Reformed central bank regulators criticised for being, uh, ‘awake at the wheel’

Three people bid for a house, each using a mix of savings and borrowings; the highest bidder wins. Now suppose each had been prepared to spend more, and each bidder’s bank had extended an additional €100,000 of credit. Nothing changes in the aggregate – one house is bought and sold – except that the buyer has an additional €100,000 of debt (and the seller an additional €100,000 of cash.)

How is that a better overall outcome?

When supply is constrained, credit limits are needed (from a central bank, or internally to the banks themselves) to prevent lending driving up house prices and household debt as borrowers compete against one another for a fixed supply of accommodation. Under boom-time conditions, prices rise to levels Ireland saw ten years ago. Any sensible regulator would seek to put a stop to such a spiral, and should expect to receive the support of politicians, the media and a responsible industry.

But the Irish Central Bank’s mortgage lending controls seem to leave it standing almost alone, criticised by the building industry, the banks, politicians and journalists for being – what? – ‘awake at the wheel’? These controls protect buyers from over-paying. Yet the Central Bank is pictured as punishing the consumers it is protecting. (‘Only the rich can now afford housing’ says the newspaper headlines, but without credit limits only the over-indebted could.)

This is remarkable on many counts.

The Crash is not over, but already many seem to have tired of financial regulation. Denounced for failing to act in the boom, the Bank is now denounced for limiting wasteful bidding wars. Meanwhile, largely uncriticised and indeed not much commented on, local authorities construct elaborate and costly planning rules that increase housing costs. That’s without considering what Colm McCarthy calls (in today’s Sunday Indo) the ‘elephant in the room’: the planning and zoning restrictions that create an artificial housing shortage in the first place. Curiously, we criticise regulations that protect us and not the regulations that harm us.

The media present the lending rules as adjustable but house prices as fixed. The opposite should be the goal of policy. If today’s prices and lending limits require a level of savings impossible for most intending house-buyers to achieve, this means house prices are too high not that regulatory rules are too tough. Do we want everything else to be cheap but the most substantial purchase – housing – to be dear? Perhaps we do; Aidan Regan has recently argued on this blog broadly along these lines. When the number of house owners dwarfs the number of marginal buyers, the intergenerational political economy gets very ugly.

To tackle the housing shortage we should leave bank regulators to do their job, and deal with the policy obstacles that cause so few houses to be built. Don’t tackle one problem by creating a second. And don’t fuss over bank regulation to avoid looking at underlying planning, zoning, intergenerational and NIMBY problems.

A scarcity of accommodation is not solved by lending limits. But house prices are lower, mortgages smaller, banks safer, and taxpayers sleep more peacefully; admittedly miscellaneous middlemen may earn lower fees and journalists have to search elsewhere for a story.

Credit limits protect house buyers when there are more buyers than the kinds of houses they want to buy.

Comments

comments

Author: Cathal Guiomard

Cathal Guiomard is a Lecturer in Aviation Management in DCU. Between 2006 and 2014, he was Ireland's Commissioner for Aviation.

36 thoughts on “Reformed central bank regulators criticised for being, uh, ‘awake at the wheel’”

  1. Infinite nominal demand + finite supply = rapidly rising prices. The only thing keeping a lid on the re-emergence of a house price bubble are the central banks rules. If these credit restrictions go, we’ll have another bubble.

    Private banks, unless constrained by rules, have the infinite capacity to create credit-money-debt. We’re still living with the last debt overhang. Nothing will change until public policy is designed to reduce house prices to affordable income levels.

  2. I couldn’t agree more. The reason there is so much talk from the politicians is the central rules pushes the problem of housing on to them. They’re well aware of the above dynamic. As If credit was allowed rip then prices would boom, builders who be faster to build and all the inefficiencies in the systems could be left untouched. As a builder said to me recently ‘I’m flat out, but unlike 2006, I have to work for it’. He reckoned that if there were no CB rules he would no longer have to work for it.

    As mentioned on here before. Previous to the surprising housing crisis (in our cities) it was government policy to ‘get prices up a bit more’. – M.Noonan. The rising prices lift all bank shares policy.

