What is economics good for? Event with Dan Ariely and Mark Blyth

Something perhaps of interest to the site’s readership…

This weekend, the Zurich Dalkey Book Festival takes place. This has become something of a sister event to Kilkenomics, which has in recent years hosted leading academic economists such as Deirdre McCloskey and Jeffrey Sachs as well as prominent economic commentators such as Diane Coyle, Simon Kuper and Philippe LeGrain.

This Saturday in Dalkey, I’ll be chairing an event called “Economists: What Are They Good For?“. The three-person panel comprises Dan Ariely, one of the world’s top behavioural economists, and Mark Blyth, author of Austerity – The History of A Dangerous Idea, as well as “the world’s most-quoted living man” PJ O’Rourke.

 

TCD Policy Institute event on mortgage arrears

The topic of mortgage arrears remains close to the top of the political agenda, with the Government set to announce measures today on the issue. Next week, we are very fortunate to have in Dublin one of the world’s leading experts on housing markets, arrears and foreclosure, Fernando Ferreira of Wharton Business School at the University of Pennsylvania.

The Policy Institute, based at Trinity College Dublin, has organised a mini-conference on mortgage arrears for the morning (9am to 11.30am), next Monday 18th May in Trinity College Dublin (JM Synge Theatre, Room 2039, Arts Building). The mini-conference centres on factors influencing mortgage arrears and repossession and focuses in particular on the US and Irish experiences. Speakers include Fernando Ferreira (Wharton & NBER) and Yvonne McCarthy (Central Bank of Ireland). There will also be a panel discussion and time for questions/comments from participants.

All welcome with no need to register.

Expectations, credit and house prices

Happy new year to the irisheconomy.ie community. Of course new year means new quarter and new quarter means house price reports…

The latest Daft.ie House Price report is out this morning. The PDF is available here. For me, the key takeaway is as follows: house prices fell in the final quarter of 2014 and it seems very unlikely to have been statistical noise or a seasonal effect. 35 areas are analysed in each report. For each of the first three quarters of the year, an average of 32 showed quarterly gains in asking prices. For the final quarter, this flipped, with 30 of 35 regions showing a fall. For Dublin, this was the first quarterly fall since mid-2012. (Given the size of increases earlier in the year, a one-quarter fall still leaves the year-on-year change large and positive: 20% in Dublin and 8% elsewhere.) Broadly speaking, a mix-adjusted analysis of Price Register transactions shows the same. While it is only one quarter, it seems more than just a statistical blip.

For me, the check-list of what matters for house prices contains five items: [1] household incomes, [2] demographics and [3] housing supply (“the fundamentals”); and [4] credit and [5] expectations, these last two being the “asset factors” that can create and destroy housing bubbles. None of the fundamentals changed dramatically in the final three months of the year (the only thing you could argue was a slightly higher volume of listings in Dublin), so the change after September must be due to asset factors.

The Central Bank proposed in October to cap residential mortgages as early as January 2015, although this could not affect prices directly in 2014. So the last remaining candidate is expectations.* The quarterly Daft.ie report includes findings from a survey of housing market sentiment. This survey indicates that, yes, those active in the housing market did revise downward their expectations about future house price growth, particularly in Dublin. Whereas those surveyed in September expected a 12% increase in Dublin house prices over the next 12 months, this had fallen to less than 5% by December. I expect that the Central Bank would be happy if it were the case that their proposals strengthened the link in people’s heads between fundamentals (in particular people’s incomes) and house prices.

As for my opinions on the Central Bank guidelines themselves, I submitted a response to the Central Bank’s Consultation Paper, which is available online here. The TL;DR version is “max LTV good, max LTI bad”. I made similar points at an Oireachtas hearing on this and related topics in late November.

* Some have argued that the end of Capital Gains Tax relief was what drove trends in the final months of 2014. The theoretical reasoning behind this is unclear – it is not obvious that this would affect supply more than demand – while practically speaking, it is also not clear how this would have managed to infiltrate the vast bulk of the market which is not of interest to investors. When asked what they thought was driving house prices, those active in the housing market rarely mentioned tax factors, instead picking credit and supply as the main factors.

