New research from Central Bank and ESRI

Central Bank Letter:

Mortgage Repayments after Permanent Modification – Anne McGuinness
Economic Letter – Vol 2014, No. 7

ESRI new releases:



9 replies on “New research from Central Bank and ESRI”

In general, these are excellent pieces of research, so I don’t want to criticise them in any way, But, a couple of points:

(1) Past experience has shown that after every transition from recession to renewed growth Ireland’s population grows much faster than what was forecast during or immediately after the recession (eg early 1960s, early 1990s). For example, a Davy McCarthy report in 1991 (or thereabouts) forecast that the population would fall between 1991 and 2011. We know what happened. The reverse is true, of course, after every transition from growth to recession. But, if ESRI’s growth forecasts prove accurate, the recession is well and truly over. If ESRI’s growth forecasts prove accurate, Ireland’s population growth will soon accelerate (indeed is probably doing so already) and will over the decade be much greater than was forecast during or immediately after the recession.

(2) I can find no evidence that the population of Dublin is growing faster than the rest of Ireland. It appears to be just another urban myth (literally in this case). One of the 1997-2011 FF government’s great achievements was to reverse the flow of population from the rest of Ireland to Dublin, which had persisted since the early 1800s. This, of course, was one of the reasons it was loathed by the Dubln 4 elites. The much-derided decentralisation and other policies played a part. For the first time since the early 1800s (maybe longer, records don’t go back beyond that), between 1996 and 2011 previously forgotten counties like Donegal, Cavan, Sligo, Leitrim, Mayo, Roscommon, Westmeath, Longford showed larger increases in population than Dublin. I have calculated Dublin county’s percentage of the 26-county State’s population since 1996 from CSO population figures:

1996: 29.185 per cent (census)
2002: 28.664 per cent (census)
2006: 28.000 per cent (census)
2011: 27.746 per cent (census)
2013: 27.485 per cent (inter-census population estimate)

So, the trend that the 1997-2011 FF government brought about is continuing, although I have no doubt that the current Dublin 4-dominated government will try to reverse it.

The reason why house prices are rising more rapidly in Dublin seems to have nothing to do with higher population growth, but more to do with a greater prevalence of nimbyism and left-wing eco-loon politicians hostile to the construction industry.

Re Growth forecasts;
Annual GDP growth was 4.1% in the first quarter and would average 2.7% for the year as a whole even if the final three quarters saw zero growth. This assumes no revisions to last year’s quarterly pattern ,an heroic assumption given past evidence, but it is interesting that many forecasts in general appear to be conservative ( some sub 3%) in response to repeated false dawns over the past few years (the ESRI GDP forecast is 3%).

On Dublin supply the conclusion is very similar to an earlier ESRI paper and the conclusion of the Housing Agency study i.e. Dublin needs about 7,500 housing completions a year over the next 7 years.

In terms of house price forecasts, the ESRI are projecting a 28% rise in real prices over four years which equates to 36% in nominal terms assuming 1.5% average CPI inflation.

Dublin commuter belt starts in Meath Kildare Louth & Wicklow

Unfortunately you sabotage your post with comments like ‘left-wing eco-loon politicians hostile to the construction industry’

Can you name one holding office at present ?

re: The ESRI Housing Market Report

I find myself in deep disagreement with the entire ‘follow the market’ approach when it comes to evaluating the house prices, or in determining the “fundamental house price”.
Even taking international comparisons presented in Table 1, I calculate (hopefully correctly) as follows:
German house prices 1995-2013 111.03%
German house prices 1995-2013 111.45%
So why in Ireland are we forecasting a further 22% increase in 2014-2017.
Whose fundamental are we bench marking for that forecast.

The country sub-sample (Figure 1) used indicate that Ireland was an outlier to a small extend. This ignores the fact that the whole pack were outliers, starting in the mid-1990s, with the results that caused such mayhem and distress almost everywhere.

