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Central Bank to limit amount banks lend for home purchase

handlemaster

http://www.irishtimes.com/business/sectors/financial-services/central-bank-to-impose-limits-on-home-loans-1.1948176

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[Deleted User]

Someone over on IrishEconomy.com summed up current policy recently more or less as follows:

'We have to keep prices up so that builders will build so that supply will increase so that houses will become more affordable for first-time-buyers".

It's all a bit chicken-egg-chicken-egg-chicken innit

[Deleted User]

The Spider wrote: »

Any of these new rules go ahead, building will stop, supply will be non existent and everyone better get used to high rents.

http://www.independent.ie/business/personal-finance/property-mortgages/half-of-new-homes-face-axe-over-mortgage-proposals-30820869.html

Compiled by Grant Thornton, and funded by the Construction Industry Federation...

'Hey Grant Thornton, here's tens of thousands of euro, prove this.'

I'm going to club together a few pro-regulation people and pay Grant Thornton or one of the other consultancy houses to prove the opposite.

This stuff has no credibility.

The Spider

El_Dangeroso wrote: »

So they say house prices will rise anyway but somehow this will mean at the same time demand will drop causing less building.

The mental gymnastics that allow for that level of cognitive dissonance is staggering!

Either 2 things will happen:

1. Demand and therefore prices rises will slow or go down slightly.
2. Demand will not go down and the builders will sell their houses no problem

This is just more fear-mongering from vested interests.

Actually you don't have to look too far back to see what will happen. After the crash no one bought property, so builders stopped building, that's why we have extreme lack of supply at the moment, and that's why we have high rents (still not as high as they've been in the past).

If you say you're going to make it impossible to sell houses to first time buyers why would builders go ahead and build houses they can't sell? Houses have to be sold at a price point that allows builders to pay wages and make a profit.

Supply will be limited, people who can go to their parents for the money will, people in high paying jobs will have the deposits already, everyone else is going to be renting.

Michael D Not Higgins

The Spider wrote: »

Actually you don't have to look too far back to see what will happen. After the crash no one bought property, so builders stopped building, that's why we have extreme lack of supply at the moment, and that's why we have high rents (still not as high as they've been in the past).

If you say you're going to make it impossible to sell houses to first time buyers why would builders go ahead and build houses they can't sell? Houses have to be sold at a price point that allows builders to pay wages and make a profit.

Supply will be limited, people who can go to their parents for the money will, people in high paying jobs will have the deposits already, everyone else is going to be renting.

How many developers went bust following the crash? That had a marked effect on the building trade, perhaps even more so than the drop in demand.

The Spider

Michael D Not Higgins wrote: »

How many developers went bust following the crash? That had a marked effect on the building trade, perhaps even more so than the drop in demand.

True, because no one was buying their product, it's the same thing with the new rules, and if anything builders now, are going to be overly cautious and will stop work at the first sign of trouble.

Builders will limit supply and only build the amount of homes that have buyers that can buy, prices will rise as they bid against each other, more and more people will rent, limited supply will push rents up.

I challenge anyone to explain how the new rules will lead to a drop in prices, when builders wont build.

Sala

My suggestions:

We need extra taxes on vacant properties. There are currently apparently 49k vacant units in Dublin, we need a way to encourage owners to rent or sell those that are appropriate.

Taxes on undeveloped land that is suitable for residential development.

Repossessions of properties, especially buy to lets, where the mortgage isn't being paid. Obviously this may jut shift people around but it has to make more sense for the banks to sell it for something, rather than get nothing back indefinitely.

Repossessions should be quicker, cheaper and more transparent. Banks should be forced to outline their post possession plans for the mortgage holder - i.e. if they can do a deal on the shortfall that would encourage a voluntary surrender this should be made clear (in my line of work I have noted a lot of people don't have a huge problem giving up a property they can't afford, rather the idea that they are giving it up, can't guarantee rent allowance and are wary they will be pursued by for the whole shortfall through the courts is making them reluctant to move). This won't really result in a loss for the banks - they are at a loss anyway, just hasn't be crystallized

Reduce taxes on building residential homes - perhaps target this at the type of home that's are in demand.