    Those in the media are also fully aware of the dynamic you mention. They’re just acting in their own interests and that of land/property owners. As they did when selling adds for rubbish apartments (with LTI of 8 times) outside the M50 during the boom.

    Finally, it’s difficult to show a buyer what the price of a property would otherwise be if LTI and LTV rules don’t apply. They see a fixed price which they could reach ‘if only the CB rules let me’. So it can be difficult for them to see the benefit and easier to buy in to the BS in the media.

    That’s why I’m delighted we have a strong independent CB finally awake at the wheel. As opposed to playing golf and asking the banks what to do.

    Incidentally, the rules tend to favor those in public sector, or more secure employment. For example a borrower employment in the public sector can break either the LTI or LTV rule. Up to 4.1 times income or 90% value. Which, if you think about it, is a perk to being a PS employee in Ireland. You can outbid some of your more precariously employed private sector friends. Which seems a little unfair. Can’t think of a way around it though. Risk is risk.

    1. ” For example a borrower employment in the public sector can break either the LTI or LTV rule. Up to 4.1 times income or 90% value. ”

      I was not aware of that, and I doubt that it part of the CB rules. It would be interesting to hear some evidence, even anecdotal, that it may indeed be the case that the banks have their own unofficial rules.

  3. I agree up to a point that relaxing planning controls is a good idea, although house-purchasers obviously need to be safeguarded from and provided with a means to obtain redress from any builders who build substandard dwellings.

    However, there is no evidence that Ireland has a long-term problem in building enough houses.

    There is a short-term problem, for which the main culprits are George Lee and Morgan Kelly.

    Between 1996 and 2008 the population of Ireland rose by almost one-third. Yet enough houses were built.

    Even in 2006-07 when the population rose by 3.4% in a single year, a post-war European record, enough houses were built.

    But, rather than being congratulated for such a magnificent achievement, the building industry was demonised and vilified for building too many housed, with the two persons mentioned above at the head of the mob. Now they are being vilified for not building enough.

    Consider the narrative of the past few years.

    We were told that by various economists that the Celtic Tiger growth was a fraud and based entirely on building houses far in excess of the population’s needs, that there were 350k empty new houses left behind by FF in 2011. And then to compound the problem, we were told that post-2008 a huge population exodus was under way and that emigration had reached immediate post-famine levels.

    In such circumstances how could it be otherwise that the number of houses built fell dramatically?

    Now that this narrative has collapsed, and it is widely realised that (a) the surplus of empty new houses was greatly exaggerated (by a factor of 10) and (b) far from depopulation, as was widely believed until the census 10 days ago, Ireland is actually experiencing high population growth, which is likely to accelerate, I think it very likely that house-building in Ireland will increase rapidly. Already clear signs of that. The number of new houses built in 2016 looks like being in the range 15k-16k, over 80 per cent higher than in 2013. In May alone the number was up 30% y-o-y. Even at its much-reduced but clearly-recovering level, house-building in Ireland is well ahead of the U. Kingdom (no big deal, of course). In 2016 the U. Kingdom is likely to build around 140k houses, which equates to 10k in Ireland.

    I also think a bit more humility from the country’s economists on the issue of house-building would be appropriate. This is the 4th or 5th thread on the subject recently. Only those who saw that claims of over-building in the decade 1997-2007 were greatly exaggerated, and who saw that claims of mass emigration in the decade 2008-2016 were greatly exaggerated, have the right to be taken seriously on the matter. Where were the threads on this site in 2011-2014 about a likely future housing shortage? Few and far between, I’d say.

    1. This is a thread about regulation.

      Who is to judge who has ‘the right to be taken seriously’?

  4. Cathal:

    The reaction of politicians to the Central Bank actions has indeed been largely hopeless – ‘What about the FTBs struggling to assemble a deposit’ and so forth. But you are a little harsh on the media. Most have been more supportive than I would have expected.

    1. It would be hard to be too harsh on the Indo group’s take on so many economic policy issues, though there may be a Sunday Indo columnist deserving of an exemption to that judgement.

