The property bubble

cm2000

I have a couple of questions re the property bubble that I've been contemplating for a while.

The Government, I think it's accurate to say, have got the bulk of the blame for the boom and bust property bubble.

What I am wondering is how could this have been stopped once it started? Secondly, did any political party, at the time, suggest a policy that would have had the effect of stopping it?

suckslikeafox

I wont proclaim myself an expert but the amount of tax breaks given to building and the amount of land re-zoned (maybe a county council issue, not sure) was a massive incentive for all the activity, theres no doubt it had a huge affect on activity

Hunchback

putting something aside for a rainy day might have helped. and maybe also stimulating sectors other than construction.

cm2000

suckslikeafox wrote: »

I wont proclaim myself an expert but the amount of tax breaks given to building and the amount of land re-zoned (maybe a county council issue, not sure) was a massive incentive for all the activity, theres no doubt it had a huge affect on activity

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

Dob74

To be fair alot of people pointed out the tax breaks given to the property sector where a bad idea.
Labour where calling for tighter finanical regulation a few years ago.
But since the press where making alot of money from the property bubble they stayed silent.

I would have never in a million years voted for labour before this mess.
But they are getting my vote this time

suckslikeafox

cm2000 wrote: »

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

I get your point, the problem is that demand was stimulated at the same time, largely by low interest rates (out of our control) and by the willingness of people to take on massive amounts of debt to buy second and third homes. Most seem to blame the banks for this, I blame the people who took on unsustainable debt for the most part.

easyeason3

I know of small time guys who considered themselves 'property experts'. This basically meant that they went to aib, boi & tsb on the same day looking for mortgage & hoped that the decision was through on the same day so that they could hit all three banks on the same day.
I don't know how this was possible as I presumed they would have checked exisiting credit as well as exisiting loan applications pending. Apparently they didn't.
Not entirely the governments fault, however they did get themselves involved in the bank bail out.

cm2000

suckslikeafox wrote: »

I get your point, the problem is that demand was stimulated at the same time, largely by low interest rates (out of our control) and by the willingness of people to take on massive amounts of debt to buy second and third homes. Most seem to blame the banks for this, I blame the people who took on unsustainable debt for the most part.

So how is it credible to blame the government for a problem that may have been unavoidable?

ionix5891

cm2000 wrote: »

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

ok it doesnt appear to make sense at first as we were in an HUGE asset bubble that just popped

In bubble normal economics dont appear to apply (the houseprices prices will always go up fallacy) and common sense flies out the window, also we get a breed of people called speculators

but eventually something snaps (subprimes in US) and what went up comes crashing down fast

houseprices are falling but the current low interest rates are damping down the fall, also alot of people are still in denial and dont realise that our economy needs serious restructuring

suckslikeafox

cm2000 wrote: »

So how is it credible to blame the government for a problem that may have been unavoidable?

They can't really be blamed for the demand side but the supply was caused by them to a large extent. Massively increasing demand with a steady increase in supply would have increased prices just enough to price people out of the market, bringing lower demand for mortgages.

You could try to say there would then be a decrease in the price of mortgages (ie interest rates) but demand is only a small part of rate pricing, more depends on the ECB and competition between banks.

cm2000

suckslikeafox wrote: »

They can't really be blamed for the demand side but the supply was caused by them to a large extent. Massively increasing demand with a steady increase in supply would have increased prices just enough to price people out of the market, bringing lower demand for mortgages.

You could try to say there would then be a decrease in the price of mortgages (ie interest rates) but demand is only a small part of rate pricing, more depends on the ECB and competition between banks.

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

suckslikeafox

cm2000 wrote: »

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

Not regulate but leave the market alone by not interfering with incentives and the like.

People would live where they lived before the boom, either rent for longer or live at home for longer until they were in a strong enough financial position to buy a house without a 95%+ mortgage.

I don't think they interfered in the first place purely out of concern for where people would live, developers had (and have) massive influence over FF and the tax take from all the building was enormous as well.

ionix5891

cm2000 wrote: »

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

the problem wasnt with the amounts of housing

it was with the amounts of cheap an unchecked credit being given to anything that could breathe, and now the complete lack of credit making it hard to do large purchases and pushing business who mostly ran without any cash cushion under

think 100+ % mortgages, never in the history there was such a thing

now that people got used to credit they are being rudely awaken

because there was so much money around house owners could raise prices as the banks would just dole out more money from their endless supply

suckslikeafox

ionix5891 wrote: »

the problem wasnt with the amounts of housing

it was with the amounts of cheap an unchecked credit being given to anything that could breathe, and now the complete lack of credit making it hard to do large purchases and pushing business who mostly ran without any cash cushion under

think 100+ % mortgages, never in the history there was such a thing

now that people got used to credit they are being rudely awaken

because there was so much money around house owners could raise prices as the banks would just dole out more money from their endless supply

Out of interest who do you blame for this, banks or consumers?

