Should we be worried about property bubble re-inflation?

For a real property bubble you need lots of cheap or reasonably cheap credit.

Then take a look at the state of our banking system.
We don't really have a standalone indigenous banking system anymore, two banks have gone, another has been taken over, two are nearly state owned and one is most of the foreign banks have upped and left.
There is collosal amount of personal debt out there so a big chunk of the population cannot buy again so I can't see a bubble reinflation.

What is happening is the state (government and arms of the state like NAMA, the nationalised banks) are hoping there is price growth so that they can recoup some of the losses, offload nationalised banks and up the revenue returns.
They are helping constrict supply so that prices are going up in the more desirable areas.
Reposessions are not happening because it is political unpalatable and even the banks are can kicking hoping prices increase to recoup some of their losses.
If prices dramatically increased the level of repossessions would jump as happend in UK back in early 90s.

A lot of purchases over the last couple of years have been cash and foreign investors taking big sites because yields are good and Ireland looks like a reasonable long term bet.


Then add in all those in negative equity and you have a big tranche of people hoping prices increase.

The only construction work I see in Cork city at the moment is government funded. Many roads have been dug up and changed to reduce the space available to motorists. Bicycle parking spaces also have been put at places where I have never seen somebody leave a bicycle or understand any reason why they would choose to park their bicycle at the designated parking place constructed. There also seems to be a new school being constructed near where I live and only a few hundred metres away from an existing school. The RTE broadcasts about the economy improving here seem very difficult to agree with when I check the wages of jobs advertised.

I would see no property bubble developing here until wages improve. We are a small country on the edge of a European union that seems to have abandoned the idea of assisting countries at a distance from the industrialised core at the centre of the continent. The only thing that has propped up our population with a stagnant economy are the thousands from the eastern periphery of the EU who often do not need to earn enough to buy a place to live here as they only plan to stay a limited time. While house prices have dropped they are still unaffordable now to far too many people living here.

Yes, we should be worried.

Rents in cities are way too high.

I hear talk of 1000 pm for 1-bed apts in Dublin - CRAZY.

I also hear about 1400 pm for 2-bed apts in Ranelagh - UNREAL and obscene.

92% mortgages are still available, even after a massive crisis - they should be banned, max loan should be 80-85%.

35 year mortgages are still available - they should be banned, max duration 25yr.

This would help reduce debts, and help contain house prices.

realitykeeper wrote: »

Then house prices will fall to about a quarter of their present value.

I was agreeing with your post up until this point but frankly the above is ridiculous and sounds more like wishful thinking on behalf of somebody hoping to pick up some cheap property.

Local authority levies and the conditions they are placing on developers are acting as a major brake on new house builds at the moment. But there are things that government can do to free up the system and increase the supply of new houses:
http://www.independent.ie/lifestyle/property-homes/ten-steps-to-solving-dublins-housing-crisis-30111454.html

Part of the problem is that government is so stuck in “react mode”, batting off day to day crises, that they seem to have no time to deal with current pressing issues, such as the emerging property bubble in Dublin.

More questions should be asked of Minister, Phil Hogan, as to what he is doing to remove excessive bureaucratic local authority demands on providing infrastructure, etc., which are making the building of new houses an unattractive economic proposition for developers

The alternative is for the local authorities, themselves, to provide the badly needed new housing builds, without which prices will continue to rise in line with growing demand. And we all know that public monies are not available for this approach right now.

The cost of housing has to be linked to peoples’ earnings and ability to pay – otherwise we are destined for more booms and busts for what is a basic human need – affordable housing! It's time for government to exercise the powers we gave them to solve this problem!

emo72 wrote: »

is the property bubble being fueled by buyers from abroad? cant see how anyone can get a mortage here.

Mainly cash, lot of folk retiring with big lump sums who are afraid of the banks doing a Cyprus on them. That would be one segment of the market and with such pitiful stock available, it's shooting fish in a barrel for EA's.

Our Year wrote: »

the rent is too damn high

Agreed!