      1. Cathal: About time. Nicely – if inconveniently put. “These controls (CB macroprudentials) protect buyers from over-paying.”

        Actually, I hope they are there to prevent buyers getting into deep financial doo-doo if they are unfortunate enough to have an unwelcome income ‘event’.

        “Credit limits protect house buyers when there are more buyers than the kinds of houses they want to buy.”

        Yeah, maybe. But its our financially irresponsible lenders that mortgagee’s need protection from. Is this truism actually getting through? LTV sets the max amount of mortgage credit that any borrower shall be able to get. The LTI sets the max amount that any borrower(s) shall be able to get. If LTV is never above 80% and LTI never above 2.5 a single income – or 3 times two incomes, then mortgage defaults will be negligible and the probability of Neg Equity will be low. Seems that this is very hard for some folk to grasp, since the outcome will be affordable residential property prices and a healthy, functioning residential property market. Which we enjoyed for approx 5 decades prior to 1995.

      2. Cathal you are too kind. The Central has received less stick from the media overall than I imagine they expected. RTE has appeared at times like a public service broadcaster!

      3. Cathal,
        Too true, The personal finance “expert” from a certain national newspaper also gets free reign on Matt “The Dope” Coopers show.

        Then, of course how many newspaper both national and local rely on the pumping of property prices to keep afloat.

  5. There are a few things that the central bank could do to make the rules more equitable.

    1 Eliminate the priority boarding queue for 15% (from memory), or almost one in six, that do not have to abide by the rules. No prizes for guessing how the one in six gets chosen, but suffice to say that they are unlikely to be the people facing homelessness. Its simply a case of ‘this way please, just follow the red carpet’ for the chosen one in six.

    2. I have had a lot of experiences, over the past 15 months approx, of the Dublin housing market. On virtually every occasion my near relative viewed a potential purchase, we were told by the estate agents that about 50% of the bidders were ‘cash’ buyers. Maybe they were, or maybe they were investors who were able to access mortgages much more easily, to the extent that they self-declared as ‘cash’ buyers.
    I don’t believe that, as a matter of public policy, the CB have favoured owner-occupiers sufficiently.

    You are correct in stating that the CB is criticised on all fronts, with the ‘government’ whose failure to tackle the land cost ‘elephant in the room’, being one of the chief and sometimes underhand critics.
    But the reality is that it is government policy to keep house prices, and in particular land prices, high.

    The reasons as to why such an approach should be unstated, but very real, government policy could range from personal financial self-interest, to an anti-societal ideological position, as far as a misguided notion that the national interest is best served by keeping house prices high.
    Either way, the elephant in the room is very large, very well fed, and continues to eat the contents of everybody’s cabbage patch.

  6. The last line of defence is clearly the Central Bank, not so much because it is Ireland’s central bank but the fact that it is an integral part of the European System of Central Banks running the country’s shared currency.

    Politicians will do what politicians will do. However, the idea that the higher cost of housing in Dublin is attributable to this or that element of the boom and bust cycle of housing in Ireland is not borne out by the experience of other countries. The rules governing capitalism seem fatally to result in concentrations of economic activity in urban conurbations, higher demand, and ipso facto prices, for accommodation, and also the ground on which it is built.

    A return to the Golden Rule of borrowing only for investment seems as far away as ever. Or maybe not!

    http://www.boeckler.de/6299.htm?produkt=HBS-006354&chunk=1

    http://www.investopedia.com/terms/g/golden-rule.asp

  7. “Meanwhile, largely uncriticised and indeed not much commented on, local authorities construct elaborate and costly planning rules that increase housing costs. That’s without considering what Colm McCarthy calls (in today’s Sunday Indo) the ‘elephant in the room’: the planning and zoning restrictions that create an artificial housing shortage in the first place. ”

    Planning rules are made by central government,
    Zoning on its own will not increase the supply of development land, what is required is zoned and serviced land. If too much land is zoned then it will not be serviced by public funds and only in a disorganised way as those planning the infrastructure will not know which land to prioritise

  8. I’d be inclined to exclude some specific commentators (one initialed CM springs to mind), but otherwise the reaction has been pretty poor.