I know the banks were very short-sighted, but you can't blame them for trying to profit, their duty is to their shareholders and not to the fool who wants to buy a second house or a villa on a €60,000 salary

zootroid

cm2000 wrote: »

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

The government could have introduced measures to curtail demand. Before there was any talk of a recession, analysts were warning about the amount of debt people were taking on. I remember when 100% mortgages started to appear, the national consumer agency warned against them. Banks were short-sighted, and will rightfully receive their share of the blame. But banks are only interested in making profits for their shareholders, they are not concerned about the welfare of ordinary citizens. The government could have introduced legislation about lending practices, such as the term of a mortgage being no more than 30 years, or the mortgage can only be a certain percentage of the purchase price of the house.

I have been told that say 20 years ago people could only borrow 3 times their annual salary, and terms were 20-25 years. Had this still been the case, demand would have been much lower and the property bubble avoided.

I also think the government made a huge error with regards to the regulation of the actual buildings that were constructed. Some of the new houses that were built are of a very low spec, with little insulation for heat or noise. So not only are people in debt up to their eye-balls, and the value of their homes being wiped out, but the quality is also very poor. And given the consensus to be more environmentally friendly, this was a no-brainer from the government. People's heating costs could have been brought down, as well as Irelands emmissions. But this would have increased the buildings costs, leaving developers to pick up the tab. I don't think there's anymore that needs to be said about that!

Dob74

suckslikeafox wrote: »

Out of interest who do you blame for this, banks or consumers?

I know the banks were very short-sighted, but you can't blame them for trying to profit, their duty is to their shareholders and not to the fool who wants to buy a second house or a villa on a €60,000 salary

The banks made a profit?
Why did we give them 7 Billion then?

Maybe on paper so they could pay themselves nice bonus's.
Accounting rules most be changed.
The government most appoint a regulator who will regulate.
If the banks what lassez-faire rules let them go bankrupt.

Daithinski

cm2000 wrote: »

So how is it credible to blame the government for a problem that may have been unavoidable?

House prices are dropping because the economy is in ribbons.

If the economy wasn't in a jock and unemployment spiralling out of control house prices wouldn't be plummeting.

Its the governments job to look after the economy, they didn't do this, therefore I would feel it is their fault.

ionix5891

suckslikeafox wrote: »

Out of interest who do you blame for this, banks or consumers?

I know the banks were very short-sighted, but you can't blame them for trying to profit, their duty is to their shareholders and not to the fool who wants to buy a second house or a villa on a €60,000 salary

ha its not a simple black and white answer

there were alot of involved parties who fed of each other

lets see (in no particular order):

* banks for lending money carelessly, thruout history getting money from banks was like squeezing blood from a stone, seems all of the banks decided to go crazy at the same time, we talking about banks that took centuries to build up their reputation and reserves then deciding to gamble it all in a casino

* central banks from keeping rates low when they should have been high, flooding system with money

* china etc for flooding money into the western system in order to keep their currency down and people poorer

* estate agents, builders, speculators for trying to make a quick buck (nothing wrong with that as such) by overheating the market and then all of these ending out of job

* media for playing along with the show and in some cases playing the bubble up in order to make more money, property ads, home in the sun etc

* consumers who were sheepish enough to get into more debt than they knew they could repay, and more importantly for believing that prices will defy gravity and only ever go up

* and finally the government for doing everything to keep the bubble going, they should have let banks fail, a lesson in capitalism would have taught caution to the banks again, instead they got a bailout and the toxic assets dumped on the taxpayer


thats more or less everyone who reinforced the bubble in a feedback loop until the banks caught a bit of cancer

ionix5891

Daithinski wrote: »

House prices are dropping because the economy is in ribbons.

If the economy wasn't in a jock and unemployment spiralling out of control house prices wouldn't be plummeting.

Its the governments job to look after the economy, they didn't do this, therefore I would feel it is their fault.

you got it backwards

economy is collapsing due a huge construction/property sector (25% GDP of 2006) that was knocked over by the credit crunch and sudden realization that its an unsustainable asset bubble

not the other way around as you imply

Jaysoose

Without an economics degree i cant comment on who is to blame, what i do find astounding is the general lack of personal responibility being shown in the country at the minute. The bank did not twist anybodies arm to take astoundingly stupid and risky levels of personal debt. Nobody forced anybody to buy a bog standard 3 bed semi for more than 300K.

People chose to ignore the continued warnings in the media from people like Mcwilliams and Mr George Lee. They also chose to ignore the dubious actions of a former leader of the country whose didnt have a bank account but hundreds of thousands of euros in his briefcase, the same leader that told us it would last forver shortly before skipping off into the sunset with his pockets stuffed full of taxpayers moneys and developers "gifts"

Banks didnt help but then the irish people walked into this with their collective heads up their arse.

