Category: Competition policy

Martin Walsh on Residential House Prices

This article by Martin Walsh in the Irish Times has some convincing analysis (unfortunately the graphics are not shown in the on-line version), and some thought-provoking comments on the Irish government policy conundrum regarding residential house prices.  As Martin Walsh notes, to minimize expected future (state-owned) bank losses and Nama losses, policymakers must hope that prices have now fallen to their steady-state equilibrium level.  But for the purposes of restoring competitiveness, continued house price decreases would be better. 

“… it seems that there is a real dilemma at the heart of national policy. Do we prioritise competitiveness by bringing house prices back into line with incomes or keep them inflated in the hope of reducing further losses to the banks and Nama (National Asset Management Agency), as well as containing the extent of negative equity?”

Most importantly, by most long-term metrics, current house prices in Ireland still seem to be above sustainable levels.  

What actions (if any) should Irish policymakers pursue regarding stabilizing the residential housing market, and to what ends?    

Review Group on State Assets and Liabilities

The report of the Review Group on State Assets and Liabilities has been published here. While some of the key recommendations had been signalled over recent days in the media there is a lot of detail in the report. Apart from the recommendations on asset disposal there are lots of recommendations on the regulation and governance of state bodies. 

IMF deal can change Irish legal system for the better

An article by Eoin O’Dell, Trinity School of Law explains how. You can read it here.

Mortgage Arrears: September 2010

The latest quarterly report on mortgage arrears from the Central Bank is available here. The report shows a continuation of the steady increase in the fraction of mortgages that are more than 90 days in arrears. This fraction rose from 4.6% in June to 5.1% in September, in line with the previous increases over the past year.

Privatisation in energy

Minister Ryan has come out against the privatisation of state-owned energy companies, for three reasons.

First, the minister states that these companies are investing, and implies that these investments would disappear if the companies would be privatised. That suggests that part of the current investment plans make no commercial sense. It would therefore be good to scrap those investments.

Second, the minister states that the companies paid a 320 mln euro dividend in 2009. The return on capital of ESB and BGE is a respectable 9.4%, but the return to the owner is only 4.3%. Ten year bonds are at 8.1% now, so a sale would be profitable to the Irish taxpayer.

Third, the minister states that splitting the companies would increase their cost of capital. A split is necessary because the network infrastructure is a natural monopoly that should remain in state ownership. Essentially, the minister claims that ESB and BGE use capital cross-subsidies between their activities. The value of the parts is therefore greater than the value of the total.

In sum, the minister has given three excellent reasons why the state-owned energy companies should be privatised.