    And the reaction of Ireland’s politicians has been consistently disappointing. It’s clear that expensive housing is, was and remains government policy.

    But I don’t really have much to add regarding this cycle of destructively bad policy this time beyond something I’m sure lots of people could have said already in 2014 or earlier. https://goo.gl/gm3q0S

    H

  9. Available funds for purchase are constrained, labour & materials costs are fairly inflexible, there is some scope for regulatory costs (which have gone OTT recently) to be reduced modestly, there is some scope for reducing profit expectations for developers if expected volatility and finance costs can be reduced.

    The big variable that is left is land / site prices as the main source of price flexibility to be potentially squeezed in order to allow houses to be built that people can afford to buy.

    It’s interesting that lots of reasons or high prices are discussed publicly, but site prices are usually left out – as if they are fixed and inflexible. Well maybe they are through political choice, but political choices should be openly discussed and the voting public educated about them.

    Previous thread on here worth a read:

    http://www.irisheconomy.ie/index.php/2014/12/11/managing-house-price-booms-the-role-of-macroprudential-policies/

    Colm may enjoy this one from another place:

    http://www.thepropertypin.com/viewtopic.php?f=10&t=63661&start=165

    1. “Economics has a concept of “revealed preferences”, from another Nobel Laureate Paul Samuelson. This in essence says that actual preferences of people are revealed by what they purchase. In this case we purchase, by our votes for governments, weak and subverted institutions of governance.”

      Perhaps this is ‘a conclusion too far’? Sure we purchase stuff (goods and services). But elasticizing the concept of ‘revealed’ to encompass the making a mark on a ballot paper? That’s a choice, sure (woeful and all as it may be), but consuming (purchasing) an endownment? Hmmmm.

      Our urban residential property market has been dliberately shunted (for all sorts of mad, bad and daft economic and financial reasons) into a political cul-de-sac. It will remain there for some time, as either attempting to dislodge it, or to fail to keep it lodged there, would be very, very inconvenient. But its like the slow, inexorable overfilling of a dam, which starts to leak out from the bottom and slop over the top, it may eventually (unless the sluice gates are opened) give way altogether. Head for the higher ground!

    2. “Decry it as we must and should, technocratic hand wringing won’t change it. How do we get a public which sees cheaper homes as better via the approaches we suggest?”

      Those presenters of radio and tv programmes along with newspaper editors should be told bluntly when they ask contributors like your good “What must we do to solve the housing crisis?”
      “Well Marion/Matt/Joe/Vincent/Miriam/Charlie/ first the value of your red brick mansion will have to fall in value by 50-60% from it’s current artificially unsustainable price.

      Those who have houses want the price kept high and they vote!! Simple really!!

  10. Patrick Honohan deserves credit for resting the blowback from the Dept of Finance, ESRI and vested interests.

    The laissez-faire policy had been disastrous.

    In 1999, the year of the euro launch, Maurice O’Connell, governor of the Central Bank, began writing a series of letters to mortgage lenders pleading for restraint in lending, at a time when the FF-PD coalition was slashing personal taxes.

    In 2000, mortgage credit expanded by 25.3%.

    In 1996 overall credit growth exceeded 20% and in Feb 1997, the governor told an Oireachtas committee:

    There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders.

    http://www.bis.org/review/r980309a.pdf

  11. There is nothing wrong with high LTI and LTV limits per se if credit discipline is strong.

    The lending rules are in many respects a response to the fact that it is very difficult to foreclose on a house in Ireland. Therefore the banks’ ability to lend has to be reduced for their own good, and that of the system.

    A good friend took out a mortgage in Belgium recently. LTV was 100%. In addition he signed a contract that would allow the bank to garnish his income (as well as take the house) in the event of default.

    None of this is practically feasible in Ireland which is why we have to have these rules.

    This is all a little beside the point anyway. The main impediments are in the supply side of course. On which all you need to read is Colm McCarthy’s piece in yesterday’s Sindo.

    1. “There is nothing wrong with high LTI and LTV limits per se if credit discipline is strong.”