I bought at the wrong time like a lot of people but i accept the fact that i went looking for the credit so have no choice to take it on the chin.

jmayo

cm2000 wrote: »

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

Because at the same time as more properties were being built due to rezoning, cheap credit to develoeprs, tax sections, etc demand was being fueled by very cheap credit due to world markets.

What made our situation worse was that the banks were not regulated and they started dishing out silly 100% mortgages to residential FTBs for over inflated (too many multiples of average salary) priced houses.
Some loans were never properly stress tersted.
Added to this the availability of cheap credit (interest only loans) for investors drove up demand for houses.
On the other side the major high street banks started to employ the Anglo model of firing silly money out to developers. Thye of course were playing catchup to the wrecklessness of Anglo. Example Ulster Bank primarily funded the over the top purchase by Dunne of the Ballsbridge hotels site.

Of course during all this the governor of the central bank issued a few warnings, but nobody really listened and the Financial Regulator was too busy ar**licking his old banking buddies.
Also some local commentators (David McWilliams, Morgan Kelly and more than a few boards posters), foreign commentators (OECD) issued warnings, but they met with derision and seen as either foriegners interferring or sour grapes.
Remember the uproar when German ambassador commented on our state.
As everyone knew the FUNDAMENTALS were sound :rolleyes:

(PS AFAIK the current head of BOI was the guy in charge of residential lending in BOI during the crazy days. Yeah some clean out of the ones responsible for getting us into this mess.)

The government did nothing to dissaude investors from entering the market, actually continuing their investor incentives such as section 23/50 designation of housing schemes in certain areas.
They could also have ramped up taxes on investors or brought in a property tax to persuade them to invest elsewhere.

Other interesting things that happened which could be said to be within goivernment remit was Dublin Docklands Development Authority (quango) which had a couple of directors who happened to be directors of Anglo.
Low and behold the DDDA ended up co-buying the Irish Glass Bottle site in Ringsend, using loans from Anglo, along with FF developer in chief Bernard McNamara. So DDDA who was meant to oversee development of the docklands had become a developer themselves.
There are lots of skeletons in the DDDA cupboard.

cm2000 wrote: »

So how is it credible to blame the government for a problem that may have been unavoidable?

The housing bubble was allowed become too large a part of our economy, most male jobs created post 2001 were in construciton related area and I would bet most female related jobs would have been service/retail.
Both of these depended on cheap credit and consumer spending.

Also the government ramped up public spending based on the huge transactional taxes (stamp duty, VAT) gathered from the construction and housing industry.
More jobs were created in public sector than brought in as FDI by IDA.
The economy was based on Irish people buying houses off each other and as can be seen today there are nearly more houses than people.
This fact is certainly true in Roscommon and Leitrim.
So yes they have a lot to answer for.

cm2000 wrote: »

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

Who were all the people chasing the houses ? Investors, buy to let !
That is why we have so many empty properties in this couuntry.

Daithinski

ionix5891 wrote: »

you got it backwards

economy is collapsing due a huge construction/property sector (25% GDP of 2006) that was knocked over by the credit crunch and sudden realization that its an unsustainable asset bubble

not the other way around as you imply

My main point was that the government is accountable for this as they were in charge and basically asleep at the wheel.

ionix5891

Daithinski wrote: »

My main point was that the government is accountable for this as they were in charge and basically asleep at the wheel.

im not disputing that, governments around the world have been asleep and now have been caught with their pants down, our being the worst

Lizzykins

The whole thing was lunacy fueled by the government and banks. When I bought my first house in 1988 the general rule was you would be lent twice one income and once the other, or two and a half times the combined. You couldn't even approach a bank or building society without two years of solid saving behind you. Terms were generally 20-25 years.
It was very prudent lending and led to gradual increases in house prices and is now why I'm in a good position re my mortgage. Unfortunately many of my generation decided to borrow on the strength of equity in their houses. Never did that either!

cm2000

jmayo wrote: »

Because at the same time as more properties were being built due to rezoning, cheap credit to develoeprs, tax sections, etc demand was being fueled by very cheap credit due to world markets.

What made our situation worse was that the banks were not regulated and they started dishing out silly 100% mortgages to residential FTBs for over inflated (too many multiples of average salary) priced houses.
Some loans were never properly stress tersted.
Added to this the availability of cheap credit (interest only loans) for investors drove up demand for houses.
On the other side the major high street banks started to employ the Anglo model of firing silly money out to developers. Thye of course were playing catchup to the wrecklessness of Anglo. Example Ulster Bank primarily funded the over the top purchase by Dunne of the Ballsbridge hotels site.

