Property Bubble? - "Never Again!!!"

Irish and Proud

Hi to all!

I think the harsh reality is that the property boom is the main factor that has destroyed the Irish economy. Of course, the international crisis didn't help matters, but it's the high mortgages, high cost of doing business that has (1) made this country less competitive, (2) suppressed consumer confidence and (3) hindered essential infrastructural investment due to high property costs. Now, I'm sure this is nothing new in people's minds, but what is never mentioned is...

What do we do about developers and land speculators etc, so that the same thing never happens again???

I for one think that no one should be ever allowed to make money out of thin air by extorting the punter. On a more general note, we have what I'd call a gatekeeper society where heavy tolls are unscrupulously levied on people merely trying to go about their business. What am I talking about??? Well, the gates happen to the controls on essentials such as land, transport, energy etc, while the keepers tend to be vested interests who make absurd amounts of money by controlling the very basics. For example, Irish Rail have for 2009, increased their fares by about 10%, the ESB has failed to significantly reduce prices, while the speculators who will probably buy up land when it's cheap etc... the list goes on...

I have to go now, but what do you guys think?

Fat_Fingers

Its government who allowed and encouraged it because it was in their interest and they were sure nobody would complain or do anything about even at election time. Why we have prices going down in private sector but all the sectors controlled by government/public service prices are going up at ridiculous rate.
Here's one for you , lowering the path for the driveway. Last year cost was 180 euro. This year Dublin city council decided price is 720 euro. Now that is whooping 400% increase!!!!!!!
But as saying goes we get the government we deserve. Go back to last elections, commuter belts like Balbriggan, Laytown... Those places are all flooded with new housing estates, mainly young families. No proper public transport, unfinished road, unfinished estates. No child care facilities. No kids playgrounds. No new school, waiting list are 2+ years! No extra buses or trains to facilitate for expanding population... i can go on and on. And who won in these commuter belts? Yes, FF. So i say no more.

silverharp

Irish and Proud wrote: »

What do we do about developers and land speculators etc, so that the same thing never happens again???

In reality there will not be a new property boom for decades, so its a mute point. That being said land could be zoned in general terms based on 20 or 30year growth palns, so that there would not be a winner takes all lottery.

Irish and Proud

Fat_Fingers wrote: »

Its government who allowed and encouraged it because it was in their interest and they were sure nobody would complain or do anything about even at election time. Why we have prices going down in private sector but all the sectors controlled by government/public service prices are going up at ridiculous rate.
Here's one for you , lowering the path for the driveway. Last year cost was 180 euro. This year Dublin city council decided price is 720 euro. Now that is whooping 400% increase!!!!!!!
But as saying goes we get the government we deserve. Go back to last elections, commuter belts like Balbriggan, Laytown... Those places are all flooded with new housing estates, mainly young families. No proper public transport, unfinished road, unfinished estates. No child care facilities. No kids playgrounds. No new school, waiting list are 2+ years! No extra buses or trains to facilitate for expanding population... i can go on and on. And who won in these commuter belts? Yes, FF. So i say no more.

I agree in principal with what you are saying, and assuming that your point about driveway works is true, it is nothing short of a scandal! :mad: Brings to mind the 10% price increases by Irish Rail - is anyone running this country??? :mad:

However, I guess FF's gain will be short lived - they'll probably pay a heavy price in upcoming elections. However, the biggest winners are the land specualtors and property developers - if people wonder where Irelands wealth has gone, need I say more???

Property Bubble - Never Again!!! :mad::mad::mad:

Regards!

Irish and Proud

silverharp wrote: »

In reality there will not be a new property boom for decades, so its a mute point. That being said land could be zoned in general terms based on 20 or 30year growth palns, so that there would not be a winner takes all lottery.

Absolutely mate!

But as you said, we need to plan for the future - but...

NOW!!!

We need to take action now to restore credibility to this country's economy. The government needs to demostrate (like what their counterparts in Sweden did in the past apparently) that hard lessons have been learned. This means cleaning out the top level ranks within the financial institutions coupled with drastic changes in relation to property prices and development strategies. Other industries such as catering would also require major reform, especially where competion is restricted, like at airports, venues etc. With credibility will come more confidence and hopefully, more economic activity.

Regards!

techdiver

Unfortunately, it will happen again as it has happened before.

No lessons were learnt from previous property crashes in the UK and Asia etc... The problem is that greed is a core construct of the human psyche.

We are all to blame and were all complicit in what happened. As mentioned in previous posts we voted the current government in for a third consecutive term, thus giving our stamp of approval to the policies and incentives toward the property market that were in place.

The gravy train has been derailed!

