Housing supply and demand

The campaign for the next general election is underway.

Annual prices in Dublin up 13% in Feb 2014 when annualised mortgage approvals were at a 42-year low.

Response: Boost demand for mortgages!

http://www.finfacts.ie/irishfinancenews/article_1027483.shtml

Gilmore is set to become minister for new jobs’ announcements with a €6bn election warchest from the residue of the pensions fund.

This time is different!

“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.

@ 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.

@ 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.

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.

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

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

http://www.ft.com/cms/s/0/80500ec8-58fc-11e3-a7cb-00144feabdc0.html

“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.

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?

All

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.

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.

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

Ha! Ha! Ha! Ha! Ha!

Comical Mickey flying a kite!

There isn’t an election around the corner by any chance, is there?

I tell you what Minister Noonan – tell the banks the scheme will be backed by AIB shares… after all AIB seem to think they’re as good as cash:
http://www.independent.ie/business/irish/failure-by-aib-to-meet-cash-deadline-costs-state-280m-30216366.html

Surely the banks would have no problem taking an AIB-backed IOU?

@Ronan Lyons

http://www.irishtimes.com/news/social-affairs/daft-ie-to-continue-use-of-rent-allowance-filter-on-searches-1.1791523

We have briefly discussed the ‘social housing crisis’ on this blog recently; any comment on why DAFT.ie is facilitating discrimination of such tenants?

@Gregory Connor

Agree. [is this a 2nd?]

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.’

http://www.independent.ie/business/small-business/latest-news/sme-sectors-contribution-to-economy-one-of-lowest-in-europe-30267521.html

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!

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. ‘

Hmmmmmmmmmm

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

Michael

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.

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.

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.

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.

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

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.

http://www.finfacts.ie/irishfinancenews/article_1027674.shtml

@ 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.”

@BeeCeeTee

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.

contd.

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.’

http://brontecapital.blogspot.co.uk/2009/04/fraudulent-hedge-fund-associated-with.html

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

http://www.rte.ie/news/2014/0514/617155-construction/

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]

@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
http://www.irisheconomy.ie/index.php/2014/05/11/the-economic-rationale-for-the-irish-personal-insolvency-service/#comment-513842

“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. “

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.

fyi

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:

http://www.irishtimes.com/business/economy/portrait-of-a-man-who-opposed-haircuts-1.1792498

@BWS
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

+1

@ 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.

http://www.irishtimes.com/business/economy/irish-mortgage-arrears-continuing-to-accelerate-says-fitch-1.1795586

@ 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.
http://www.irishtimes.com/news/social-affairs/dublin-s-funds-for-building-social-housing-to-fall-by-almost-half-1.1790208

In Belfast (city half the size of Dublin), they are planning 2,013 new units over the same period.
http://www.niassembly.gov.uk/Documents/Answer-Book/2014/140502.pdf
(scroll down to page 49)

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.

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.

https://www.eventbrite.co.uk/e/hays-ukti-irish-capital-projects-conference-registration-10718674845

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.

Noonan:

“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.

@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?

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
Christchurch
New Zealand

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

bpw

@ 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.

@BWS

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?

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.

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.

Correction:

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.

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: 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.

@Ronan
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.

@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.

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.

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.

Good piece by Shane Ross!

http://www.independent.ie/opinion/columnists/shane-ross/coalitions-mortgage-plan-is-bad-case-of-deja-vu-30282104.html

The real news is that Labour is running away as fast as it can from what should – in theory – be a vote-getter, saying that it was solely (!) a Fine Gael proposal which has now become just and “idea” for the latter.

Maybe Ross is right that the Irish voter can no longer be hoodwinked by election promises!

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: 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.

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.

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.

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: 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 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.

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.