Social housing - simply need more units.

Rents - I am not sure about this one given I don't agree with rent control .. but an increase in social housing will move those on rent allowance out of private rented accommodation and free this up for private renters. Obviously a good deal of social housing needs to be provided before this would have an impact. Bring back rental tax credits perhaps?

El_Dangeroso

Spider, so are you saying prices will drop? or rise?

Because if they rise, builders will build because they'll make a profit.

There was no demand in the crash and prices dropped.

You can't have it both ways.

Sala

El_Dangeroso wrote: »

Spider, so are you saying prices will drop? or rise?

Because if they rise, builders will build because they'll make a profit.

There was no demand in the crash and prices dropped.

You can't have it both ways.

It doesn't make sense. If I was a builder and "no one" was building, there was no supply and still demand, I'd build. Constricted supply = higher prices = more builders jumping in

The Spider

El_Dangeroso wrote: »

Spider, so are you saying prices will drop? or rise?

Because if they rise, builders will build because they'll make a profit.

There was no demand in the crash and prices dropped.

You can't have it both ways.

What I am saying is that rather than build thousands of houses, that are needed at the moment, for everyone who wants a house, they'll either not build or build an extremely limited supply, keeping prices high and limiting their exposure to a drop in prices.

They'll approach it very cautiously, they'll research it, if the research says only 800 people can afford the 20% deposit then they'll build 700 houses.

De Beers have been doing the same thing with Diamonds for years.

El_Dangeroso

The Spider wrote: »

What I am saying is that rather than build thousands of houses, that are needed at the moment, for everyone who wants a house, they'll either not build or build an extremely limited supply, keeping prices high and limiting their exposure to a drop in prices.

They'll approach it very cautiously, they'll research it, if the research says only 800 people can afford the 20% deposit then they'll build 700 houses.

De Beers have been doing the same thing with Diamonds for years.

Unless builders operate in a cartel (though nothing in this country would surprise me anymore) that is not a likely scenario as you'll need all the developers to be acting in concert.

Besides, the reason builders weren't building is not because prices weren't high enough, but rather that they couldn't (and possibly still can't) get access to the vast amounts of credit it takes to initiate a development.

I was involved in the tendering process for a large building in 2012, and there were several builders that we accepted bids from only to drop them because they couldn't put up a 2 million euro bond. The amount of borderline insolvent developers is the true cause to the lack of building.

makeorbrake

Deleted User wrote: »

'Hey Grant Thornton, here's tens of thousands of euro, prove this.'

I'm going to club together a few pro-regulation people and pay Grant Thornton or one of the other consultancy houses to prove the opposite.

This stuff has no credibility.

Goebbels himself wouldn't be up to this level of media propaganda! It's been absolutely incessant over the past few weeks.

gaius c

Ireland...where houses are like diamonds!

The Spider

El_Dangeroso wrote: »

Unless builders operate in a cartel (though nothing in this country would surprise me anymore) that is not a likely scenario as you'll need all the developers to be acting in concert.

Besides, the reason builders weren't building is not because prices weren't high enough, but rather that they couldn't (and possibly still can't) get access to the vast amounts of credit it takes to initiate a development.

I was involved in the tendering process for a large building in 2012, and there were several builders that we accepted bids from only to drop them because they couldn't put up a 2 million euro bond. The amount of borderline insolvent developers is the true cause to the lack of building.

From 2008, has anything changed?

http://www.irishexaminer.com/ireland/builders-demand-minister-proves-cartel-claims-54981.html

gaius c

makeorbrake wrote: »

Goebbels himself wouldn't be up to this level of media propaganda! It's been absolutely incessant over the past few weeks.

Good thread on the pin where the thread title says it all.
It is absolutely relentless at this stage and there have been no pieces at all providing balance.