RandomAccess

Guys we are pissing against the wind if we leave people in government who have massive property portfolios. How can we expect good leadership from people with such a strong vested interest in property as these:

http://www.rte.ie/news/2008/0313/politics.html
http://www.mulley.net/2008/03/15/the-houses-that-frank-built-frank-fahey-has-a-few-gaffs/

Maybe its time we changed our method of government from party politics to just choosing the best man for the job.

Heres an interesting quote from the wikipedia page on trevor sargeant,

It says About Sargeant;

"He is well known for waving in the council chamber a cheque received in the post from a builder who was seeking planning permission for a housing development. When he asked the other members whether any of them had also received cheques, he was assaulted by a number of his fellow councillors. Sargent alleged that Fianna Fáil councillor Don Lydon put him in a headlock and attempted to snatch the cheque from him.[1] This is one of the incidents which eventually led to the creation of planning tribunals to look into planning matters in Dublin County Council."

Maybe we need more people who don't hob-nob with developers in tents at the Galway races.

Oh and by the way I'm far from a fan of the Green party, I just think some politicians have more than a single grain of Integrity. Tony Gregory is another good example.

Irish and Proud

RandomAccess wrote: »

Guys we are pissing against the wind if we leave people in government who have massive property portfolios. How can we expect good leadership from people with such a strong vested interest in property as these:

http://www.rte.ie/news/2008/0313/politics.html
http://www.mulley.net/2008/03/15/the-houses-that-frank-built-frank-fahey-has-a-few-gaffs/

Maybe its time we changed our method of government from party politics to just choosing the best man for the job.

Heres an interesting quote from the wikipedia page on trevor sargeant,

It says About Sargeant;

"He is well known for waving in the council chamber a cheque received in the post from a builder who was seeking planning permission for a housing development. When he asked the other members whether any of them had also received cheques, he was assaulted by a number of his fellow councillors. Sargent alleged that Fianna Fáil councillor Don Lydon put him in a headlock and attempted to snatch the cheque from him.[1] This is one of the incidents which eventually led to the creation of planning tribunals to look into planning matters in Dublin County Council."

Maybe we need more people who don't hob-nob with developers in tents at the Galway races.

Oh and by the way I'm far from a fan of the Green party, I just think some politicians have more than a single grain of Integrity. Tony Gregory is another good example.

Mostly agree!

Maybe we should have a system where people, if elected to power, should have to rid themselves of (1) any interests in big business, (2) excessive property (for example, politicians should only be allowed to own one house - that does not include mansions etc.), and (3) excessive lifestyles. The time for career politicians must come to an end. We now need politicians with principles... like yesterday!

with the above in mind, if any such rules are breached, then it should be a criminal offence carrying a prison sentence, plus a bill (100k per year?) for the privelege. Maybe then would we start to see more decent politicians.

Our economic and political system sucks! :mad:

Regards!

thebman

Should outlaw large political donations and anonymous donations. Each person should only be to donate a certain about to a party.

Personally I'd rather ban them and parties each get a set amount from the government which you could have a system whereby if you fit certain criteria you get more or not but you don't really want joke parties getting lots of money for no reason.

They should have to account for this spending and it should be audited to ensure that it was spent properly. People don't like the idea of funding political parties from tax money though which is why I suggested the first idea. The second idea would probably work better.

The main reason I suggest it is that there would be less political parties getting large donations from developers for their parties and so they'd be less likely to be biased in their favor and they might actually run the country although that would be a long shot.

ranger4

techdiver wrote: »

Unfortunately, it will happen again as it has happened before.

No lessons were learnt from previous property crashes in the UK and Asia etc... The problem is that greed is a core construct of the human psyche.

We are all to blame and were all complicit in what happened. As mentioned in previous posts we voted the current government in for a third consecutive term, thus giving our stamp of approval to the policies and incentives toward the property market that were in place.

The gravy train has been derailed!

What crediable alternative to ff do we have, they all sing from the same hyme sheet.

techdiver

ranger4 wrote: »

What crediable alternative to ff do we have, they all sing from the same hyme sheet.

It's not whether the alternative have the same economic ideals or not.

The problem was that this government is like a sports team, say "Team Ireland" and we have a player on the team that has gotten too big for it's boots and needs to be shown that it can be replaced at any time by another player. The new player isn't necessarily any better, but it shakes things up and give Team Ireland a fresh impetus.

Sorry for the sports analogy, I hope it illustrates my point.:)

Time Magazine

brim4brim wrote: »

Should outlaw large political donations and anonymous donations. Each person should only be to donate a certain about to a party.

Both of these are in place.

K4t

techdiver wrote: »

We are all to blame and were all complicit in what happened.

techdiver

K4t wrote: »

Were we as a population not happy to snap up mortgages that we clearly couldn't afford?