But, as demand is unlikely to go down, this will continue until there is an increase in supply - basic economics.

Government should be doing more to remove barriers on the supply side - it is doable, but, like anything worth doing, requires a bit of effort (and a bit of courage).

chopper6 wrote: »

So 2000 per month for a two bed in Dublin is about right?

The simple fact is a lot of these Buy To Let cowboys are in arrears with the banks and are determined to gouge the tenenats to make up for thier own stupidity...what we need is the reposession of these properties and a govt rental agency to administer the sector and set maximum rents.

Most of these shysters bough hoping to make a quick buck and know nothing about the needs of tenants or the societal iimplications of sky-high rents and lack of security of tenure.

Landlords beleive the Govt should write off *thier* debts but are quite happy to evict people so they can charge more and more in rent.

What?

Anyway of course the Landlord will get whatever rent they can and if the buy to lets that are in arrears are repossessed I'd be surprised if most of them weren't outside Dublin.

Legislation on maximum increases is fair enough in my opinion but the last thing we need is the government taking control of the rental market who exactly is going to foot the bill for all this?

chopper6 wrote: »

How expensive is it going to be?

Get rid of the buy to lets that owe the banks money...take them into a NAMA-style agency only for rental to be leased at an affordable rate to tenants with governmental supervision....the banks get thier slice,the Govt get thier slice and the tenant at the very least as security of tenure,all else being equal.

The bank and the erstwhile landlord can come to some sort of a deal but celtic-tiger era dummies should not be allowed gouge people while they are in arrears of thousands and are hanging on in the hopes of a writedown.

Well given prices are still half what they were at the peak repossessing them is going to mean the Irish government pumping billions into the banks again to cover the losses.

The banks won't recover their money, the Irish government will lose big money and the renter will still have to pay huge rents to cover the costs of this while we also end up with a new agency which is run by the civil service creating a new cost we didn't have before.

Then the rest of the country will have to pay more tax to pay for what can't be recouped from renters.

Geuze wrote: »

.

92% mortgages are still available, even after a massive crisis - they should be banned, max loan should be 80-85%.

35 year mortgages are still available - they should be banned, max duration 25yr.

This would help reduce debts, and help contain house prices.

and keep the riff-raff in tenanted servitude too!

chopper6 wrote: »

Exactly...no security of tenure...you're at the mercy of greedy people,especially the new breed of amatuers that have entered the market.

Was there ever a time we had anything other than amateurs in our property market?

golfwallah wrote: »

Agreed!

But, as demand is unlikely to go down, this will continue until there is an increase in supply - basic economics.

Government should be doing more to remove barriers on the supply side - it is doable, but, like anything worth doing, requires a bit of effort (and a bit of courage).

It's called Foreclosure Stuffing and has little to do with building rates but rather the puny level of transactions strangling supply to the market.

OMD wrote: »

On what basis?

Currently house prices are about 4 times average earnings. That is pretty much in keeping with long term average.

Rent yields are about 5-5.5% which again is pretty average. Indeed if you believe people like David McWilliams (which I wouldn't) then yields should be 7% which would mean current average rents need to increase by about 25%.

For those missing the reference:

gaius c wrote: »

No. It's not so much a problem with the amount of supply (which is still a problem) but the real problem is the tiny volume of transactions.
There are enough property units in this country, even in so-called squeezed Dublin. Finfacts covered how the vacancy rate in Dublin (5%) is actually double what it was back in the 90's.

Think of it this way, our pillar banks technically speaking have an extremely high market cap and shares trade at considerably above what a sane person would pay for them. The reason for this is that the number of shares that are actually tradeable are puny in comparison to the total number of shares. I believe it's something like less than 1% of AIB shares are actually tradeable and this distorts the price of those available shares. If the transaction volume increased to normal levels, the current distorted prices would decrease.

Very similar problem happening to the housing market right now.
There might be only 10 people in the entire country looking to buy a house but if there's less than 10 houses actually really genuinely for sale, there will be bidding wars to secure one of those house.