      You sure about this? Credit disclipine has been effectively trashed. But not the legal underpinnings of debt as an actual, real object of private property. These have actually been re-inforced by ECB behaviours. This makes LTV + LTI (which are now regaded as mere ‘suggestions’) the equivalent of a somewhat iffy emergency ‘chute. For almost 5 decades the 80% LTV and LTI of 2.5 times a single salary worked as intended. So why were they so recklessly disregarded after 1995? Who were the winners? Whom the losers?

      Our so-called housing crisis is not an ‘averaged’ nationwide one. Its concentrated in our urban, sub-urban and ex-urban areas – and some parts are worse off than others. If there is an increasing propensity to locate more and more employments in urban areas – what do folk expect will happen to housing costs in these areas?

      As AR writes below: “The question is whether government should try bring them down with policy. Or do they wait for an exogenous shock for the whole thing to unravel?”

      The answers are: No; and Yes.

  12. Good inflation, bad inflation.

    Public policy, correctly, considers it a bad thing if the price of coffee, apples, cars, oil, cereal, bread and electricity increases by more than 3% per annum. But policy considers it a great thing if house prices increase by 40% over 24 months.

    It’s the wealth effect.

    When the CPI increases in a period of income stagnation, people feel poorer. When house prices increase, homeowners feel richer. It’s a fatally flawed growth model that’s dependent upon the accumulation of private debt.

    This time around, the central bank rules will ensure a large section of the population can’t purchase mortgages (those on low to median salaries who can’t save, and those without cash-rich parents). In the long run this is a good thing.

    @ Brian Lucey – in terms of change. Putitng my political science hat on. It is the housing market preferences of this growing section of the electorate (demand) that if politically mobilised (supply), are likely to vote for policies aimed at cheaper homes.

    The question, it seems to me, is when will it all burst again? Prices will fall. They can’t keep increasign at this rate. The question is whether government should try bring them down with policy. Or do they wait for an exogenous shock for the whole thing to unravel?

    1. “This time around, the central bank rules will ensure a large section of the population can’t purchase mortgages (those on low to median salaries who can’t save, and those without cash-rich parents). In the long run this is a good thing.”

      A rather sweeping statement, if I may say so, and one that needs some qualification, at least in terms of what will happen to the ‘large section of the population’, and why the exclusion of a large section of the population from home ownership might be a good thing.
      If the ‘elephant in the room’ of land prices were tackled, your ‘large section of the population’ would certainly reduce substantially to the benefit of several households and indeed of society at large.

      1. In the long run it is a good thing because it means that these individuals are not buying unaffordable debt contracts.

        Individuals will be restricted from buying a mortgage to pay for an asset that is probably worth half the value they would be willing to pay for it, with credit-debt.

        In the meantime, however, they are paying for the last debt-bubble with rent. So they (we) are doubly squeezed.

        I’m not saying that it is a good thing that a large section of the population are excluded from home ownership. On the contrary, it should be obvious that what I’m saying is making housing affordable to income levels.

        Re: land prices. I agree.

    2. I keep seeing this presumption that the government wants high house prices. What’s the basis for this? Ok, they earn more in taxes, but as a policy? Remember, politicians respond to what their voters want. That’s their top priority. As far as I can I see, what they have are constituents kicking up blue murder because they aren’t allowed to borrow more money so they can buy a house. It’s not comfortable for politicians to have to say No. It’s like parents who want to be loved and can’t say no to their kids. And since politicians need to be loved in order to stay in their jobs, they just can’t say no.
      The supply side will take years to sort and is the only way to “bring prices down”.
      As for the renters, they aren’t a political coherent, voting bloc so they’re the end of the list.

      1. You are, of course, correct. The problem for politicians, however, it seems to me, is that the make-up of the workforce has changed as it has increased in line with the dramatic expansion of the economy. The “nurse and the guard” have been competed out of the market in terms of the availability of credit linked to capacity to pay. They, the politicians that is, find it impossible to either explain, or accept in many cases, that this has happened, especially as the impact is hardest on what were core sources of political support. In the meantime, these disgruntled voters can see “mansions” still springing up all over the country, courtesy of the various site concessions tailored to meet political ends. These can also, of course, be built at a reasonable cost.