Of course during all this the governor of the central bank issued a few warnings, but nobody really listened and the Financial Regulator was too busy ar**licking his old banking buddies.
Also some local commentators (David McWilliams, Morgan Kelly and more than a few boards posters), foreign commentators (OECD) issued warnings, but they met with derision and seen as either foriegners interferring or sour grapes.
Remember the uproar when German ambassador commented on our state.
As everyone knew the FUNDAMENTALS were sound :rolleyes:

(PS AFAIK the current head of BOI was the guy in charge of residential lending in BOI during the crazy days. Yeah some clean out of the ones responsible for getting us into this mess.)

The government did nothing to dissaude investors from entering the market, actually continuing their investor incentives such as section 23/50 designation of housing schemes in certain areas.
They could also have ramped up taxes on investors or brought in a property tax to persuade them to invest elsewhere.

Other interesting things that happened which could be said to be within goivernment remit was Dublin Docklands Development Authority (quango) which had a couple of directors who happened to be directors of Anglo.
Low and behold the DDDA ended up co-buying the Irish Glass Bottle site in Ringsend, using loans from Anglo, along with FF developer in chief Bernard McNamara. So DDDA who was meant to oversee development of the docklands had become a developer themselves.
There are lots of skeletons in the DDDA cupboard.



The housing bubble was allowed become too large a part of our economy, most male jobs created post 2001 were in construciton related area and I would bet most female related jobs would have been service/retail.
Both of these depended on cheap credit and consumer spending.

Also the government ramped up public spending based on the huge transactional taxes (stamp duty, VAT) gathered from the construction and housing industry.
More jobs were created in public sector than brought in as FDI by IDA.
The economy was based on Irish people buying houses off each other and as can be seen today there are nearly more houses than people.
This fact is certainly true in Roscommon and Leitrim.
So yes they have a lot to answer for.





Who were all the people chasing the houses ? Investors, buy to let !
That is why we have so many empty properties in this couuntry.

Cheers, pretty damned good analysis there. Now, to the second part of my query, did any political party at the time suggest these measures that would have curtailed the property boom, and if not, do they have any credibility in criticising the government over their handeling of it?

jmayo

cm2000 wrote: »

Cheers, pretty damned good analysis there. Now, to the second part of my query, did any political party at the time suggest these measures that would have curtailed the property boom, and if not, do they have any credibility in criticising the government over their handeling of it?

Other parties were raising concerns about the fact that we were getting too dependant on property, that we were losing manufacturing jobs due to our high costs which was stemming from rising house prices.
Also other parties did complain about the quangoes, the inefficiences in the health system, etc.

Opposition parties did complain a lot about the cockups of government, but voters chose to ignore them, since they were doing alright jack and couldn't care two sh**s about others who were suffering for instance our health system.

Opposition parties did complain about PPARS, LUAS, Port Tunnel, New Dublin prison site, Bertie bowl, e-voting, tribunals, etc which were all on the lists of government cockups.

BTW for anyone touting how great successes the Luas and Port Tunnel are, they are still cockups becuase they cost way more than budgeted, came in behind schedule and are still an incomplete system.
In the case of Port Tunnel it is been labelled as dangerous by experts.

But come election it became a bidding war since if the incumbent government parties start offering the sun, the moon and the stars, then the opposiiton invariably start to do the same to compete.

Also I don't think any party stated that there should be property taxes to persuade investors out of the market. Maybe someone did, I can't recall.
I do recall some politicans questioning section grants continuing and also parties did propose changes to stamp duty, but that was seen as way of helping FTBs.
Proposing property taxes in this country is tantamount to political suicide.

turgon

But wouldn't it be fair to say that if a person takes on a loan from a bank that is unsustainable that the fault ultimately lies with them?

Why should the government have to ban things like 100% mortgages? Surely it is up to the individual to act responsibly.

djpbarry

Daithinski wrote: »

My main point was that the government is accountable for this as they were in charge and basically asleep at the wheel.

Who elected the government?

rasper

jmayo wrote: »

The housing bubble was allowed become too large a part of our economy, most male jobs created post 2001 were in construciton related area and I would bet most female related jobs would have been service/retail.
Both of these depended on cheap credit and consumer spending.

The female job creation was in a far worse sector than retail/service, in the height of the bubble 2007 60% of males of new jobs were in construction and 60% of females positions were in the public sector, pathto disaster but yeah fundamentals were sound

jmayo

rasper wrote: »

The female job creation was in a far worse sector than retail/service, in the height of the bubble 2007 60% of males of new jobs were in construction and 60% of females positions were in the public sector, pathto disaster but yeah fundamentals were sound

Somewhere in my long winded email I did mention fact we created more jobs in public sector than brought in by IDA as FDI.