Were we as a population responsible for voting in the current government even though the wastage of public money was evident for years?

Don't get me wrong, I want to see the bankers and politicians burn for this mess, but we all played are part in it, especially in relation to the complete and utter hysteria toward owning property!

Hopefully this mess will further educate people about such matters, but as history has shown, lessons are only learnt in the short term and forgotten in the long term.

ranger4

techdiver wrote: »

It's not whether the alternative have the same economic ideals or not.

The problem was that this government is like a sports team, say "Team Ireland" and we have a player on the team that has gotten too big for it's boots and needs to be shown that it can be replaced at any time by another player. The new player isn't necessarily any better, but it shakes things up and give Team Ireland a fresh impetus.

Sorry for the sports analogy, I hope it illustrates my point.:)

Personaly think that if any new player and team is selected to run the country that they sign a job performance related contract and that if they keep under performing withinn a specified time that the whole team including leader is replaced, I do agree that a majoir shakeup with how are tds opperate and are paid needs to be found.

Économiste Monétaire

Where's the economics in this thread?

Fr0g

Don't forget

The First Annual Donie Cassidy Day

He who predicted last April that houses prices would be 25% to 30% higher in a years time. (April 10th, 2009)

Quote:

Senator Donie Cassidy: We have a duty to tell first-time house buyers, young couples with no previous experience, that there is unbelievable value in the marketplace today. It will not last forever. It is never the wrong time to do the right thing. I offer the House the benefit of my experience and my opinion which is all any Member can do. I will remind the House, perhaps in 12 or 18 months, when prices have again increased by 25% or 30%, that they were told this by the Leader of the House on this historic day, the tenth anniversary of the Good Friday Agreement.

Here is an indication of his large property portfolio:
http://archives.tcm.ie/irishexaminer/2005/05/05/story46678742.asp

There is a full list on a government website but I can't find it at the moment.

These turkeys aren't going to vote for Christmas.

RandomAccess

Économiste Monétaire wrote: »

Where's the economics in this thread?

You are right, But, (Bear with me on this)

Every economist in the country was in the media warning us about an iceberg ahead (years in advance), yet we have sailed blindly into it. So either there were no Economic advisors in the government, or if there were, then they were just being ignored, or they just gave very bad advice.
Either way Politics and Economics will be forced together for some time since they have been ignoring each other for so long.

So perhaps we need an Economics minister... would you like the job?

Économiste Monétaire

Économiste Monétaire wrote: »

Where's the economics in this thread?

Don't you know that reputable economic advice comes in youtube videos and comments now. It has evolved beyond bulletin boards.

Agent J

We're supposed to have one in a finance minister i would have thought. Execept have a lawyer for some reason.

People voted in this government. 3 times.

You have a problem with the government then take it out on the people who voted for them.

Économiste Monétaire

RandomAccess wrote: »

You are right, But, (Bear with me on this)

Every economist in the country was in the media warning us about an iceberg ahead (years in advance), yet we have sailed blindly into it. So either there were no Economic advisors in the government, or if there were, then they were just being ignored, or they just gave very bad advice.
Either way Politics and Economics will be forced together for some time since they have been ignoring each other for so long.

So perhaps we need an Economics minister... would you like the job?

Political science and Economics are not "forced together," they are separate disciplines—political economy is a sub-field of economics. Economic advice has always existed in short-term political realities, that doesn't mean that the actions politicians take are an exact reflection of the advice they receive. You can argue about the advice given by our staff economists, or lack thereof, but it's difficult to armchair judge policy recommendations after the fact, because there's obvious information asymmetries in what they base their opinions on, and what others use.

I’ll entertain the idea of an Economics Minister. To have one, you would need to dilute the power of the Minister for Finance, and the appointee should not be a politician. You're looking for, at a minimum, a PhD macroeconomist to head the department, and for them to bring a few colleagues and some junior economists along. There's someone I have in mind who could fit the role, someone far better suited than I . I find the possibility of such a post being created in Ireland highly dubious.

Deleted User wrote: »

Don't you know that reputable economic advice comes in youtube videos and comments now. It has evolved beyond bulletin boards.

I think I missed that memo

Time Magazine

Économiste Monétaire wrote: »

There's someone I have in mind who could fit the role, someone far better suited than I .

Aw, shucks :pac:

I don't think Philip likes media attention that much. Morgan, on the other hand...

nesf

Économiste Monétaire wrote: »

I’ll entertain the idea of an Economics Minister. To have one, you would need to dilute the power of the Minister for Finance, and the appointee should not be a politician. You're looking for, at a minimum, a PhD macroeconomist to head the department, and for them to bring a few colleagues and some junior economists along. There's someone I have in mind who could fit the role, someone far better suited than I . I find the possibility of such a post being created in Ireland highly dubious.