        We are ineluctably heading towards a situation where there will be a need for a permanent, and much larger, life-time renting sector, both social and private. What politician is going to come out and admit that? Better to continue with the myth of helping first-time buyers “get their first step on the property ladder” i.e. get into whatever is the current property pyramid scheme. I cannot think of a single country (with the usual exception i.e. Germany) where the political class has stood against this happening.

        http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankpre-releasessignedarticlesfromQuarterlyBulletin32016.aspx

      2. Sarah, it is gradually changing – or rather, they are thinking about changing it, largely because the central bank has shut off the mechanism for achieving it.

        They were quite open about it while they thought that getting bond yields lower and not having to recap the banks again was their (almost) only priority. Noonan even went public about wanting prices still higher (after most of the property price rises, and missing the start of the turn in public sentiment).

        They are fumbling about having now realised there is now a reasonably large constituency who don’t want ever higher property prices, but they cannot, politically, go against the interests of their electoral base.

        They most effective strategy for stalling is to make sure you keep land and site prices off the political agenda and focus the debate on smaller beer, like builders’ margins (for the left) and costly regulatory charges (for the right). Let them bicker away.

          1. Slow down a little here Sarah. You need to put the actual questiondirectly to the councillors and the TD concerned. Why did you object? And eyeball them as they reply.

            “Politicians reflect the will of the people.” Really? More likely they reflect (after the maturest of reflection – you understand) that its their first preference votes they need to be concerned about, politics being local, and all. If a developer planned a two-bed complex near me I certainly complain. Whereas, if it was 1,600 sq ft family homes, I’d be delighted. Two-beds are not homes, they’re expensive motel accommodation.

            The supply of home units will increase provided there are willing and able buyers for those units. The potential buyers seem to be hiding out somewhere. Why? The supply of buyers has to be substantially improved. Not by offering hinky mortgages and cash come-ons. There needs to be a significant, and sustained, improvement in the levels of wages and salaries of the potential buyers. Probable? Unlikely.

            Expect this housing mess to drag on – unresolved.

      3. Cynical, perhaps, but it looks very much like sustained policy. It pleases existing house owners. It eliminates negative equity. It creates a wealth effect. It bails out the banks. It increases tax revenue. It funds pensions. Socially it aids control (look up Franco’s thoughts on mortgages). Expensive housing has many temptations.

        The downsides most severely impact each new generation. And they’re smaller as a voting block. The buck is passed to a generation and the political logic is simple…”They’ll have to sort that one out themselves”.

        Immoral. But tempting. And the majority of the electorate seems to like it.

        H

      4. “The supply side will take years to sort and is the only way to “bring prices down”.”

        Yes, and no. But we did have a supply ‘glut’ some years back. So what happened to it? Has it – “Not gone away.” – or what?

        The Supply-Demand economic paradigm (wrt private housing) does not respond as the theory predicts it should. Its the supply of consumers who are “willing and able” to afford the long-term cost of mortgage repayments + their life-style committments that we need to consider. The income affordibility issue comes first; the supply of domestic housing units is secondary. As we discovered a few years back.

        We do have lots of homes for sale. Curious that the sales volumes are still kinda low. Why would that be? It appears to look like some bad persons will not open the mortgage credit purse strings? Or is it that those same bad persons know from bitter experience just how bad a housing financial bust can be? And who actually got badly burned by the last drop in prices, negative equity and defaulted mortgages. Sure wasn’t the financials, was it?

        I’m not in favour of patronizing (nor matronizing) behaviours. But I will make an exception in respect of the legal implications of mortgage debt. Its very, very bad. Home purchasers often behave like young children who have no concept of HOT. A very hot object may not glow, but a momentary touch will cause quite a nasty burn. Better be sure than sorry on this one.

        Concentrate on the purchaser’s disposable incomes and what proportion of same will have to be devoted to ‘housing’. With a rental you can walk away at the end of your lease. Just do not try ‘jingle mail’ with a defaulting, recourse, Irish mortgage!

