Irish Property Market chat II - *read mod note post #1 before posting*

Marius34

https://www.boards.ie/discussion/comment/118318071#Comment_118318071

I'm not sure what you trying to say, and how this relates to previous comment. But you should do some research, for change in credit/savings/wealth. The situation is very different in this regards from credit boom. And you not happy that people take mortgage for they long term home, which is not speculation. You might prefer rent versus mortgage, but it doesn't suit everyone.

Browney7

https://www.boards.ie/discussion/comment/118318071#Comment_118318071

Well when the state is paying 460m on HAP to "support" roughly 60k private tenancies in 2020 (460m cost to exchequer net of differential rent courtesy of the HAP shared service centre) there is indeed significant interference in the private rental market. It's unclear to me if the enhanced Homeless HAP (HHAP) is included in this total either but minutes of a DCC meeting show approx 8k tenancies are on this scheme. Add to this the "enhanced" leasing schemes you'd have to wonder what the housing and rental market would be like without these state floors.

On a separate note,approx 128m was paid to 2297 "institutional landlords" in 2019 as per figures published in a report issued in May by the UCD Geary institute. This was 40% of the 2019 HAP budget. This increased from 45m in 2017. The report doesn't define what an "institutional landlord" is but I expect several hundred would be people buying a property via their pensions. Institutional money doesn't seem to be looking the Irish taxpayer gift horse in the mouth!

Amadan Dubh

https://www.boards.ie/discussion/comment/118318564#Comment_118318564

Well, it seems to be that all homes have had their value soar due to the rental yield available, so rents continuing to rocket pushes up home prices as well. A significant correction is possible in the rental market given the dislocation from salaries and this will feed into a correction in property values. It concerns me as someone pretty happy to rent when what I am forced to pay props up the entire home purchasing market; as a renter you are being treated like a cash cow and home values are soaring because of the effort you put in to paying the rent (we already know that the LTV and LTI limits are stopping home buyers from inflating the market so it is renters who are doing it).

When you compare the rent being paid on properties to what that represents compared to the overall value of the property it is in so many cases an incredible yield. I think I read yesterday that rental yields are now double what they were in the Celtic Tiger years (would need to double check). The State is directly stoking the flames of demand in the rental market with its supply-starving policies and its direct and indirect competing in the private market with individuals. The State is so invested in the housing market, it is scary; and it is not just renters who are suffering, but those who have to shell out more and more cash to buy their home, each year they wait.

As the pandemic restrictions start to calm into 2022 (hopefully), I think we will see asset prices calming to at least some extent but I will not be surprised to see commentators claim the sky is falling in or panicking in total ignorance to the fact that on a 5 or 10 year horizon, home prices and rents would still have made incredible gains. I would pose the question now; if you indicated that by the end of 2022 when restrictions ease with supply picking up, migration not restoring to pre-pandemic levels and interest rates rising slightly, we might see 15% off the average home price and rent, simply undoing the pandemic froth; would that be a cause for concern? For many people they would think this is somehow a reason to panic or be concerned; why? Because when things only go one way, it creates an expectation that they will only ever go one way and people forget that prices go up as well as down. I wouldn't be surprised to see something like a 15% drop in house prices and rents being portrayed as a crash of sorts, which is ridiculous.

Amadan Dubh

https://www.boards.ie/discussion/comment/118318610#Comment_118318610

The State also funds the housing charities to an extent so that is another indirect subsidy to the demand side of the rental market. They are a whale in the private rental market demand side and have created an almighty bubble there. For me, I cannot see the State unwinding its private rental market supports without causing a significant drop in rents.

Timing belt

https://www.boards.ie/discussion/comment/118318071#Comment_118318071

The idea that our housing market correcting would indicate wider economic problems shouldn't be prevalent anymore

A housing market correction is normally a secondary side effect of wider economic problems that result in dampening demand due to cuts in disposable income, job losses and emigration.

You are saying that a housing correction should be the primary effect and that there should be no secondary impacts. This is possible but highly unlikely in the Irish housing market at present because it would need a large supply of property to hit the market.

I agree with you that difference between rent and mortgage repayments is a big indicator of the state of the Irish housing market as it shows that there is a severe shortage of rental properties which will encourage investors into the property market while at the same time shows that there is significant demand to buy.

I also agree that rents will need to fall or mortgage payments rise.

The only way rents will fall is when there is more supply of rental properties.

