Article: Just waiting for domestic economy to recover not an option

djpbarry

This headline grabbed my attention in today's Irish Times. "This looks like it could be a positive read" I thought, "espousing the virtues of proactivity, no doubt”. The article (from Danny McCoy, director-general of IBEC) certainly began in such a vein:

RECENT YEARS have been dominated by the need to correct the public finances and sort out the banks. Business, meanwhile, has got on with the task of cutting costs, restoring competitiveness and adjusting to new economic realities.

All of this needed to happen, but there has been a paucity of new ideas when it comes to reviving the domestic economy. The property market is frozen, those that can afford to spend are saving and the level of economic activity is far below what the economy can reasonably sustain.

There is, however, considerable potential for growth.

“Great!” I thought. “Some much-needed perspective.” But then...

...consumers need to be given more certainty about the future. The Government must move faster to rebut inaccuracies touted by commentators, particularly with regard to Ireland’s debt sustainability. The upcoming four-year plan for public finances is also an opportunity to set out how future budgets will affect households.

Getting the property market working again must also be a priority...

Oh dear.

Granted, a normally-functioning property market isn’t going to do any harm and it’s going to provide employment in other related business sectors, as Mr. McCoy points out later in the article. But surely a recovery in the property market should follow a general economic recovery, not lead it? His “stimulus package” makes for all-too-familiar reading: property tax exemptions for first-time buyers and home improvement tax credits, for example.

He ties it all up with a paragraph that strikes the right chord:

When it comes to framing the next budget, reviving the domestic economy must be the priority. Austerity alone will not solve our problems; we need new ideas and a new strategy for growth. Our fortunes will not change overnight, but sensible, inexpensive steps can speed up the recovery. Simply waiting for the domestic recovery to happen is not an option.

Sure, but prioritising a recovery in the property market? Is that the best Ireland can do?

That’s not a rhetorical question...

Maybe because there is a dearth of ideas out there, also he has to justifie his existences somehow plus he has got himself and his organisation in the paper.

If he says anything about property he will get space in the papers.

Cookie_Monster

Of course the Times is championing property, that's been it's main function for the last 10 years

shanered

I can see the reason for your concern, if we go down the property route again it would spell disaster plain and simple, our property prices need to be driven down and kept at realistic levels in comparison to other countries.
We plain and simple have too many houses where they are not needed, and too few where we do need them.

easychair

shanered wrote: »

I can see the reason for your concern, if we go down the property route again it would spell disaster plain and simple, our property prices need to be driven down and kept at realistic levels in comparison to other countries.
We plain and simple have too many houses where they are not needed, and too few where we do need them.

And virtually no cash from the banks to finance them for those who do need them. I imagien this has been posted elsewhere, but it's long past the point the Irish government has any control or ability to control much about the Irish economy.

This is just one trader from the city, and I meet guys like him every day, and I imagine someone else has uploaded this elsewhere on boards.

I've tried to post as a youtub thing, but it doesn't seem to work, so here is the URL

http://www.youtube.com/watch?v=aC19fEqR5bA

thebman

From the article:

we desperately need a normal, sustainable level of property transactions to resume.

I presume he is talking about The Irish Times here and not the people of Ireland who need no such thing.

We need a sustainable domestic economy not over reliant on any one sector. Of course, that won't fill the property section of The Irish Times :pac:

GSF

thebman wrote: »

From the article:


I presume he is talking about The Irish Times here and not the people of Ireland who need no such thing.

We need a sustainable domestic economy not over reliant on any one sector. Of course, that won't fill the property section of The Irish Times :pac:

so you think people in their 20's who bought a 1 bed apartment, should continue to have to live there til they retire because they cant sell and trade up to a bigger place?

Thats what a normal property market facilitates.

easychair

GSF wrote: »

so you think people in their 20's who bought a 1 bed apartment, should continue to have to live there til they retire because they cant sell and trade up to a bigger place?

Thats what a normal property market facilitates.

I don't imagine anyone thinks that and assume it's rhetorical question. In any case, what we think seems to be irrelevant if the young couple are unable to finance a transaction to sell their 1 bet flat, and purchase a bigger place, they seem to have few options.

thebman

GSF wrote: »

so you think people in their 20's who bought a 1 bed apartment, should continue to have to live there til they retire because they cant sell and trade up to a bigger place?

Thats what a normal property market facilitates.

Define what you believe normal to be?

I think they can sell, might not like what they get for it but they can sell.

djpbarry

thebman wrote: »

I presume he is talking about The Irish Times here and not the people of Ireland who need no such thing.

There’s nothing wrong with having a sustainable property market, it’s just not something that should be prioritised for an economic recovery.

GSF wrote: »

so you think people in their 20's who bought a 1 bed apartment, should continue to have to live there til they retire because they cant sell and trade up to a bigger place?