I also note what is a major omission from the models evaluating house prices. That is the cost to build a house, and the cost of the site that the house is built on.
All building people will tell you that they will will build a very good for €150,000, excluding site and other rent-seeking ‘connection’ charges.
So, why is it that the land hoarders/ developers must be allow to gouge out the surplus that results in house prices of €300000-€500000 for semi-detached houses in Dublin.

Equally I cannot help but note the comment on page one, that Irish house prices are of “considerable importance from a financial stability perspective”. In other words, its the bank balance sheets that matter, not the standard of living of the house owners or tenants, when they have finished paying their mortgages.

The report will be of comfort to landowners, developers, the banks and to the ECB stress test auditors. It will be of little comfort to first time buyers, tenants or the younger generation. The latter group will continue to provide a rent-seeking pond of tout for the banks, the property sharks, and their coat-tailers.

Correction to above
German house prices 1995-2013 111.03%
Irish house prices 1995-2013 111.45%.

Again why and what basis or for what purpose should Irish house prices be expected to rise by 28% (ref Dan McLaughlin, above) over the next 4 years.

Another boom, projected to start getting boomier.

@ unfeasiblycharming

The neglected apprenticeship system is the responsibility of the education minister while the quest for ‘quality’ or ‘high end’ jobs is the responsibility of the enterprise minister who spends most weeks doling out money for what was known as the ‘smart economy’ during the Cowen regime.

Last Thursday the Irish Patents Office report for 2013 was published without the normal superlative-heavy press release from the Department.

The action was taken only because on the same day Finfacts said the IPO was breaking a 1992 law that required the report to be presented to the Oireachtas within 6 months of the relevant period.

Why was the publication of the report scheduled for August?

We’ve had two successive days where the recent manufacturing and services PMI reports have been shown to have been misleading – not in trend but in the headlines garnered and the sense that they were reflecting surging activity.

Industrial production in the manufacturing sector was down 18% in June after a spike of 32% in May.

The index is up 3.3% in 12 months.

The CSO’s services index is up 1.1% in 12 months.

The ESRI said today that GNP is a more reliable metric than GDP but by the year end, there will be faux-Irish companies with a combined payroll of over 600,000.

There are 470,000 people in receipt of employment welfare, a large number of households have high debt and mortgage approvals are at a 40-year low.

The ESRI says that there may need to be a big rise in house prices to trigger supply to meet demand. The economists also says that the high levels of household indebtedness evident in the Irish economy, suggests future increases in consumption levels may not be as large as the overall rate of economic growth would suggest.

Half the current low level of transactions are via cash and in Dublin reported last month that the average asking price for houses on sale in South Dublin County was €442,500 – a level above pre-bubble times.

According to Dallas Fed data, the Irish price/income ratio rose by 174% in the period 1995-2007 while it fell by 59% in the period 2007-2013.

We will get a better picture of the jobs situation later this month – income tax in the year to July was €54m (0.6%) above target but that was set in Oct last before the 61,000 jobs that were reported in 2013 with the 12 month total falling to 43,000 in March 2014.

Relative to March 2011 when the current governing parties assumed office, employment was up by 46,000 in Q 2014.

‘Self employed without any paid employees’ accounts for 29,000 while the number of the unemployed in activation schemes increased from 71,000 to 85,000 – the number of unemployed classified as in ‘Back to Education’ courses was stable at 29,000 in March 2011 and 28,000 in March 2014.

Activation programmes thus account for a rise of 15,000 in the unemployed who are counted as employed.

The number of employees + self-employed with employees was 1.628m in 2011 and 1.643m in March 2014 – the difference of 15,000 is entirely accounted for by activation scheme members.

We can reasonably assume that many of the 29,000 who run one-person operations hanker for proper work.

For the recovery to be sustained, there needs to be a big rise in full-time earning employee numbers.

Most of the 46,000 added since March 2011 are not in positions to get a mortgage or have an impact on consumer demand.

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