Turgon we can say the government are not the fualt for takeup of 100% mortgages, but they are at fault for letting financial institutions do whatever they bloody well liked.
They could have tightened up on investment properties, which would have taken out some of the upward pressure due to every Tom, Dick and Mary who fancied becoming a mega landlord using cheap interest only mortgages.

I always say people will try and get away with whatever they can, especially in this country.
It is up to the authorities to guarantee that stupid risks aren't taken in order to protect the system.
Although our authorities saw the system as themselves and their cronies rather than the shareholders, the bondholders, the pensioners, the taxpayers and the citizens of the state.

The only thing our government and authorities appeared to have been interested in was accomodating their backers and their cronies.

The worse offender has to be the financial regulators office, because by them continously turning a blind eye to what their cronies the bankers were doing they have left the financial system in a catatrosphic state which could bring the country to banruptcy.

thebman

cm2000 wrote: »

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

suckslikeafox wrote: »

I get your point, the problem is that demand was stimulated at the same time, largely by low interest rates (out of our control) and by the willingness of people to take on massive amounts of debt to buy second and third homes. Most seem to blame the banks for this, I blame the people who took on unsustainable debt for the most part.

Demand was made up of people being encouraged to own second homes as investments, baby boomer generation hitting house buying age causing extra demand and an open door immigration policy for renters to make owning second homes look like a wise investment.

As others have said, it all would have been fine as long as everyone kept buying, banks kept lending and immigrants kept flooding here. The economy is perfectly sound :pac:

dan_d

Probably could have been stopped or depressed a bit in a few ways. But nobody stood up and said stop loud enough.
If the length of time mortgages could be borrowed over had been limited, it would set a limit on how much people could borrow as they can only afford a certain percentage of their salary in repayments. If there had been a ban on 100percent mortgages...doesn't need explaining. More regulation of developers...higher standards in housing quality, a certain number of 1/2/3/4 bed houses/apartments per development (with NO loopholes) and more 3/4 beds than 1/2 beds. Also a large onus on developers to supply the necessary infrastructure, as in drainage,roads,public transport links (would it have killed them to stick a bus stop at the entrance to developments???). And not allowing a piece of land to become worth more than the building on it (witness Jury's hotel site in Ballsbridge) or the potential building on it.
With some or all of the above measures we could still have had a boom, but certainly not anything like what we had.And let's face it, the higher you are the further you have to fall.And we were pretty high......
Can I ask another question? What do people think should be done with thethe current areas of land that are now standing unused because developers won't build on them now? Should they be obliged to hand them back to, say the county councils, maybe for a nominal fee, to be used as public land if they aren't going to use them within a certain time frame??Or maybe they should have to provide playgrounds/parks??Or am I asking a ridiculous question??It's just there is a lot of weed covered empty land around where I'm living and it'll probably never be used now and never cleared up either.

thebman

dan_d wrote: »

Probably could have been stopped or depressed a bit in a few ways. But nobody stood up and said stop loud enough.
If the length of time mortgages could be borrowed over had been limited, it would set a limit on how much people could borrow as they can only afford a certain percentage of their salary in repayments. If there had been a ban on 100percent mortgages...doesn't need explaining. More regulation of developers...higher standards in housing quality, a certain number of 1/2/3/4 bed houses/apartments per development (with NO loopholes) and more 3/4 beds than 1/2 beds. Also a large onus on developers to supply the necessary infrastructure, as in drainage,roads,public transport links (would it have killed them to stick a bus stop at the entrance to developments???). And not allowing a piece of land to become worth more than the building on it (witness Jury's hotel site in Ballsbridge) or the potential building on it.
With some or all of the above measures we could still have had a boom, but certainly not anything like what we had.And let's face it, the higher you are the further you have to fall.And we were pretty high......

I think we can all agree the government had many ways to slow the property bubble if they wanted to but choose to let the banks run riot giving mortgages left right and centre to people that shouldn't of been getting them.

Can I ask another question? What do people think should be done with thethe current areas of land that are now standing unused because developers won't build on them now? Should they be obliged to hand them back to, say the county councils, maybe for a nominal fee, to be used as public land if they aren't going to use them within a certain time frame??Or maybe they should have to provide playgrounds/parks??Or am I asking a ridiculous question??It's just there is a lot of weed covered empty land around where I'm living and it'll probably never be used now and never cleared up either.

I don't think anything should be done. If they own the land fair enough. If they have a contract to build on the land but aren't within a reasonable time, the contract should be torn up. There is no shortage of commercial and residential property so building on land lying idle isn't the problem.

The lack of local amenities and poor planning and poor quality of housing is what we should now start working on IMO. We should have had proper policies in place before we let the developers go nuts but that is besides the point. It is too late for that.