Just having the Dept. of Finance have more properly qualified economists would be more plausable and more useful.

See Garrett Fitzgerald's comments on the decline of the number of economists in the department here: http://www.irishtimes.com/newspaper/opinion/2009/0110/1231515465825.html

Économiste Monétaire

Économiste Monétaire wrote: »

There's someone I have in mind who could fit the role, someone far better suited than I .

No prizes for guessing who would put himself first in the queue!

BenjAii

nesf wrote: »

Just having the Dept. of Finance have more properly qualified economists would be more plausable and more useful.

See Garrett Fitzgerald's comments on the decline of the number of economists in the department here: http://www.irishtimes.com/newspaper/opinion/2009/0110/1231515465825.html

As honorable and decent a politician as Garrett Fitzgearld is in comparisn to most of the shower we have governing us now, I find the idea that more Economists would have prevented what has happened somewhat ridiculous.

When you look at the epicentres of stupidity in the current crisis, funnily enough, they coincide with places that have the most academic Economic expertise; Banks, Financial Regulators, Gov Finance Departments, etc, etc
So having more Economists is hardly a predictor of success is it ?

I have a feeling that the root causes behind the current crisis, are psychological and inherent to human nature, and the exact same ones that we have observed time and time again in financial crisis throughout history and will again.

Academic economics is useful in providing analysis of "what happened" after the event, and to some extent in modeling "what might happen" in planning for the future.

But it's only one tool humans use in planning, whether politically or in other arenas, and it would be more useful to us if we used it recognising it's limitations, rather than vesting it with a spurious knowledge and authority it doesn't have.

After all we don't go round elevating people from University Sociology departments to Gurus and Saviours based on their academic credentials, yet with Economics its sister academic discipline, this seems routine.

Économiste Monétaire

The Economist wrote: »

Aw, shucks :pac:

I don't think Philip likes media attention that much. Morgan, on the other hand...

Deleted User wrote: »

No prizes for guessing who would put himself first in the queue!

I wouldn't be putting forward any TCD economists—especially any microeconomists! :pac: But: Lane, Whelan, et cetera, would be interesting to see them in a role like that. I think if Morgan took up the torch we would need a large PR team—I can't see a high tolerance level for reporters asking, essentially, the same question 7 different ways

nesf wrote: »

Just having the Dept. of Finance have more properly qualified economists would be more plausable and more useful.

See Garrett Fitzgerald's comments on the decline of the number of economists in the department here: http://www.irishtimes.com/newspaper/opinion/2009/0110/1231515465825.html

Fair point, thanks for the link. I like the idea of an Irish version of the Council of Economic Advisers, though.

nesf

BenjAii wrote: »

As honorable and decent a politician as Garrett Fitzgearld is in comparisn to most of the shower we have governing us now, I find the idea that more Economists would have prevented what has happened somewhat ridiculous.

When you look at the epicentres of stupidity in the current crisis, funnily enough, they coincide with places that have the most academic Economic expertise; Banks, Financial Regulators, Gov Finance Departments, etc, etc
So having more Economists is hardly a predictor of success is it ?

Well, if you read his piece, there is a chronic lack of experienced economists in the Finance department at the moment and what he's complaining about is that a) they didn't have sufficient trained people to do economic forecasting, b) they did forecasts anyway and then c) based policy on them.

I'd also seriously question whether there are a lot of academic economists with PhD training and experience in macroeconomics working as economists in Banks in this country and you can be bloody sure that the driver for the American banks were the profit margins from their trading desks and not anything that any economist might might say.

Actually, the most academic economic expertise would very much be in the central banks and honestly, I don't think either of the Fed or the ECB have done a terribly bad job over the past two years.

D.S.

The economic crisis was caused by a whole host of factors not just the property bubble:

- Irish public desire to own primary/secondary residences rather than rent
- Government incentivisation of home ownership (stamp duty relief, interest rate relief)
- A credit fueled period of global growth promoted by a huge uptake in securitisation. This incentivised banks to move from a "take and hold" model of banking to an "originate and distribute" model. In short - banks were focused on getting punters in through the door as they were securitising the loan book. This is resulted in consumers having too much debt from personal loans, to mortages, to credit cards etc
- Growing dependency on the property sector for growth and failure to promote adequate diversification.
- Weakening lending standards of banks globally resulting in a take up of weaker counterparties who should not have received loans or received loans too cheaply for their actual risk profile. This came about due to a prolonged boom.
- The sub-prime debt crisis (brought about by weakening lending standards). Resulted in the liquidity crisis and funding crisis which severly impacted on the ability of Irish banks to raise funds.
- The reduced impact of Government initiatives in the banking sector due to the global nature of the banking crisis.