An interest rate rise would increase mortgage repayments for anyone on a variable rate it wouldn’t impact people on a fixed mortgage. The most likely driver of increasing mortgage repayments would be a price rise.

Marius34

https://www.boards.ie/discussion/comment/118319669#Comment_118319669

"I would pose the question now; if you indicated that by the end of 2022 when restrictions ease with supply picking up, migration not restoring to pre-pandemic levels and interest rates rising slightly, we might see 15% off the average home price and rent, simply undoing the pandemic froth; would that be a cause for concern? For many people they would think this is somehow a reason to panic or be concerned; why?"

The price will dictate economic fundamentals of supply/demand. Demands will highly depend on population growth, Income growth, Unemployment, credit availability, etc. If migration do not restore close to pre-pandemic level, which is big IF. Rental prices may start to go down, home prices in short term may reduce or may not, depending on Income growth/Unemployment.

I don't think people will panic of some price fall. And I would not be surprised on property price fall of 15% in medium term, but as I mentioned year ago, I don't believe we will ever see prices (nominal) returning back to 2020 levels.

The Student

https://www.boards.ie/discussion/comment/118319712#Comment_118319712

The State does not want to be a landlord which is exactly what it is with social housing. The State has forced their responsibilities on to the private sector. With the ever changing legislation rental supply is drying up because landlords are leaving the market.

The private landlord takes all the risk and the State recoups the benefits. Unless we as a society change our approach we are going to be having the same conversation next year and the year after that.

No matter who is in power (I am not political in anyway) unless we make some difficult decisions the situation is only going to get worse.

The answer is the State builds more properties directly and leaves those in the private sector for those in the private sector to buy or rent etc. But the State and society as a whole need to be willing to take difficult decisions. This includes evictions etc. This however is political suicide for any politician.

Bass Reeves

https://www.boards.ie/discussion/comment/118319669#Comment_118319669

Celtic Tiger rental yields were not economical. Yields were down to 2% or less. Investors were depending on property value inflation to cover there investment. A total ( All risk) yield of 5%plus is needed in.property investment. I. This article below they say 8%

https://corporatefinanceinstitute.com/resources/knowledge/finance/all-risks-yield-ary/

They are probably right, if investing at present byou property need an 8% return to justify the risk

Timing belt

https://www.boards.ie/discussion/comment/118319669#Comment_118319669

I would not be concerned if property prices dropped by 15% but yes it would make headlines as it is a technical correction to the market (i.e. greater that 10%)

Personally I think don't think we will see any reduction in house prices without a recession (and job losses) for the next 3/4 years because:

• If we are in an inflationary/growth period property prices will rise because wages will rise
• Rates will only rise if we are in an inflationary/Growth phase and will only be be a modest increase (0.25%-0.50%) which still makes the yield on property attractive.' (see below for comparison of property yields to other countries)
• It takes a long time for supply to come online with all the planning objections etc.
• In an inflationary period there will be more uncertainty as to costs of building which will mean that developers will look to widen their margins to provide cover for unforeseen prices increases.

If the inflationary period is short lived then it means that economy is still struggling and we won't see rate increase. If this was to happen and say the stock market had a major correction then we would see rates go lower as investors would flee to the safety of bonds and push the yield lower which would make property even more attractive.

Villa05

https://www.boards.ie/discussion/comment/118315786#Comment_118315786

Appreciate the detailed response

Would it be fair to say that the financial institutions that were mainly the cause of the last bubble/crash are the largest beneficiaries of this so called clean up operation and is it just coincidence that the US central bank has been controlled by former senior employees of these institutions.

Your explanation screams bubble, would it be fair to say that in this environment this state and others should be using this time to get there house in order.

In particular housing, would it not be smarter to build (or not sell) your own stock rather than lease from investment funds incorporating leases that expose the state to rental inflation and depreciation of said assets.

It certainly appears to be an incredibly dumb policy.

What happened to capitalism? This appears to be socialism for the benefit of extreme wealth.

You say central banks are buying up the best bonds, would this mean that pension funds are buying the higher risk bonds. If you had a pension how do you protect your capital from this. Is - 1% the only option with inflation eating away the rest the only option to guarantee your returns/losses

Guess one can see why Irish property may be appealing in such circumstance. The proverbial gun to the head

Timing belt

https://www.boards.ie/discussion/comment/118320654#Comment_118320654

Would it be fair to say that the financial institutions that were mainly the cause of the last bubble/crash are the largest beneficiaries of this so called clean up operation and is it just coincidence that the US central bank has been controlled by former senior employees of these institutions.