Amnesiac_ie

I think everyone is looking for someone to blame; the government, the developers, the banks but I think we all have to realise that as a nation most of us bought into the madness of the bubble. We elected Fianna Fáil into government three elections in a row. A lot of us took on 100% mortgages and racked up large amounts of personal debt. We are at the start of a painful recession and there is a lot of correction and hardship to come. I do want to see change in the banks and a change of government but I think as a people we need to fundamentally change our own attitudes and way of living and accept our own role in the predictable boom/bust crash of the bubble.

Sand

Okay - Lets cover the basics of what the government is to blame for:

Firstly, sacrificing good planning laws and sensible land rezoning in favour of the construction industry.

Secondly, deliberately provoking demand by incentivising speculative demand in property - this was at a time when property was already in much demand, and the government decided to throw petrol on it.

Thirdly, taking the short term tax yield from the property bubble ( stamp duty) and instead of saving it as a reserve for hard times, instead used it to pay themselves wage increaes, to pay their buddies in the social partnership talks wage increases, and to throw money around uselessly. To the point where the government is spending 65 BILLION EURO a year, though it can only raise, at best, 34 BILLION EURO this year. Thats how badly they kept spending under control. How terrible they are at fiscal discipline.

Fourth, their complete feckless gombeen man style politics - perhaps best illustrated by the criminally wasteful decentralisation scheme which was simply an exercise by rural Fianna Fail TDs to buy votes from their constituents, using construction contracts and payoffs from the decentralisation cash cow. All at the tax payers expense.

Fifth, ignoring the loss of Irelands competitive edge - see the massive pay rises they gave to themselves and their buddies in the trade unions. And remember, all of this was paid for on stamp duty - hardly a long term revenue stream but Fianna Fail spent it on long term costs like doubling the public sectors wage bill in only a few years.

Sixth, completely abdicating from their responsibility to ensure oversight of the banks, which were allowed - indeed encouraged - to lend and lend and lend and lend with few or no controls or practical limits enforced. Indeed, the Government wilfully colluded with the Irish banks to attempt to falsify their books and to mislead and deceive shareholders - something they continue to do up to now. Much of the lending that the banks carried out directly contributed to the run away inflation in the housing market - people were given the money, so they spent it. If they didnt, someone else did.

Thats just off the top of my head.

Why should the government have to ban things like 100% mortgages? Surely it is up to the individual to act responsibly.

Sure, for issues of individual importance. Where risks become so great that they are systematic - see Irish banks and their mortgage lending - then the government, or some other neutral market regulator that we might as well call the government usually gets involved.

And in a harsh capitalist world banks like Anglo Irish, AIB and Bank of Ireland would be left to burn. But they havent been left to burn, so we are not in an harsh capitalist world. If the government is going to required to bail out the banks when they **** up, then its got an interest in preventing them from doing very dumb stuff.

zootroid

Jaysoose wrote: »

Without an economics degree i cant comment on who is to blame, what i do find astounding is the general lack of personal responibility being shown in the country at the minute. The bank did not twist anybodies arm to take astoundingly stupid and risky levels of personal debt. Nobody forced anybody to buy a bog standard 3 bed semi for more than 300K.

People chose to ignore the continued warnings in the media from people like Mcwilliams and Mr George Lee. They also chose to ignore the dubious actions of a former leader of the country whose didnt have a bank account but hundreds of thousands of euros in his briefcase, the same leader that told us it would last forver shortly before skipping off into the sunset with his pockets stuffed full of taxpayers moneys and developers "gifts"

Banks didnt help but then the irish people walked into this with their collective heads up their arse.

I bought at the wrong time like a lot of people but i accept the fact that i went looking for the credit so have no choice to take it on the chin.

Thats all well and good, but what about the people who didn't take out huge mortgages to pay for over-priced houses? Even though people may have been prudent, they still may end up on the dole. The economy was being built on construction, it was not sustainable and should never have been allowed to happen in the first place. There were huge failings in macro-economic policy on the governments behalf. But people who had nothing to do with fuelling the property bubble are still affected by it now it has collapsed.

The three groups responsible for the mess we are in now are (in order)

1. The government
2. The banks
3. Property developers

Just my 2 cents

asdasd

My list

1. The banks, and their economists, and the ESRI.
2. The people who elected the government and who believed property never would fall.
3. The Government.
4. Property developers

Once the government had allowed the thing out of control there was no way back, because people are economically illiterate. I remember a discussion with a woman where I was complaining about 100% mortgages. She was in favour because she wondered how otherwise would people afford a house.

The banks played down that, of course. Every new financial innovation was great news for first time buyers.

And politicians, in democracies, are not necessarily intellectuals, or scientists. The government probably believed what Dan McLaughlin was saying, and the ESRI - predicting 4% growth last year, and a soft landing.

Lastly would the government be allowed to curtail mortgage lending once it starts. Imagine the opposition - people are going to be priced out if 100% mortgages are curtailed, or 40 year mortgages banned ( remember people didn't see links between the types of mortgages and the price of housing).