Central Bank event: Labour Markets over the Business Cycle

The Central Bank is hosting a one-day conference on “Labour Markets over the Business Cycle” on 11 December in Dame Street (programme below). There is a limited number of places still available. If you wish to attend, please email ieaadmin@centralbank.ie by 9 December. Please note that places will be allocated strictly on a first-come-first-served basis.

Labour Market Adjustment over the Business Cycle

A one-day conference at the Central Bank of Ireland

11 December 2014
Liffey room, Dame Street, Dublin 2

email ieaadmin@centralbank.ie to confirm attendance by 9 December

   
Programme

 

11 December  
   
08:45 Registration and coffee
09:00 Opening remarks – “Prospects and Challenges for the Irish Labour Market 2015 – 2020”. John Flynn (Head of Irish Economic Analysis Division, Central Bank of Ireland).
   
Session 1 

09:20-11:00

Cycles in employment, unemployment and wages
  Labour market transitions in Ireland – Thomas Conefrey (Irish Fiscal Advisory Council)
  Wage Cyclicality – Mario Izquierdo (Banco de Espana)

 

11:00 Coffee & tea break
   
Session 2
11:15-13:00
Labour market attachment
  Are the marginally attached unemployed or inactive? – Martina Lawless (CBI/ESRI)
  Sources of wage losses of displaced workers – Pedro Portugal (Banco de Portugal)
   
13:00 – 14:00 Lunch
   
Session 3
14:00 – 15:45
Wage flexibility
  Wage flexibility in Ireland – Olive Sweetman (Maynooth University)
  Wage Setting – Flexibility and Rigidity in the UK since 1975 – Jennifer Smith (University of Warwick)

 

Session 4

15:45

Labour market adjustment during and after the crisis: the role of policies and institutions
  Pedro Martins (Queen Mary University of London)
  Questions & discussion

 

  Closing remarks

Conference Ends

Join the dots

There are some days when political myopia and an inability to join the dots is particularly difficult to accept. This is one.

On the one hand, we have the Simon Community’s latest annual report:

Over 1,400 people are forced to seek shelter in emergency accommodation in Dublin every night, according to the charity [Simon]. It believes there is little hope for these people of moving on to somewhere of their own in the long term, with at least 50% of people now stuck in emergency shelter for more than six months. The problem, it says, lies in the collapse of the private rented and social housing market, with additional housing also slow to come on stream.

On the other hand, we have these decisions from Dublin’s local authorities:

Dublin homeowners, the State’s biggest payers of local property tax, will have their bills cut next year, following the decision of councillors in three local authorities to lower the tax by 15 per cent. Dublin city councillors last night voted for the cut, despite warnings from chief executive Owen Keegan that the decision could hit homeless services.

Dublin’s local authorities are foregoing roughly €40m on an annual basis with these measures. The back of my envelope suggests that this amount, if used as collateral/deposit of one third to borrow the other two thirds, could have perhaps provided for building 1,000 units a year. I suggest bringing this up with your councillor the next time they knock on the door, proclaiming the virtues of knocking €80 off your property tax bill, while also claiming they will take action on homelessness.

There are two additional bitter pills to swallow. Firstly, this tax rebate is probably the most regressive one that could be dreamed up, with Ireland’s wealthiest citizens benefiting the most and the poorest third of society gaining nothing. And secondly, Ireland’s left-of-centre parties (particularly those not in Government) led the charge on this. The mind boggles.

Blame cannot lie entirely with local politicians, it must be said. Narrowly, if central government hadn’t given them a target of 15%, and instead let them do whatever they want with their property tax, but live with the consequences, things might have panned out differently.

More broadly, there will always be a segment of society who cannot afford to cover the costs involved in their accommodation, so there will always be a requirement for social housing. The government has long abdicated its duties in this regard.