Central banks will always be run by people who have gained their experience working in the financial markets. You could bring some professor who has no experience to run it but then you are relying on someone with little or no practical experience and only theory on how things should work.

In particular housing, would it not be smarter to build (or not sell) your own stock rather than lease from investment funds incorporating leases that expose the state to rental inflation and depreciation of said assets.

Of course it would but society as a whole is against building large scale social housing like in the past because of the issues it created. Unless the state step in and build private and social housing together like a private developer would do or just build large scale social housing then it will fall to private developers to build and the state to buy from them. Long-term leases are pure waste of money and the only thing they achieve is keeping the debt off the books.

You say central banks are buying up the best bonds, would this mean that pension funds are buying the higher risk bonds.

They will naturally need to take more risks to ensure that they have sufficient cashflow to be able to payout pensions payments.... This is why property is so popular because you have a guaranteed cashflow from the rent. The one area that I have a major concern about is what will pension funds do if rates rise sharply. If the yield rises then the value of the asset will fall so will this leave massive holes in pension pots. It will come down to how the interest rate risk is managed within these organisations.

With regards your question on whether there is a big bubble in asset prices the answer would be yes and no... You would need to look at each asset classes carefully.....

• I don't believe that there is a bubble in Irish house prices because despite the central bank rules people are still able to purchase property they may be paying top dollar at present but that is more down to lack of supply. At the start of the year I predicted that prices would rise 10-15% by the end of this year as savings found there way into the housing market and investors chased yield. Next year I would see prices rising for at least the first 6 months and then levelling off for the second half of the year as the economy slows down. The prices rise in the first half of the year will be on new builds as those deals are already been agreed but the house is yet to be completed and handed over. (This is why the big increase in the last QTR was in second hand properties and not new builds) If inflation continues to rise (which I personally don't think it will after Q1/2 2022) then I would expect prices to climb higher and higher.
• Rent is never going to go down in Ireland until there is greater supply of rental properties than needed because institutional landlords know that people have no alternative but pay. It will take 3/4 years for the supply that is in the pipeline to hit the market so noting is going to change here.
• Tech stocks have a bubble because the valuations are based on future profit as yields went lower these profits looked higher because of the time value of money. This meant that investors pilled into these assets and pushed prices higher which then attracted more retail investors which pushed prices higher again. Because of these price rise these stocks then represent so much of the indexes that ETF's had to buy them pushing prices higher again. There are about 6 Tech stocks that have the ability to crash the stock market on their own.

The measure that I am keeping my eye on at the moment is the yield curve because there is a serious risk that if central banks raise rates to fast or by to much that it will invert as it does before every major recession which has resulted in large scale job losses. If we have a recession then the combination of a drop in disposable income brought about by higher taxes and job looses will result in a fall in house prices. If this happens at the same time as tech stocks correct then Ireland may be more exposed than other countries.

Amadan Dubh

https://www.boards.ie/discussion/comment/118315786#Comment_118315786

Are you still sure that QE should be used today? Massive companies are paying large dividends while selling bonds to the ECB. There aren't any restrictions on dividends or buybacks attached to ecb bond purchases. As such, it is questionable why they are needed.

What it looks like to me is that the State isn't propping up jobs as much as it is propping up asset values.

https://www.irishtimes.com/business/group-behind-mercedes-in-ireland-paid-1-8m-dividend-after-getting-covid-subsidy-1.4755098

Timing belt

https://www.boards.ie/discussion/comment/118321561#Comment_118321561

I don't think you fully understand as the companies are not selling the bonds to the ECB..... They have already issued these bonds to the market and don't care who owns them. The Company is not getting any money by the ECB buying the bond.

The ECB are buying the bonds to reduce the supply of bonds so that yield goes lower. All other bonds and interest rates then reprice downwards because the top quality bonds have a lower yield.

The link you attached is an article relating to fiscal spending (Covid subsidies) and has nothing to do with QE or central banks.

Amadan Dubh

The State is getting newly created money from the ECB to put into covid subsidies which end up in the dividend coffers of the already wealthy. This has nothing to do with saving jobs, it's about propping up assets. With all the metrics I posted last week, it is incorrect to say that Ireland's economy has suffered during covid and has in fact boomed. So again I don't see why the State is so involved in fuelling the flames of asset prices other than to say it is an intentional policy undertaken.