And had government intervention stopped the madness in 2003 it would have reversed the economy in 2003 since construction was such a part of the economy since 2001.

People dont get counterfactuals. You cant really argue in 2003 that it would have been worse in 2009.

What was needed was honest economic reporting by the banks and their economists.

djpbarry

zootroid wrote: »

The three groups responsible for the mess we are in now are (in order)

1. The government
2. The banks
3. Property developers

So no personal responsibility whatsoever? Should the government step in to manage everyone’s personal finances?

SkepticOne

Bubbles are a normal characteristic of speculative markets. The problem comes when those who did not participate are punished in order to bail out those who gambled and lost. Note that I don't count ordinary homeowners here who are also being punished to bail out others, but rather banks, developers, builders and speculators.

AARRRGH

In my opinion there are a number of reasons. In no particular order...

1. FF think short term. This means they aren't willing to make difficult decisions such as curbing a property bubble, because it would have been unpopular (too many people were making money from the bubble.)
2. FF were in bed with the developers.
3. FF have never been the smartest bunch of people.
4. Our financial regulator was negligent/useless.
5. Once one bank started lending willy nilly, they all had to do it. This was a mixture of negligence and stupidity.
6. The average person is quite stupid, and doesn't understand the concept of personal responsibility, so they bought into the "get on the property ladder" scam.
7. Interest rates were historically low.
8. People generally don't understand economics (and don't want to understand) so they thought the bubble would last forever.
9. The US economy crashed due to their own property bubble.
10. Our economy was based on selling houses to each other using large loans. We never were wealthy.
11. The government was making so much money from stamp duty, etc.

What annoys me most about this, is conservative/intelligent people like me who refused to get on board the bubble are having to pay for so many other people's mistakes. It really makes me want to emigrate.

suckslikeafox

AARRRGH wrote: »

What annoys me most about this, is conservative/intelligent people like me who refused to get on board the bubble are having to pay for so many other people's mistakes. It really makes me want to emigrate.

With you there, its annoying me a serious amount. Worst part is that even after the pay cut I got I'm trying to save which is pointless due to rates being so low.

Maybe I should invest in property, I hear theres money there;)

thebman

djpbarry wrote: »

So no personal responsibility whatsoever? Should the government step in to manage everyone’s personal finances?

What it comes down to IMO is if you have a few people failing to pay back loans that is a failure of personal responsibility.

If hundreds of thousands are doing the same thing you have a failure of a system not individuals.

When everything was setup to try to get everyone into property in the country and borrowing more than 3 times their wages, it is partly the persons fault for being so stupid but there is clearly a much bigger problem when they were encouraged to act like this by government, lenders and the regulator who failed to block such lending.

/not involved in property in anyway unless you include renting so not just being in denial to make myself feel better

dan_d

I'd certainly be the first to say that banks and the gov and property developers have a lot to do with all this, but irish people bought into it all.I've beaten this to death with a stick by now (!), but people (I won't say we as I and many others didn't), ran out the door to grab all this property, cars etc, with very little thought to the future. thebman, I agree with your statement about a system failure.Initially people should have had the cop on not to behave like that.When it was blatantly getting out of control someone ( say 2000?2001?) in power needed to pull the reins in and call a halt.Everyone would have whined, but in the long term we would have been far better off. As AArgh says, FF think short term (As in about a month ahead imo). Plus they were like those cartoons you see, where characters go around with dollar signs in their eyes. Congratulating themselves on how wonderful things were, and sure wasn't Ireland great.Yes it was, but it would have been greater if it's Gov had been a bit more conservative and now had the money to get through the hard times.
Anyway, I'm sure we can all rant and rave about them for the rest of our lives.Hindsight is perfect vision. Question is, what are we going to do to fix the mess we're in, and who do we entrust it to? I'm not seeing any immediate answers to that right now.

jmayo

djpbarry wrote: »

So no personal responsibility whatsoever? Should the government step in to manage everyone’s personal finances?

Yes there is a big place for personal responsibility.
If a person believed all the hype without doing homework, went out and signed upto 40 year 100% mortgages that they were barely able to payback or bought multiple investment properties usig interest only mortgages, then they are damm well responsible for the mess they now find themsleves in.
And they should not be bailed out.

But you can't lump the blame for the sh** the banks did, the incompetence of the government in managing our economy or the ineptitude of authorities on individual members of the public.

The people are not responsible for the fact that the banks were offering crazy money to developers, that the bankers were pulling strokes and regulators and authorities were turning a blind eye, that the develoeprs were being aided by a government that made sure investors were being lured into the net by tax incentives.
The government did not act to take steam out of the martket, they actually did the opposite and stoked the flames higher.