All of the above have led to the economic crisis we are in and it's severity. The bubble in effect was not the cause of the crisis. It is quite possible we could of managed our way to a "soft landing". We should of possibly promoted other industry sectors rather than property. Also, our economic crisis has been sharpened by the fact we are such an open economy and dependent on the States.

BenjAii

nesf wrote: »

Well, if you read his piece, there is a chronic lack of experienced economists in the Finance department at the moment and what he's complaining about is that a) they didn't have sufficient trained people to do economic forecasting, b) they did forecasts anyway and then c) based policy on them.

I'd also seriously question whether there are a lot of academic economists with PhD training and experience in macroeconomics working as economists in Banks in this country and you can be bloody sure that the driver for the American banks were the profit margins from their trading desks and not anything that any economist might might say.

Actually, the most academic economic expertise would very much be in the central banks and honestly, I don't think either of the Fed or the ECB have done a terribly bad job over the past two years.

Well I suppose Economists are only as good as the advice they give and to be fair sound economic thinking pointed to all the dangers that have led to the current predicament, it just was ignored, which takes me back to my point on inherent human nature.

Ultimately I think regulation is the only way to curb and temper these excesses. I have no faith a self-regulating financial system won't do the same thing again another generation down the line.

Even then, will lessons learned curb irresponsibility?

In retrospect all the similarities between now and what led to the Great Depression seemed to have happened again, despite human society being the most knowledgeable it has ever been in all of history.

nesf

BenjAii wrote: »

Well I suppose Economists are only as good as the advice they give and to be fair sound economic thinking pointed to all the dangers that have led to the current predicament, it just was ignored, which takes me back to my point on inherent human nature.

Ultimately I think regulation is the only way to curb and temper these excesses. I have no faith a self-regulating financial system won't do the same thing again another generation down the line.

Even then, will lessons learned curb irresponsibility?

In retrospect all the similarities between now and what led to the Great Depression seemed to have happened again, despite human society being the most knowledgeable it has ever been in all of history.

I think that proof of the pudding is in the eating and what really matters here (right now) is whether the central banks and Government don't repeat the same mistakes that were made during previous recessions/depressions. I don't honestly think we'll ever curb irresponsibility to the point where bubbles and busts will disappear but I think that we can learn to better deal with these downturns when they do happen and to moderate their effects on the people.

BenjAii

nesf wrote: »

I think that proof of the pudding is in the eating and what really matters here (right now) is whether the central banks and Government don't repeat the same mistakes that were made during previous recessions/depressions. I don't honestly think we'll ever curb irresponsibility to the point where bubbles and busts will disappear but I think that we can learn to better deal with these downturns when they do happen and to moderate their effects on the people.

While it's obviously a good thing if we can better learn to cope with the after effects, i'll guess from your 'champagne libertarian' moniker you are not a fan of more regulation.

I'd argue it would be cleverer to learn more about how to keep the barn door shut in the first place, rather than just focusing how we can improve on dealing better with the horse bolting.

Thing is though, I would be interested in seeing a proper analysis that attempted to disentangle the effects of the property collapse from other current economic factors.

Yes the collapse of the housing bubble is bad, but did cause Dell to leave? No
How many people were actually able to liquefy their 'spike' to wealth from housing gains?
Did it bring down the banks? Def a large factor, but not the only one.

There are very few papers out there which take a GE approach to housing bubbles.

gurramok

Deleted User wrote: »

Thing is though, I would be interested in seeing a proper analysis that attempted to disentangle the effects of the property collapse from other current economic factors.

Yes the collapse of the housing bubble is bad, but did cause Dell to leave? No
How many people were actually able to liquefy their 'spike' to wealth from housing gains?
Did it bring down the banks? Def a large factor, but not the only one.

There are very few papers out there which take a GE approach to housing bubbles.

Think you're missing the point.

Rising commercial rents that resulted from the bubble strangled business here. Commercial rents are only starting to come down in the last year.
Rising house prices resulted in high wage demands from workers, it is a factor on why the likes of Dell hopped it.

It's ironic that its cheaper to manufacture something in non-bubble Germany than in Ireland. (Rte has a news report on this, its buried on their site somewhere)

gurramok

gurramok wrote: »

Think you're missing the point.

I would argue that you are a bit, yes property prices lead to inflationary pressues. But there are other factors; some exogenous so nothing we can really 'do' about that, some endogenous, which we can learn from.