Add all the market confusion of houses that are only nominally for sale or where vendors withdraw at whim and this adds further pressure on stock that is available.

Sure, there'll probably be chaos as the dust settles but medium/long term, larger transaction volumes should mean lower prices.

I'd be very wary of fin facts to be honest it's a pretty terrible site.
The actual homes for sale in Dublin is just a few thousand much below what is needed for the city and the likes of South Dublin build far less houses as well meaning even less stock is available in the area.

chopper6 wrote: »

So 2000 per month for a two bed in Dublin is about right?

The simple fact is a lot of these Buy To Let cowboys are in arrears with the banks and are determined to gouge the tenenats to make up for thier own stupidity...what we need is the reposession of these properties and a govt rental agency to administer the sector and set maximum rents.

Most of these shysters bough hoping to make a quick buck and know nothing about the needs of tenants or the societal iimplications of sky-high rents and lack of security of tenure.

Landlords beleive the Govt should write off *thier* debts but are quite happy to evict people so they can charge more and more in rent.

The same government that can't even establish a post code system, which is a prerequisite for any sort of rent control. Good luck with that.

Under the Planning and Development Act, 2000, builders have to give up to 20pc of a development of more than five houses over to social and affordable housing.
This will now be reduced to one in 10 new homes in a development.

If social and affordable housing is of benefit then the taxpayer should fund it. I am not quite sure why the buyers of new houses should be expected to fund social and affordable housing, when those who do not move house do not have to.

golfwallah wrote: »

After 37 months in office our government, formed 9th March 2011, is finally doing something about the housing crisis that has emerged under their watch.
According to the Irish Independent, government is set to provide finance to “cash-strapped builders” to help relieve the housing supply problem:
http://www.independent.ie/irish-news/cashstrapped-builders-will-now-get-state-loans-to-tackle-housing-crisis-30157559.html

Better late than never, I guess. And even if it doesn’t have an immediate impact on rising house prices and rents, let’s hope it helps to dampen down rising prices before too long.

Let’s also hope that reduced demands on builders for provision of social housing also helps on the supply side:

So they are going to give loans to builders who didn't repay their last lot of loans?

Sounds smart.

gaius c wrote: »

You're completely ignoring the effect foreclosure stuffing is having on the market. This thread is an excellent illustration of how the whole market is being strangled by the logjam.

With respect, I have not ignored your point about foreclosure stuffing, but neither do I think it’s the entire reason for rising house prices – see 2 earlier posts:

Sure, the part of the supply problem related to so few transactions is a result of "Foreclosure Stuffing" (as your link puts it - because "free" housing is being supplied by banks to those who aren't paying their mortgages).

But, even if this issue is addressed by the banks, the people in these houses will still have to be housed elsewhere - result - zero sum gain.

Government also has a role in ensuring effective banking supervision, i.e. ensuring that so called foreclosure threatened properties are “actually really genuinely for sale”.

We elected the current government to solve problems like the shortage of housing – and they have now started to do something about it (like finance provision and reduced social costs), even if the impact of these actions are relatively minor.

And as much as foreclosure stuffing is a problem, government pressure on the banking system could take years to change anything substantially and putting people out of their homes is not an easy thing to make happen politically.

The biggest part of the problem, IMHO, is not foreclosure stuffing but lack of new housing supply, which is now being gradually addressed, see article in today’s Sunday Independent (and I’m no fan of boom builders either – but what’s the alternative right now?):
http://www.independent.ie/business/irish/boom-developers-back-building-new-homes-in-dublin-30158163.html

McTigs wrote: »

the average wage is 35,909 and the average house price is 177,000. This is not 4 times. It's about 24% too high, the same 24% drop that would bring rental yields to the 7% they should be.

http://www.cso.ie/en/media/csoie/releasespublications/documents/earnings/2011/earnlabcosts_2011.pdf

http://www.cso.ie/en/media/csoie/releasespublications/documents/earnings/2011/earnlabcosts_2011.pdf

This is another bubble, being engineered by the many interests in inflating prices i.e. The banks, the government, NAMA and the thousands of property owners in negative equity. It's not going to end well, manipulating a market never does.

