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

Bass Reeves

mcsean2163 wrote: »

This is interesting:

https://www.independent.ie/irish-news/house-prices-have-risen-68pc-and-wages-just-9pc-but-worst-is-yet-to-come-40534492.html

The timeframe is very selective but it illustrates our unsustainable trajectory.

A bit of tabloid journalism. They picked when house prices were at an artificial low after the biggest property bust in history world wide.

They did a nine year trajectory just to make it look woeful. If they did a 15 year trajectory wages might have rose 15% and house prices fallen 3% or even 10%

Amadan Dubh

Bass Reeves wrote: »

A bit of tabloid journalism. They picked when house prices were at an artificial low after the biggest property bust in history world wide.

They did a nine year trajectory just to make it look woeful. If they did a 15 year trajectory wages might have rose 15% and house prices fallen 3% or even 10%

On the "artificial low" point; would you say that Celtic Tiger prices were artificial highs? If yes, then what would be a more appropriate level?

Amadan Dubh

A brilliant article in The Currency this morning (obviously it's a subscription so I'll just quote extracts for the purpose of commenting on the Irish property market), from Constantin Gurgdiev. It's not that it is particularly shocking or frightening, it is just an interesting read.

What is happening in the US is mirroring what we are experiencing in Ireland, in terms of the hollowing out of large cities as people head for the hills. Some of the things listed in the article which are happening in the US that are likely also going to happen (if they haven't already happened) in Ireland; people bidding for homes they haven't even seen; most people who buy are upsizing, not downsizing (so are moving out of the cities to the suburbs or further); even accounting for cost of living, taxes etc. disposable income is working out higher after relocating; 90% of those on high salaries expect to have flexibility with their job post-pandemic while 10% of those earning below $40,000 expect to have flexibility (the high earners are the mobile ones meaning they will continue to move out); house prices up 24% year-on-year; shortage of construction workers.

All points to "donut" cities emerging in the US for the likes of NYC and San Fran, which means that the city centres are empty of residents while the suburbs and beyond benefit. He sees this happening in Dublin (but not Cork or Galway as they are seen as more regional than city-like I think).

https://thecurrency.news/articles/50085/the-year-of-the-doughnut-city-how-the-pandemic-is-changing-settlement-patterns/

A trend in the US housing market has been accelerated by the pandemic: the move from city centres to the suburban ring. Now, it's making its way to Ireland.

We need to focus more resources not on increasing density in the core city centre of Dublin, but on:

1. Increasing supply of quality housing in secondary cities,
2. Improving, simultaneously, connectivity between secondary and primary cities,
3. Increasing town densities in Dublin and Cork suburbs,
4. Drastically moving to modernized housing large stocks of abandoned and derelict lower density properties that pepper Dublin, Cork, Galway and Limerick urban cores, and
5. Filling in vacant city lands not with high-rise apartments, but with moderate density family homes.

Demographically, we have a lag to the U.S. of some 10 years – just about enough time to start investing in high-quality public transport connectivity (hint: fewer bus routes, more light rail and local transports systems, such as bike lanes and trails) and quality community services (hint: fewer pubs, more schools and better access to natural amenities). We have an acute housing crisis requiring radically improved use of derelict, abandoned and under-utilized buildings and lands. Economically, we are likely to face the same (if not more acute) changes in the balance between traditional and hybrid office jobs distribution than the U.S. as a whole. None of these factors or trends requires 20-story towers of apartment blocks to be set into Dublin's streets. All suggest taking a more nuanced, more distributed approach to building new homes.

Villa05

Timing belt wrote:

It is a very fine line that central banks will need to walk as if they raise rates to fast they will crash all asset values and at the same time make gov borrowing more expensive.. even if governments didn’t borrow more they would be impacted as the existing debt rolls over. Either way negative rates will be around for a long time yet IMO and at the same time inflation will drive up house prices more because the building cost will rise and developers won’t build because the new properties will be to expensive to sell and we will see a continuation of a shortage in supply.

With wealth concentrated at the upper age groups and the lower age groups trapped renting, how does inflation spread from assets over the last 10 years to general inflation for the next 10

Wage inflation will be kept in check in wealthier nations by competition from Asia, eastern Europe.

Alll we are doing really is handicapping the next generation in providing the revenue to help bring our debt levels to sustainable levels.

Is stagflation far more likely than inflation?

Amadan Dubh

Amadan Dubh wrote: »

A brilliant article in The Currency this morning (obviously it's a subscription so I'll just quote extracts for the purpose of commenting on the Irish property market), from Constantin Gurgdiev. It's not that it is particularly shocking or frightening, it is just an interesting read.