However, blaming the entire woes of the Irish economy on a housing bubble is a simplistic answer. Yes, it had an impact. But I would like to see a paper that attempted to work just how much of an impact of it had. Makes a change from people just shouting loudly that Government and MacNamara caused the death of the country.

thebman

Deleted User wrote: »

However, blaming the entire woes of the Irish economy on a housing bubble is a simplistic answer. Yes, it had an impact. But I would like to see a paper that attempted to work just how much of an impact of it had. Makes a change from people just shouting loudly that Government and MacNamara caused the death of the country.

I don't think you have to blame the entire woes of the Irish economy on the a housing bubble to realize that we don't want another one.

Housing bubbles cause high mortgages which cripples people spending ability as all their money goes into paying for their mortgage.

I don't think loading young people will debt could ever be described as something we want. I don't think volatile markets are something we want either. I think a stable housing market would be beneficial to the economy and to the people in the country on the whole.

What is the argument in favor of letting the market fluctuate between bubbles and burst bubbles? I can't honestly think of one.

leninbenjamin

Deleted User wrote: »

Thing is though, I would be interested in seeing a proper analysis that attempted to disentangle the effects of the property collapse from other current economic factors.

here's my take anyway...

Deleted User wrote: »

Yes the collapse of the housing bubble is bad, but did cause Dell to leave? No

disagree. the property bubble was a prime driver behind the increase in living costs in this country. it put cash in people's pockets. it extended people's credit and had a knockon effect throughout the economy, driving prices upward.

Deleted User wrote: »

How many people were actually able to liquefy their 'spike' to wealth from housing gains?

it depends. quite a fair amount had more cash in their pockets because of it, although most tended to reinvest the larger sums again so are struggling now like anyone else.

Deleted User wrote: »

Did it bring down the banks? Def a large factor, but not the only one.

it was not the cause. it greatly aggravated the symptoms, but frankly causation here is the reverse. the banks took the property bubble with them. they started calling in loans early, while at the same time not following through on agreed funds to allow developers to finish projects. they started to withdraw overdraft facilities so small struggled to pay workers on time and amplified the contraction.

let no one tell you otherwise, the bubble had started to deflate in 2006. that was when prices peaked, that was when construction actvity peaked. since then the bubble had slowly started to correct itself. until the financial crises was there to liven up the process.

brim4brim

brim4brim wrote: »

I don't think you have to blame the entire woes of the Irish economy on the a housing bubble to realize that we don't want another one.

Housing bubbles cause high mortgages which cripples people spending ability as all their money goes into paying for their mortgage.

I don't think loading young people will debt could ever be described as something we want. I don't think volatile markets are something we want either. I think a stable housing market would be beneficial to the economy and to the people in the country on the whole.

What is the argument in favor of letting the market fluctuate between bubbles and burst bubbles? I can't honestly think of one.

You see, here is where I think there are interesting points.

You say higher property puts cash in people pockets? How? How much cash? Mervyn King said 'housing wealth isn't real wealth' and studies in the US seem to show that an increase in house price by one dollar will only increase consumption by 4 to 6 cents. Is that the case here? If so, how much will increased housing prices lead to increased consumption?

You also say that mortgages cripple people as they can't spend, but these people bought the house when the price was high, yes it is the case where they cannot sell the house to cover the cost of the mortgage, but a housing bubble shouldn't cost them their job (unless they work in construction), so if they loose their job they are caught, but can you say that the housing bubble caused them to loose their job?
Don't forget that this housing crises came at the same time as the worst financial crises in living memory. I think there is a serious issue of correlation and causation going on at the moment.

leninbenjamin

leninbenjamin wrote: »

here's my take anyway...



disagree. the property bubble was a prime driver behind the increase in living costs in this country. it put cash in people's pockets. it extended people's credit and had a knockon effect throughout the economy, driving prices upward.



it depends. quite a fair amount had more cash in their pockets because of it, although most tended to reinvest the larger sums again so are struggling now like anyone else.



it was not the cause. it greatly aggravated the symptoms, but frankly causation here is the reverse. the banks took the property bubble with them. they started calling in loans early, while at the same time not following through on agreed funds to allow developers to finish projects. they started to withdraw overdraft facilities so small struggled to pay workers on time and amplified the contraction.

let no one tell you otherwise, the bubble had started to deflate in 2006. that was when prices peaked, that was when construction actvity peaked. since then the bubble had slowly started to correct itself. until the financial crises was there to liven up the process.

I don't have a lot of time, but here again you seem to be missing what I am saying (or more likely, I am not saying it clearly).

You say the bubble started to collapse in '06. I'll take you on your word for that. However, in '06 and '07 we were still doing all right as an economy. So the bubble didn't have an immediate effect. It seems that the trigger to our recession was the credit crunch which forced the banks to start calling in loans and also removed liqudity from the financial system. Can we blame the property crash for this? No.