But that is precisely the ridiculous philosophy that got Ireland into its current predicament. What the hell were people doing buying 1-bed flats in the back of beyond at exorbitant prices with a view to “trading up” at some point in the future?

Phase 1: Acquire 1-bed flat.
Phase 2: ?
Phase 3: Profit.

thebman

djpbarry wrote: »

There’s nothing wrong with having a sustainable property market, it’s just not something that should be prioritised for an economic recovery.

Oh I agree but the market is the way it is now for very logical reasons. I think we have a normal property market considering what happened.

Sustainable does beg the question, sustainable for who exactly?

Many people want a return to boom like conditions which is not sustainable for buyers or sellers. It led to inflated prices and oversupply which is why our market is the way it is now.

Ireland needs to diversify its domestic economy.

GSF

thebman wrote: »

Define what you believe normal to be?

Banks lending to people with regular jobs at 3 times earnings for a mortgage up to 90% of the property value might be a reasonable starting point for defining what normality should look like.

I dont see any problem with moving house several times during you life as your circumstances change and having an equity stake in where you live as opposed to renting in perpetuity.

If the loan to income ratio and minimum deposit ratio is maintained, I dont see how the property market can get out of kilter again.

If everyone rents, someone still has to build, own and maintain the properties we live in? Will society be better if people have no long term interest in the places they live in? Looking around estates where the majority of properties today are rented, I dont think they have as much of a community as where the houses are owner occupied.

thebman

GSF wrote: »

Banks lending to people with regular jobs at 3 times earnings for a mortgage up to 90% of the property value might be a reasonable starting point for defining what normality should look like.

I think it will eventually get back to that point. I don't think you can force it back to that point. One of the reason people aren't buying now is they believe there is oversupply and that prices must fall below what might be considered a reasonable level.

So that has to work itself out or be proven to be false. At the moment we have more people leaving the country than are moving to live here so if anything supply of property is going up still so prices will continue to fall outside Dublin at least and the latest statistics back that up as far as I can remember off the top of my head :P

There is also oversupply of rental properties and rents are still falling in some areas so I don't think renting is a poor choice at the moment. I don't think renting is causing the lack of community TBH. There is less of a community even in areas where most people bought. Renting isn't a social problem. In many areas, people renting know their neighbours better than people who bought will ever know their neighbours too. There is no objective way of measuring that as far as I can see and I don't believe renting vs buying is the cause.

Sand

When I read that article something it struck me as a self interested plea for a bailout at taxpayer expense, plus also being a very poor argument.

This part in particular is very poor

There is, however, considerable potential for growth.

Years of recession and fear have resulted in significant pent-up demand. Yes, many are struggling to get by, but others have deferred purchases and investment decisions because of the climate of uncertainty. In time, normal spending and saving patterns will return. The challenge is to ensure this happens soon.

This is simply stated as fact. Theres pent up demand with yonks of cash waiting to be spent. No evidence is offered, its simply claimed and then the article moves on without a second glance to calling for ways to have this pent up demand released.

If people truly are deferring purchases and investment decisions then youd expect to see significant savings develop. However, in the very same paper, its reported that deposits - both commercial and domestic are declining drastically.

Deposits were also down over the year, falling by 10.4 per cent by the end of August. Household deposits were 5.4 per cent lower on an annual basis, and company deposits were down by 10.1 per cent.

The figures showed an underlying decline of €895 million in private-sector deposits during August, with household deposits falling by €510 million during the month. However, deposits from non-financial corporates were €459 million higher during the month.

So unless people are storing their cash in their matresses then the reality is that people are exhausting their savings, paying down debt and pulling in their horns after a decade long credit fuelled spending binge.

As there is no evidence of pent-up demand, the rest of the article falls apart as the base assumption isnt correct. There no pent up demand to tap. Banks dont want to lend. People dont want to borrow. This is a new normal.

MeisterG

Agreed. If anything there is pent up supply. That's what you tend to getbin a falling market constrained by factors such as neg equity, NAMA, previous oversupply etc. Any notion of pent up demand following a property bubble is absurd.
A functioning property Market is a result of a balanced economy and not vice versa.

God, he's from IBEC too. I'd be worried if I heard this late night in a pub. Is that it? Is that all they've got?

Medu

djpbarry wrote: »

Granted, a normally-functioning property market isn’t going to do any harm and it’s going to provide employment in other related business sectors, as Mr. McCoy points out later in the article. But surely a recovery in the property market should follow a general economic recovery, not lead it? His “stimulus package” makes for all-too-familiar reading: property tax exemptions for first-time buyers and home improvement tax credits, for example.

There is merit to stimulating growth but now is not the time. Europe has massive structural issues to resolve and there will be no recovery until action is taken to resolve it.