What is happening in the US is mirroring what we are experiencing in Ireland, in terms of the hollowing out of large cities as people head for the hills. Some of the things listed in the article which are happening in the US that are likely also going to happen (if they haven't already happened) in Ireland; people bidding for homes they haven't even seen; most people who buy are upsizing, not downsizing (so are moving out of the cities to the suburbs or further); even accounting for cost of living, taxes etc. disposable income is working out higher after relocating; 90% of those on high salaries expect to have flexibility with their job post-pandemic while 10% of those earning below $40,000 expect to have flexibility (the high earners are the mobile ones meaning they will continue to move out); house prices up 24% year-on-year; shortage of construction workers.

All points to "donut" cities emerging in the US for the likes of NYC and San Fran, which means that the city centres are empty of residents while the suburbs and beyond benefit. He sees this happening in Dublin (but not Cork or Galway as they are seen as more regional than city-like I think).

https://thecurrency.news/articles/50085/the-year-of-the-doughnut-city-how-the-pandemic-is-changing-settlement-patterns/

The property market hasn't reflected this whatsoever. Still bidding wars going on in Dublin City Center.

Hubertj

Amadan Dubh wrote: »

A brilliant article in The Currency this morning (obviously it's a subscription so I'll just quote extracts for the purpose of commenting on the Irish property market), from Constantin Gurgdiev. It's not that it is particularly shocking or frightening, it is just an interesting read.

What is happening in the US is mirroring what we are experiencing in Ireland, in terms of the hollowing out of large cities as people head for the hills. Some of the things listed in the article which are happening in the US that are likely also going to happen (if they haven't already happened) in Ireland; people bidding for homes they haven't even seen; most people who buy are upsizing, not downsizing (so are moving out of the cities to the suburbs or further); even accounting for cost of living, taxes etc. disposable income is working out higher after relocating; 90% of those on high salaries expect to have flexibility with their job post-pandemic while 10% of those earning below $40,000 expect to have flexibility (the high earners are the mobile ones meaning they will continue to move out); house prices up 24% year-on-year; shortage of construction workers.

All points to "donut" cities emerging in the US for the likes of NYC and San Fran, which means that the city centres are empty of residents while the suburbs and beyond benefit. He sees this happening in Dublin (but not Cork or Galway as they are seen as more regional than city-like I think).

https://thecurrency.news/articles/50085/the-year-of-the-doughnut-city-how-the-pandemic-is-changing-settlement-patterns/

Why do we need fewer pubs? Is that in the article or is that your opinion?

Amadan Dubh

Hubertj wrote: »

Why do we need fewer pubs? Is that in the article or is that your opinion?

That's in the article. To be fair, we're already losing pubs the last couple of decades anyway and that decline will continue once the fallout from the pandemic happens. I'm not sure what he really means anyway as schools and amenities are supported by the local councils while pubs are clearly just the market doing its thing. Like it's not as if local councils support the developments of pubs at the expense of schools.

Ozark707

Hubertj wrote: »

The way I see it at present is the chain is broken for many. There is not anywhere to trade up or down to so they are staying put.

I would have thought with the amount of new builds (apts) in D2/4 there was a decent amount to trade down to? I agree on the trading up front.

Timing belt

Villa05 wrote: »

With wealth concentrated at the upper age groups and the lower age groups trapped renting, how does inflation spread from assets over the last 10 years to general inflation for the next 10

Wage inflation will be kept in check in wealthier nations by competition from Asia, eastern Europe.

Alll we are doing really is handicapping the next generation in providing the revenue to help bring our debt levels to sustainable levels.

Is stagflation far more likely than inflation?

Stagflation is always a risk if the economy does not grow or shrinks.

The big question is what will be the driver for inflation? If it is because of a shortage of supplies because all economies are chasing the same resources (Lumber, concrete, steal, copper, oil etc.) and because of the cost of transporting goods has gone through the roof (due to ships being scrapped for steal last year as China were paying for steal to use in their stimulus efforts by investing in infrastructure) then it will be imported inflation and not driven by growth in the Irish economy then there is a very high chance of stagflation.. If it is due to a growth in the domestic economy then that should bring with it wage inflation.

Lets not also forget that this will not just impact young people as it will be older people on a fixed income (Pension) that will suffer most.

The biggest risk I see from inflation is that developments will be mothballed due to rising costs and we will see less new property enter the market.

Graham

Timing belt wrote: »

The biggest risk I see from inflation is that developments will be mothballed due to rising costs and we will see less new property enter the market.

I'd expect the opposite as more people pile into property.

MacronvFrugals

Graham wrote: »

I'd expect the opposite as more people pile into property.

Combined with the shared-equity scheme and the worrying murmurs of LTI ratios being adjusted!

Timing belt

Graham wrote: »

I'd expect the opposite as more people pile into property.

There will be no shortage of demand I 100% agree there.... but if building costs increase by say 25% will the developer be able to pass this on to the buyer or be able to increase rents to still make the development profitable. Where they can't they will mothball the development.