My question is, removing the effects of the credit crunch, what do we think would have happened post the bubble collapse?

What I would really like to see is figures and data that attempt to show the direct effects of the bubble collapse and the direct effects of the credit crunch.

thebman

Deleted User wrote: »

You see, here is where I think there are interesting points.

You say higher property puts cash in people pockets? How? How much cash? Mervyn King said 'housing wealth isn't real wealth' and studies in the US seem to show that an increase in house price by one dollar will only increase consumption by 4 to 6 cents. Is that the case here? If so, how much will increased housing prices lead to increased consumption?

I don't say higher property puts cash in peoples pockets. It takes it out of regular workers pockets and puts it in construction workers pockets leading to an uneven distribution of wealth built on debt. The burden of the debt is usually on the average Joe worker. Then you have the developers who with all the money still have to borrow for new projects which leaves them exposed when something bad like the financial crisis does happen.

I think if you were able to regulate the market to ensure bubbles didn't happen then you'd have a much more stable scenario in the housing market and people in general would prefer this scenario as the market is better know and more predictable.

The bubble/non-bubble scenario leads to one generation buying high and the next buying low so one generation crippled with debt and the next having it relatively easy by comparison. Much fairer system would be to ensure that housing is affordable all the time so you don't have these high's and low's over time.

You also say that mortgages cripple people as they can't spend, but these people bought the house when the price was high, yes it is the case where they cannot sell the house to cover the cost of the mortgage, but a housing bubble shouldn't cost them their job (unless they work in construction), so if they loose their job they are caught, but can you say that the housing bubble caused them to loose their job?
Don't forget that this housing crises came at the same time as the worst financial crises in living memory. I think there is a serious issue of correlation and causation going on at the moment.

It doesn't have to cost them their job to cripple them. You can have a job and barely be able to afford a mortgage leaving you with just enough to survive and no money for other expenditures such as going out which reduces money going into these sectors of the economy and forces all the money into the one sector, construction which is bad for the economy. Why put all the eggs in one basket?

One of the prolems we are faced with at the moment is so many people are employed in construction that we face high unemployment precisely because too many people are/were qualified in construction. They lose their jobs so have no money to spend so retailers lay off staff which means they have less money to spend which leads to further lay offs again and your in a cycle.

Same with services that depend on construction companies.

Allowing construction bubbles every other generation just isn't workable in the long term IMO. It causes too many problems for too many people and just sucks money out of other sectors of the economy.

gurramok

In '06, '07 and start '08, houses were still being constructed by buyers of previous years hence the rosy revenues of those years.

Late '06, activity stalled on the buyers front for new builds. Now, it takes around 18mths to 2 yrs to build that house.
Once they were finished, your construction workers and all excess related activites(estate agents, banking, retail) were thrown on the dole due to hugely diminished housing starts from sometime in early '07 onwards. (Dept of envrionment has actual date of this)

93,000 houses built in 2006, a forecast of 40,000+ in 2008 and a dire 20,000 this year if at all.
2008 completions are a result of new build buyers from 2006. Once they were completed, the revenue plummeted as new build buyers from late '06 onwards were thin on the ground hence completions were in freefall in future years, thats the real explanation for the plummeting tax revenues of VAT/CGT and stamp duty.(stamp duty for new builds was not much, its effect from a bubble on 2nd hand housing counts more)

Then we add in the giant commercial building and you see it was too unsustainable.

Its a delay factor of the bubble. It accounted for 23% of GNP in 2006 when it should of been half that like in other countries. People did scream from the rooftops that this will end in tears but they were ignored and labelled as doom mongers.

If the credit crunch did not happen, the public finances would of still been in the state it is today due to domestic issues as described. Maybe not 13bn out last year but marginally less due to a stable sterling(that 67p to a euro scenario) currency in a no credit crunch scenario. But sterling plummeted and our exports were hammered hence less revenue in that area.

Simple as

bangersandmash

Deleted User wrote: »

You say the bubble started to collapse in '06. I'll take you on your word for that. However, in '06 and '07 we were still doing all right as an economy. So the bubble didn't have an immediate effect.

I think anyone following the property market closely in 2006 would have noticed a substantial shift during that summer. By autumn many high-end properties and sites were suddenly failing to sell at auction. These were leading indicators of the direction the market was going - the bubble was already starting to collapse.

https://www.tribune.ie/article/2006/sep/17/rude-awakening-in-store-for-sellers-as-dublin-prop/

By late 2006 there was already a substantial backlog of properties on the market. Unfortunately most media outlets didn't pick up on this, and those that did were distracted by the issue of stamp duty and the fallacy of a "soft landing". But the warning signs were definitely there before the onslaught of the credit crunch.