I for one will not be buying into it. I work to hard for the money i earn to gamble it on a loaded deck.

I don't see house prices dropping too much more so the question for me is how much is the mortgage not the price of the house right?

So a 177,000 house with a 90% mortgage is 159,300 but their are of course other factors.

The two most important factors I think are 1) the average wage of the buyer not the overall average wage of the country.

2) The second point is how many single people are buying homes and how many couples have only one wage?

gaius c wrote: »

Okay, maybe I was a bit unfair on you but it's actually more than just restricted amount of supply, the speed at which transactions happen is also being affected, even for properties with no NE. So a former renter will have to stay renting longer because the sale takes so long to go through. This is putting extra logjam in the market and making it even harder to clear stock.

That's before you consider the amount of "blind alley" stock that isn't actually for sale and is wasting potential buyers' time, causing panic and further messing up the market.

These are entirely artificial restrictions. We built like crazy during the bubble, ended up with loads of empties and suddenly we've run out of space despite high levels of emigration in the FTB age cohort?

Cause and effect, dear boy – cause: supply not meeting demand, effect: rising prices, long transaction times for some.
But none of this is new, there have been booms and busts before and it’s never been easy to buy and/or sell a house, in my experience. I’ve done it 4 times between different counties in Ireland and between the UK and Ireland, while changing jobs at the same time.

There always have been artificial restrictions as well - there is nothing natural about buying and selling houses. The only “new” feature has been easy availability of credit that fuelled a reckless property bubble. Some of the housing was needed in response to demand in urban areas but, unfortunately, too much was built where there was no sustainable economic need. The latter building remains largely empty.

All that being said, “we are where we are”. Moaning about it won’t solve the problem. What we need are realistic plans and actions to move forward and deal with the situation, step by step. Government can help by removing / modifying unrealistic barriers by way of demands for upfront building of infrastructure, social housing, etc.

I’ve had it from a reliable source that one development with upfront €70m in infrastructure cost to the developer, that still, post boom, has only a few thousand houses. And councils are still demanding this level of upfront funding from developers.

Government (i.e. Phil Hogan, Minister) needs to push local authorities to adopt a more realistic approach to solving the housing shortage – they have had 37 months to get going so far – how much more time do they want?

Some posters consider that there is a vast supply of houses held by Nama and along with repossession of housing that this will correct market. The issue is a supply problem and will not go away until we get to building the required number of units/year. The issue during the boom was that a credit lead boom allowed huge investment in houses and even though there was a huge o/p of units this artifical demand created a housing price bubble accross the whole country

golfwallah wrote: »

Finance Minister, Michael Noonan, says fears of a housing bubble are exaggerated:
http://www.independent.ie/business/personal-finance/property-mortgages/theres-no-housing-bubble-michael-noonan-wants-prices-to-rise-30168455.html

Just more evidence, not that we needed any of the disconnect between the government and ordinary people.

It was clearly evident on Prime Time last night when Jan O'Sullivan (Minister for Housing FFS!) was touting the same crap about a low base and prices being low etc, until she was challenged on it by a member of the audience who pointed out that they may be low for some one on a ministerial salary, but that €500,000 for a semi d is outside normal peoples budgets!

Even David McWilliams said that their is the start of a bubble and no plan to tackle it and that anyone thinking of buying should do so now as it's only going to get worse with the current governments policies.

Of course it was stated that people in negative equity would be happy with price rises, until it was also pointed out that most people that want to sell, want to do so to trade up and any gains made in the sale of their property will be eroded by the increases in property they wish to "upgrade" to.

Irish people need to learn, that high house prices benefit no one except for the already wealthy. We need to get away from news of increasing house prices being good news. It is bad news for everyone!