rise to two storeys). Clearly, that is not how cities are built. A lot more stuff than housing uses, have to go on.

But we can see quite large areas of old style, two story terraced housing, if you do look around the older parts of Dublin city, either on the south or on the north. We should be aware therefore, of the considerable density that those older builders were achieving (and much of that property is considered by be the most desirable today). In fact, it was a model that worked equally well almost for upper, middle and working classes – and still does after almost a century.

In other words, people in Ireland, ought not to be very scared about achieving density of urban housing at all, when it is done correctly. It is more about the minutiae of insulation values and retro-fitting, which seemed to dominate so much of housing policy in government, since the Greens. It is also about a larger picture, which astonishingly, the Greens. could not seem to wrap their heads around. BOH.

Correction on hectares/acres

Apologizes, re-checking the November 1998 analysis carried out by the RIAI/IPI for metrics for Portobello area of Dublin, they used a dwellings per acre measurement, instead of dwellings per hectares.

It shows 30 dwellings per acre, or 74 dwellings per hectare.

Giving 100 hectares per square kilometer, implies 7,400 dwellings per square kilometer, . . . (admittedly, a silly kind of extrapolation, because there needs to be space for roads, open space, infrastructure and other uses).

But for the arguments sake, using the three occupants per dwelling, used in the 1998 RIAI/IPI conference proceedings, we get something like over 20,000 inhabitants per square kilometer.

It is not a calculation that would make an awful lot of sense in reality.

But it can demonstrate the kind of density that is possible using a simple two storey, old style solution when extrapolated out.

There are seven square kilometers in the Dublin docklands region of Dublin, of which half that at least are develop-able, for some sort of use. If there was to be a major portion of docklands land, used for housing purposes (unlikely of course), that number of forty to fifty thousand inhabitants does not seem so crazy.

And for definite, that benchmark of 9,000 inhabitants per square kilometer in Grenoble city in France, that Dr. Gribbin did mention, is not un-achievable, even in a Dublin context. BOH.

Comments are closed.