Bass Reeves

Timing belt wrote: »

There will be no shortage of demand I 100% agree there.... but if building costs increase by say 25% will the developer be able to pass this on to the buyer or be able to increase rents to still make the development profitable. Where they can't they will mothball the development.

I hear some smaller builders are walking away from project's ( extensions, one off houses, revamps etc) where clients are not willing to allow for extra costs of materials which are gone up by 30%.

Bass Reeves

Amadan Dubh wrote: »

On the "artificial low" point; would you say that Celtic Tiger prices were artificial highs? If yes, then what would be a more appropriate level?

I am just point out that an 8 year timescale is unusual to use as a judging point. Prices peaked in 2007. However generally when you look at timescales of property, shares or an asset you judge it over 1, 5, 10, 15, 20 years etc.

To pick a moment in time which suits a narrative is not balanced journalism. Choosing a low point in a property crash is similar to a pension advisor or stockbroker picking a stock market collapse and say that they make returns if 10%+/ year

Ace2007

Bass Reeves wrote: »

I am just point out that an 8 year timescale is unusual to use as a judging point. Prices peaked in 2007. However generally when you look at timescales of property, shares or an asset you judge it over 1, 5, 10, 15, 20 years etc.

To pick a moment in time which suits a narrative is not balanced journalism. Choosing a low point in a property crash is similar to a pension advisor or stockbroker picking a stock market collapse and say that they make returns if 10%+/ year

For example the year 1 year from 31 March 2020 to 31 March 2021 showed equities funds up 40/50%. It's easy to spin anything, and as you say it's while multiple time frames are given in investments so you can understand and have the full story.

Journalism however aren't going to do that as will void their story really.

DataDude

Bass Reeves wrote: »

I hear some smaller builders are walking away from project's ( extensions, one off houses, revamps etc) where clients are not willing to allow for extra costs of materials which are gone up by 30%.

Had heard a while back from one person (i.e. not reliable) that said they heard from a builder that the current material price inflation was largely transitory and should return closer to normalcy once supply chains get moving again. Any idea if this is true?

I know it's only one material, but Lumber for example is starting to tumble back from the heady heights set a couple weeks back.

https://www.wsj.com/articles/lumber-prices-are-falling-fast-turning-hoarders-into-sellers-11623749401

Graham

DataDude wrote: »

Had heard a while back from one person (i.e. not reliable) that said they heard from a builder that the current material price inflation was largely transitory and should return closer to normalcy once supply chains get moving again. Any idea if this is true?

I'd wonder how the builder knows what his builders merchants costs are. I'd wonder how the builder knows how what his builders merchants suppliers costs are. Then I'd wonder how he knows the advance costs of the raw materials suppliers to the suppliers of his builders merchants.

I doubt your friends builder knows much more than any of us. There's a global backlog due to covid (and brexit to some extent) and it's not unreasonable to guess that things will settle as supply/demand return to normal levels.

DataDude

Graham wrote: »

I'd wonder how the builder knows what his builders merchants costs are. I'd wonder how the builder knows how what his builders merchants suppliers costs are. Then I'd wonder how he knows the advance costs of the raw materials suppliers to the suppliers of his builders merchants.

I doubt your friends builder knows much more than any of us. There's a global backlog due to covid (and brexit to some extent) and it's not unreasonable to guess that things will settle as supply/demand return to normal levels.

Well I guess that, given futures prices are trading at over a 30% discount on cash prices then it's pretty much certain that Lumber prices are going to fall in the coming months. So I guess in some ways he is right - but it's a known thing if you are in the business (but I'd guess most people not in the business aren't checking the price of lumber futures daily).

Just wondering if the same holds true for other materials in house building. Not sure what the key raw material costs are and whether cash vs futures markets are likely to exist.

Mad_maxx

Timmyr wrote: »

Live in it for 3-5 years then rent it out and buy another, at least thats the plan

seems to be a rite of passage in NZ ?

cnocbui

Mad_maxx wrote: »

seems to be a rite of passage in NZ ?

The government recently made it less attractive to those borrowing funds to do this as the interest on the mortgage on a rental property is no longer allowable as a deduction to offset against the rental income.

fergus1001

DataDude wrote:

Well I guess that, given futures prices are trading at over a 30% discount on cash prices then it's pretty much certain that Lumber prices are going to fall in the coming months. So I guess in some ways he is right - but it's a known thing if you are in the business (but I'd guess most people not in the business aren't checking the price of lumber futures daily).

timber prices have collapsed in the USA so it will affect prices here too

fergus1001

DataDude wrote:

Well I guess that, given futures prices are trading at over a 30% discount on cash prices then it's pretty much certain that Lumber prices are going to fall in the coming months. So I guess in some ways he is right - but it's a known thing if you are in the business (but I'd guess most people not in the business aren't checking the price of lumber futures daily).

timber prices have collapsed in the USA so it will affect prices here too

Timing belt

DataDude wrote: »

Well I guess that, given futures prices are trading at over a 30% discount on cash prices then it's pretty much certain that Lumber prices are going to fall in the coming months. So I guess in some ways he is right - but it's a known thing if you are in the business (but I'd guess most people not in the business aren't checking the price of lumber futures daily).