  13. Brian Lucey’s mention of revealed preferences is spot on.

    Depressingly, Ireland has a repeatedly revealed and clearly visible preference for dodgy politicians, for high property costs, and for some small sections of the population to make gigantic profits while the main part of the population is made to suffer unnecessarily expensive and unnecessarily badly made housing.

    And this has been going on for decades. Each generation of new house buyers has been stiffed even worse than the last (*). It’s a moral and political question that the country’s chatterati seem very good at ignoring.

    I’m sure others can point at government reports back to the 1970s pointing all this out. I can only groan and point at things like a letter to the paper more than 10 years ago. http://goo.gl/NsDB0p

    With small modifications it could be about today. A grim lack of political progress on one of the most important topics for any country’s population.

    And that grim lack of political progress is – even more sadly – because once they’ve been screwed by this little game, each generation adopts the idea that this situation is a good one and sets about trying to screw the generation following them. Expensive housing is policy because it’s popular. Having allowed themselves to be screwed, no-one likes to admit it or to prevent the next sucker from being screwed too.

    H

    * – Housing may be better made in some cases than in past generations, but that’s not obvious. Council houses from decades ago are still seen as a benchmark of quality. And most modern houses and apartments in Ireland are junk.

  14. The current rules make it very difficult for someone to borrow enough to cover the cost of building a house, even where the site cost is zero. This means builders / developers are reluctant to build.

    1. Are we actually ‘looking’ in the correct location? Maybe its the purchaser that has a disposable income deficit problem, rather than the deficit in the number of available housing units being the problem. The former is not easily observable, whereas the latter is. Try to concentrate on the natures and levels of the incomes of the purchasers, rather than a narrow focus on the various costs associated with home building.

      Its not the amount of mortgage credit that will be forthcoming that is the emerging problem – but maybe its the inability of the putative purchaser to (1) fund a savings programme; and, (2) fund a consumerist lifestyle, and, (3) fund the mortgage repayment programme (even if the interest rate were zero).

      The wages/salaries of an increasing proportion of the main consuming classes have not, or are not, or are unlikely to, increase sufficiently to successfully combine the three above. Yes we have a deficit in domestic housing supply – but we also may have an increasing deficit of purchasers willing and able to purchase, even should a generous supply of new housing eventually materialize. Or have we already encountered this situation a few years back?

      I wonder if the not inconsiderable costs of providing new/additional social housing is actually affordable also. The state may be able to borrow at low interest rates – but how would the repayments be made? Can the citizens actually afford it?

  15. Long term prices should follow productivity. How is that doing?

    The CB has its limits but there hasn’t been much other reform post crash . Land around Dublin is still hoarded by 5 or 6 families and drip fed onto the market. The papers are even more dependent on property porn given the way advertising has gone. The debt hangover from the last boom remains toxic. Property price growth is the only way for a lot of people to earn extra money given salary repression. Millennials and the cohort behind them haven’t a hope. Very dangerous to have them listening to Katy Perry. Unrealistic expectations.

    I wonder when it will be possible to flog AIB.

    When neoliberalism is finally strangled will house prices stay at current levels? I wouldn’t bet on it.

  16. Again, a small point on technology. Housing is slower to change than most technologies since people are vastly conservative about any purchase that costs so much. But there is change. Land and taxes are still the main problem, and often render discussion of technology in housing moot – since no matter what you do to the cost of building, the other costs remain.

    But, the technology is there nonetheless. And most often manifests itself in factory built housing. To quote one supplier “You wouldn’t buy a car that had been built in a field….why would you buy a house that had been built in one?”

    Germany, France, Spain, eastern Europe, even (increasingly) the UK are all building more and more. Houses, apartments and – in China – even high rise buildings.

    Two examples I saw recently. One is a steel frame kit supplier. The build costs are – on the face of it – appealing. e.g. http://bauhu.co.uk/hola.html Just add half a million Euro of suburban Dublin land and you’ve got a really bad deal.

    Or, if you consider the Chinese case, a whole high-rise in 19 days on site. https://goo.gl/Vel4HX

    But even excluding all this, the housing crisis in Dublin, historically and today, is the result of deliberate political choice. Nothing else.

    H

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