Irish and Proud

Économiste Monétaire wrote: »

Where's the economics in this thread?

The economics are in the measures that would help prevent future (and current) excessive pricing (like what I was saying about land and the property system etc), thereby creating a more completive economy. This is especially necessary, as we no longer have any real say in the foreign exchange rates, which affects our exporters. Also, high prices can act as a disincentive in relation to economic activity - like such in the form of high rents and overheads which tend to suppress indigenous small, but smart industries (such industries would leave us less dependent on multi-nationals), as well as traditional local businesses which obviously generates local employment (hired or self employment). Also, some form of price control would bring more economic credibility to the country in the face of foreign investors.

Another seemingly urgent aspect is financial capital - apparently, there are many entrepreneurs waiting to launch or expand small businesses around the country, but can't due to lack of credit. As the world has reached the foothills of the next technological revolution (interactive technology), Ireland needs to position itself in order to take advantage.


Have to go now!

nesf

BenjAii wrote: »

While it's obviously a good thing if we can better learn to cope with the after effects, i'll guess from your 'champagne libertarian' moniker you are not a fan of more regulation.

Nope, my moniker is a play on champagne socialist and meant as a joke really. I do believe that banks need to be regulated far more than any other industry in the economy.

I should probably change my moniker given the current economic climate.

nesf

Deleted User wrote: »

Yes the collapse of the housing bubble is bad, but did cause Dell to leave? No

Not directly no, but the increase in Government revenue could translate into an increase in cost of doing business through increases in public and then private sector pay deals.

Deleted User wrote: »

Did it bring down the banks? Def a large factor, but not the only one.

If there wasn't a credit crisis then some of the banks might have been ok. I'm not convinced that Anglo would have survived without a lot of help even in nicer economic conditions.

Irish and Proud

Deleted User wrote: »

However, blaming the entire woes of the Irish economy on a housing bubble is a simplistic answer. Yes, it had an impact. But I would like to see a paper that attempted to work just how much of an impact of it had. Makes a change from people just shouting loudly that Government and MacNamara caused the death of the country.

Yes, you're right to a certain extent!

However, when one looks at the inflation chain (2003 - 2006), there is one factor IMO at the start of it all - that said, other stand alone tributary factors such as oil prices come into the equation. Back to the main factor though: land speculation, developer greed and reckless bank lending all led to higher property prices. This in turn excessively raised the property rent levels, which in turn raised the cost of goods and services, which in turn led to higher wage demands, which again increased the cost of goods and services, coupled with financial and property interests exploiting the situation regarding higher wages and so on - such a vicious circle has led to a catastrophic over-heating of the Irish economy.

IMO, the so-called economic boom of 2003 to 2006 was actually a glorified pyramid scheme where a few speculators and vested interests won out - such parties have effectively robbed much of the wealth that this country (actually) generated in the 1996 to 2000 boom - wealth generated from attracting foreign investment, particularly in IT and pharmaceuticals. The 2003 to 2006 period however, is when people were conned (IMO) with the illusion that Ireland had ample wealth despite the 2001 economic downturn. Such wealth was in reality (in the words of David McWilliams) cheap credit at the time, which we now (as a country) owe (indirectly through borrowing and mortgages) to the ECB.

When the possibility of a property crash was mentioned in 2006, the story that political figures and some bank economists gave us was "if there was a property downturn, it would be short lived with only a slight drop (if any) in property prices, before they would start climbing again". This IMO led people to borrow more thereby continuing to fuel the mechanism that has siphoned hard cash from the Irish economy while it was replaced with borrowed money - this IMO is why we, as a country, have live way beyond our means.

All I can say is: We must never let this scandal happen again! :mad:

Regards!

But from what you are saying, cheap credit was then the cause of the situation where find ourselves, and not a property boom (which as an effect).

How then would the calls for market regulation of housing prevent a similar situation from occuring if credit was the cause?

This is why I am saying that now is the time to sit back and really look into exactly what happened and not start screaming for action but not being aware of what action needs to be taken.

Analagy: do you want a surgeon to start cutting you up without listening to whats wrong with you? Just instead assuming that you are 'sick' and need to be 'healed', and since surgery heals.....

leninbenjamin

Deleted User wrote: »

What I would really like to see is figures and data that attempt to show the direct effects of the bubble collapse and the direct effects of the credit crunch.

hmmm.... i see your point.

frankly it'll be years before we can see data like that. there still isn't one definitive consensus as to the primary factors behind the Celtic tiger boom of the early 90s.

The data is there, just a case of analysis being applied. This is not the first (nor last) property boom and models exist that may work here.

Just haven't seen many examples of them being used yet.