Just wondering if the same holds true for other materials in house building. Not sure what the key raw material costs are and whether cash vs futures markets are likely to exist.

It’s a good question however I think lumber has tarrifs for importing into USA which are due to expire soon so that may be the reason for lower futures. What is concerning is the transport costs to move a container has increased by a multiple of 10 since the start of Covid. So if you need to import goods to build then there will be a price increase. I have read in a few places that the reason for the increase is because a lot of container ships were scrapped for metal because the price of metal went through the roof with China’s stimulus focusing on infrastructure development. I suppose the same will apply for building supplies if countries are building in an effort to stimulate their economies then we heave a significant demand increase which will push up prices.

Ace2007

fergus1001 wrote: »

timber prices have collapsed in the USA so it will affect prices here too

You can say that again

theboringfox

Timber prices falling from massive high but still really high versus historic norms. Still really expensive.

fergus1001

theboringfox wrote:

Timber prices falling from massive high but still really high versus historic norms. Still really expensive.

trust me I'm a forester I know how it works

the large demand for everyone getting back going has passed so it's back to normal now

wassie

Rising steel costs and shortages on the other hand are causing a lot of headaches for new commercial projects, particularly larger developments.

Estimators are struggling to firm tender prices, whilst new starts are being impacted on where orders for steel haven't yet been placed. Significant issue given a large portion of all commercial developments in Ireland these days are steel frame structures.

Timmyr

Mad_maxx wrote: »

seems to be a rite of passage in NZ ?

Yea its quite different than Ireland, I'm from Mayo where you generally live in one house for your entire life.
Here houses are just treated as commodities, "getting on the ladder" is really the aim.

Since I've been here (5ish years), my girlfriends parents have lived in 3 separate "homes"

JDD

There has to be some kind of algorithm that can calculate average/median salary for a particular area, and then calculates the average size family home, and then works out how much the market value is above or below that affordability point? That way were not constantly using 2007 or 2012 as marker points.

Like, if the average family is two adults, two kids, you might say that a terraced house with two and a half beds and a modest back garden should reasonably accommodate that family.

Then we work out the average price of that modest house within the major areas of Dublin (West/East/Commuter towns etc) and we can then say how much over or under the average wage for that area a family must earn in order to afford a house in that area.

Doing this thing where we say the average three bed across Dublin costs €370k is useless because it's vastly different buying a three bed in Darndale than it is in Blackrock. And saying the average salary is €47k and therefore a couple earning the average is able to afford the average priced house under the 3.5 times mortgage rules is also next to useless as a statistic.

If we took the suburbs along the Dart Line, and worked out the average salary of those both living and renting there, I'm sure it would be higher than €47k. But would it be high enough to actually buy a modestly sized house? Of course just because you rent an apartment in Blackrock shouldn't mean that you should be able to afford to buy a three bed house there, but it should give a good indicator of affordability and whether cash buyers/REITs are artificially pushing prices high in that area.

Marius34

JDD wrote: »

There has to be some kind of algorithm that can calculate average/median salary for a particular area, and then calculates the average size family home, and then works out how much the market value is above or below that affordability point? That way were not constantly using 2007 or 2012 as marker points.

Like, if the average family is two adults, two kids, you might say that a terraced house with two and a half beds and a modest back garden should reasonably accommodate that family.

Then we work out the average price of that modest house within the major areas of Dublin (West/East/Commuter towns etc) and we can then say how much over or under the average wage for that area a family must earn in order to afford a house in that area.

Doing this thing where we say the average three bed across Dublin costs €370k is useless because it's vastly different buying a three bed in Darndale than it is in Blackrock. And saying the average salary is €47k and therefore a couple earning the average is able to afford the average priced house under the 3.5 times mortgage rules is also next to useless as a statistic.

If we took the suburbs along the Dart Line, and worked out the average salary of those both living and renting there, I'm sure it would be higher than €47k. But would it be high enough to actually buy a modestly sized house? Of course just because you rent an apartment in Blackrock shouldn't mean that you should be able to afford to buy a three bed house there, but it should give a good indicator of affordability and whether cash buyers/REITs are artificially pushing prices high in that area.

What is "affordability point"? If its 3.5 income, I guess all areas in Dublin would be above affordability point. So not sure what you would achieve with it.