Sorry, just to add that this is by no means an exception to the norm. I saw the head of BNP Paribas real estate writing about PRS investors now targeting State income! This is the same John McCartney who was recently employed by the State Housing Agency of Ireland who drove housing policy and is now advising institutional investors how to get some of that cream out of the Irish housing market - you couldn't make this up; the housing policy is being driven by the few for the few and to try to claim that the State is somehow acting in the interests of the common good is just wrong.

https://www.linkedin.com/posts/activity-6875726265777733632-O7ya

Timing belt

https://www.boards.ie/discussion/comment/118321759#Comment_118321759

The state is not getting any 'newly created money' from the ECB.

The ECB has lowered rates with QE and as a result the state can borrow at the lower rate.

What the state chooses to do with the funds is up to the government as they decide how they spend the cash they borrowed.

If you think Irelands economy has not suffered during covid and that the domestic economy boomed then you are very mistaken as the domestic economy was hit hard.

Timing belt

https://www.boards.ie/discussion/comment/118321759#Comment_118321759

Sorry, just to add that this is by no means an exception to the norm. I saw the head of BNP Paribas real estate writing about PRS investors now targeting State income! This is the same John McCartney who was recently employed by the State Housing Agency of Ireland who drove housing policy and is now advising institutional investors how to get some of that cream out of the Irish housing market

Is his new job not to sell property to institutional investors? If the state persists with it stupid policy of long term leases then its fair game....

Amadan Dubh

https://www.boards.ie/discussion/comment/118321883#Comment_118321883

Don't hate the player hate the game is something I agree with. But those tasked with policy are truly not best resourced or willed.

You can be sure that John is leveraging his contacts in his new role to shape policy in favour of the few big players and it definitely has an effect or else BNP wouldn't be hiring him.

mcsean2163

https://www.boards.ie/discussion/comment/118312579#Comment_118312579

Sorry, the balance sheet of the ECB is €307 trillion? Do you have a link?

Timing belt

https://www.boards.ie/discussion/comment/118323173#Comment_118323173

Balance Sheet of the ECB as at last Friday

https://www.ecb.europa.eu/press/pr/wfs/2021/html/ecb.fst211214.en.html

Breakdown of QE programs as at last Friday

https://www.ecb.europa.eu/press/pr/wfs/2021/html/ecb.fs211214.en.html

mcsean2163

https://www.boards.ie/discussion/comment/118323230#Comment_118323230

14 December 2021

In the week ending 10 December 2021 the net position of the Eurosystem in foreign currency (asset items 2 and 3 minus liability items 7, 8 and 9) increased by EUR 0.3 billion to EUR 321.3 billion.

Maybe he meant billion? A trillion is a thousand billion. Or have I completely misread?

Timing belt

https://www.boards.ie/discussion/comment/118323260#Comment_118323260

He was only looking at some of the QE..... the total QE is 4.7 Trillion

mcsean2163

https://www.boards.ie/discussion/comment/118323266#Comment_118323266

A long way off €307 trillion...

Amadan Dubh

https://www.boards.ie/discussion/comment/118323320#Comment_118323320

Sorry, I read 307,000 million but made the mistake of interpreting that as a 12 zero number rather than an 11 zero number, so you're correct. Thanks!

Cyrus

https://www.boards.ie/discussion/comment/118321759#Comment_118321759

That covid support was paid to a group entity that had it's revenues almost wiped out,it's fair to say that jobs would have been cut without it.

The fact the amount of the covid support and the dividend that was paid about 4 levels up in the group are the same is entirely coincidental.

Villa05

https://www.boards.ie/discussion/comment/118321019#Comment_118321019

Im not convinced about the best people to run the Central Bank need to come from the investment sector and specifically from the big US investment firms. Everyone of them could have been the Bear Sterns and collapsed in 08. I suspect the crisis was used to eliminate the most aggresive competitor.

Agiain im not convinced society is against large scale public housing, could be tweaked to ensure certain estates are not dominated by unemployment blackspots which is a significant factor in deterioration of estates. This could be done by mixing it with affordable rental/purchase. Provide estates with amenities and support services to help it develop positively. The current system does not suit taxpayers, those in need of housing, renters, and potential FTB's. The only sectors it benefits is investment funds and developers ie those that lobby government persistently

Would you consider rent to be in a bubble, given the subsidies paid out to maintain them at current levels?

Timing belt

https://www.boards.ie/discussion/comment/118325077#Comment_118325077

Im not convinced about the best people to run the Central Bank need to come from the investment sector and specifically from the big US investment firms. Everyone of them could have been the Bear Sterns and collapsed in 08. I suspect the crisis was used to eliminate the most aggresive competitor.