The only way that individuals could be seen as responsible for the mess the government made is that they continued to support them and voted the fckkers back in in 2007.

IMHO it is the role of government to rule, to make decisions for the best interests of the country and it's citizens.
They abjected most of this responsibility and just saw how they could make a quick buck, both for themselves and their major supproters.

AARRRGH wrote: »

....
What annoys me most about this, is conservative/intelligent people like me who refused to get on board the bubble are having to pay for so many other people's mistakes. It really makes me want to emigrate.

+1
And what is worse when we did raise concerns and voiced our opinions that we were building ourselves a house of cards, we were either told to stop whinging or else to f**k off out if we didn't like the economic miracle that the great bertie had built.

I can name a good few posters, who on this forum before last GE, were lauding the great celtic tiger economy that bertie had built and what a great country he had created.

I can't say what I really think of these people, becuase I have been warned previously about wishing ill on ******.

johnnyskeleton

cm2000 wrote: »

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

They didn't incentivise house building per se, they incentivised house purchasing, which indirectly incentivised house building.

If you tax something, you increase the price and thus discourage people from purchasing same. If they persist in purchasing, you benefit from the increased tax revenue (e.g. cigarettes). By contrast, if you subsidise something, you encourage people to buy. The government should have increased the proportionate amount of tax on increased house prices (e.g. kept stamp duty the same, introduced property tax over a certain treshold) but instead they subsidised it (e.g. section 23 & affordable housing). The net result was that towards the end of the bubble, the only people who were buying were buying because of s.23 relief, because they "won" the AH lottery, or because they had more money than sense.

What this meant was that instead of the increased supply reducing or stabilising house prices a few years ago, the subsidies increased the supply further which is why we now have a massive oversupply and little demand.

cm2000 wrote: »

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

Viewed as a commodity, someone will get just as much benefit from a €100k property as they will from the same property valued at €300k. The problem is that people didn't view it as a commodity, and were encouraged in this view by, inter alia, the government.

The Raven.

dan_d wrote: »

Probably could have been stopped or depressed a bit in a few ways. But nobody stood up and said stop loud enough.

Nobody?

Have you ever taken the time to study the planning applications during the property boom?

Have you ever read any of the thousands of objections submitted against the massive, wide scale, unsustainable, sprawling property developments?

Have you ever read through the councils’ own planners’ reports, which they subsequently ignored?

Have you ever read through An Bord Pleanala’s planners’ reports? Some of these were also ignored.

Oh yes, thousands of people have stood up and shouted 'stop' in the only way that is legally possible.

zod

If McWilliams is right we are in for a decade of pain.

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=DAVID+McWilliams-qqqs=commentandanalysis-qqqid=41602-qqqx=1.asp


Is there any way we could accelerate the market finding the true value of property ?

In fact the government asking BOI and AIB to delay foreclosures might actually be delaying the inevitable.. and hence prolonging recession in Ireland for longer

SkepticOne

The Raven. wrote: »

Oh yes, thousands of people have stood up and shouted 'stop' in the only way that is legal.

But they were standing up against inappropriate development, not bubble prices. What people should have done was refused to pay the sort of money that being asked, but instead people queued up in greater and greater numbers than ever right up to the very point of the bursting of the bubble.

thebman

SkepticOne wrote: »

But they were standing up against inappropriate development, not bubble prices. What people should have done was refused to pay the sort of money that being asked, but instead people queued up in greater and greater numbers than ever right up to the very point of the bursting of the bubble.

It is the bank that should refuse to lend that much to people. They are supposed to put checks in place to protect themselves and to ensure the person can pay them back. Obviously they weren't.

You can't take away the rules for qualification and then complain that people are cheating. There were no rules so how could they be cheating?

Regulation and banks failing to protect themselves caused this crisis and now people are being asked to pay for their massive mistakes.

SkepticOne

thebman wrote: »

You can't take away the rules for qualification and then complain that people are cheating. There were no rules so how could they be cheating?

I didn't say people were cheating.

Regulation and banks failing to protect themselves caused this crisis and now people are being asked to pay for their massive mistakes.

Yes the banks were responsible too. They bought into the bubble as much as anyone else and now we're bailing them out.

AARRRGH

SkepticOne wrote: »

What people should have done was refused to pay the sort of money that being asked, but instead people queued up in greater and greater numbers than ever right up to the very point of the bursting of the bubble.

I refused to buy because I could see we were in a bubble.

My friends (and acquaintances) who wanted to buy, I tried to warn them that their purchase would come back to haunt them, but without fail they looked at me like I was a jealous moron.

Now these people are saying things like "no one could have predicted what's happened" or "it's the banks fault".

No, it's your own fault for not using your brain.

I swear, as I get older I am constantly being reminded that if the masses are doing it, it's probably wrong!