I said it makes sense that they have a background in financial markets..... There was no mention of big US investment firms.

Would you consider rent to be in a bubble, given the subsidies paid out to maintain them at current levels?

No I don't think that rent is in a bubble as people that don't own there own property need to live somewhere and as a result this makes the rental market inelastic. People will priorities rent above other basics such as transport and even food if there is no alternative as they need to live somewhere. With a low stock of rental properties prices will rise and if the rent pressure zones didn't exist we would be seeing much higher prices for rent.

People in Private rental properties think that the people with HAP are taking there properties and as a result they have to pay more.... Yes this is true but if you stand back for a second the issue is not that there is not enough rental property.... The issue is that there is a shortage of alternative property for people needing assistance because it's not being built. It's the exact same argument that investment funds and councils are taking homes from FTB's..... Yes they are but they are but this is a symptom of the fact that not enough properties are being built in the right places. So instead of fixing the problem people try to fix the symptom which ends up making the situation worse for one side or the other.

The fact that some of our society cannot afford rent is noting new. In the past this was addressed by providing social housing. As I said before social housing has become unpopular because of the getto's that were previously created and because sections of society just see it as someone getting a free home while they have to pay the top rate of tax. As social housing is no longer popular the next best thing to help people who cannot afford a roof over there head is HAP. It's one or the other unless you want to see trailer parks and people living in cars etc..

Just to be clear I am not a fan of HAP but I can see why it would be required as a temporary measure until adequate social housing was built.

Villa05

I think Peoples frustrations with HAP is because it has moved from being a floor on rent prices to driving them to new higher levels

This has led to development in Dublin and other high demand areas being exclusively for those in the top income range and the few at the bottom that get social and affordable homes.

I'm not so sure people sacrifice food and transport to be able to pay rent, moreso they move away or move back with parents/relatives.

Increasingly they are moving out of high demand areas to lower cost locations and purchasing there.

This creates a false market where housing is built where people can afford rather than where they need to be close to work

If you listen to the interview with the glenveagh boss, they build to a price point (350k) rather than building where housing is needed.

I don't see how the public would be in favour of paying top dollar for social/affordable over the state building their own and putting an acceptable mix of social, affordable rent/purchase

We are close to full employment, so if managed correctly it could generate an income for the state as opposed to paying billions out to investment funds

This situation goes back to Quantitive easing and low % rates. This period of low interest rates should be used to develop our infrastructure to reduce our outgoings into the future. Current policy is increasing our liabilities, exposing us to rental inflation.

Instead of planning to ease the burden in the future we are spending to increase the liabilities

JDigweed

When I was a kid in the 80's we rented a house from Dublin corporation in West Tallaght. Both my folks worked as did nearly every neighbour bar one or two with many working as civil servants. It seems somewhere along the way the government has failed to make social housing accessible to a wider range of incomes with most middle earners above the threshold for social housing. The point being is that they really need to up the game and start large scale developments such as the ones built back then and plan them in such a way that encompasses a mix of tenants while avoiding the problems that occur in many government built developments.

JDigweed

Timing belt

https://www.boards.ie/discussion/comment/118325798#Comment_118325798

I'm not so sure people sacrifice food and transport to be able to pay rent, moreso they move away or move back with parents/relatives.

That is assuming that you have parents/relatives near by and they have space not all do. Sure for a single person with no kids they have these options but if you have a family with both parents working and kids in School etc moving away or back in with parents/relatives may not be an option. Rent is inelastic because there are very few substitutes and when supply is low people will pay to have a roof over there head as a priority. And just for clarity I am not supporting the fact that rents are crazy... I am just explaining why I think they are and as I have said many times until there is an excess of rental properties on the market and tenants are able to negotiate terms the situation will not change.

I think Peoples frustrations with HAP is because it has moved from being a floor on rent prices to driving them to new higher levels

If the government purchased housing that is currently being rented out and used it as social housing to get rid of HAP, Rents would still go higher as it would reduce supply. it is not HAP that is driving rents to new higher levels it is the lack of supply and the fact that the rental market is inelastic.

I agree that the government should be availing of the low/negative rates that exist at present because of QE and investing in infrastructure such as social/affordable housing and stop the long term leases. That is a no brainer but what you are suggesting is that the state becomes the landlord for private rental properties instead of investment funds and that is a step to far in my opinion.