El_Dangeroso

The Spider wrote: »

From 2008, has anything changed?

http://www.irishexaminer.com/ireland/builders-demand-minister-proves-cartel-claims-54981.html

A lot of those guys were on the brink of bankruptcy at that point, so I actually don't believe there was a cartel in the midst of the implosion.

MarkAnthony

Barely Hedged wrote: »

I disagree fundamentally that increasing the long term debt in society which all your strategies do, whether you like to admit it or realise, is any way of solving the problem. You'll find very few people who agree with you on that

You're not increasing debt, you are simply spreading it out not allowing capital to become concentrated in to a smaller and smaller number of people. I'm well aware many will disagree there

Barely Hedged wrote: »

You didnt. Im not getting into copying and pasting your replies.

you're right I got you confused with someone else.

Barely Hedged wrote: »

Then what is it as all your strategies will achieve is to inflate the value of the underlying asset and the people inflating the asset are leveraged to the hilt. Doesn't sound sustainable to me?

Thats because you didn't read/understand the entire proposition, thats fine I think we both had our minds made up coming into this.

P. Breathnach

The Spider wrote: »

What I am saying is that rather than build thousands of houses, that are needed at the moment, for everyone who wants a house, they'll either not build or build an extremely limited supply, keeping prices high and limiting their exposure to a drop in prices.

They'll approach it very cautiously, they'll research it, if the research says only 800 people can afford the 20% deposit then they'll build 700 houses.

De Beers have been doing the same thing with Diamonds for years.

That argument is built on the assumption that builders/developers co-ordinate their efforts. I don't believe that they do.

If developer X has a site suitable for 8 units, the only decision to be made is whether to build those 8 units now, or hold back in the hope of selling more profitably in a year or two.

If landowner Y has a site, but prefers not to engage in developing or building, then the decision is whether to sell at whatever price is achievable today, or hold out for a better price in the future. That, I think, is an important component of the supply problem: landowners are not willing to sell to developers or builders at a price that makes building a good economic proposition. Where current market conditions might suggest a site value of €100k per unit, landowners might be unwilling to sell for less than €200k.

The Spider

P. Breathnach wrote: »

That argument is built on the assumption that builders/developers co-ordinate their efforts. I don't believe that they do.

If developer X has a site suitable for 8 units, the only decision to be made is whether to build those 8 units now, or hold back in the hope of selling more profitably in a year or two.

If landowner Y has a site, but prefers not to engage in developing or building, then the decision is whether to sell at whatever price is achievable today, or hold out for a better price in the future. That, I think, is an important component of the supply problem: landowners are not willing to sell to developers or builders at a price that makes building a good economic proposition. Where current market conditions might suggest a site value of €100k per unit, landowners might be unwilling to sell for less than €200k.

I agree largely wih the above, however I'd reckon that if one bui,der can't make a profit, then neither can another one.

The point about land prices is valid, however I don't think there's much can be done here, people have mentioned taxes in the past I honestly don't see how that could work, it may be unconstitutional and against the right to own property:

Property rights
The Constitution declares that the State will vindicate the property rights of every cititizen. This means that you have a right to own, transfer and inherit property. You also have the right to bequeath property upon your death. The State guarantees to pass no law to abolish these rights.

Article 43 acknowledges that these rights ought to be regulated by the principles of social justice. This means that the State may pass laws limiting your right to private propety in the interests of the common good. If the state passes a law that restricts your property rights, it may be required to compensate you for this restriction.

Examples of restrictions or limitations on your right to own property include town and regional planning, protection of national monuments, compulsory acquisition of land and property taxes.

According to the above the only option is compulsory purchase order, that would put the onus back on the taxpayer.

Even if somehow you could tax for not using the land, the sale price would still be the market rate.

P. Breathnach

The Spider wrote: »

...
The point about land prices is valid, however I don't think there's much can be done here, people have mentioned taxes in the past I honestly don't see how that could work, it may be unconstitutional and against the right to own property...

That's the problem. I think it would be very difficult in the short term to get the land into use at an economic price. The demand for building land is derived from the demand for what might be built on it. It naturally follows, rather than drives, the prices of houses and apartments.

I think building land is greatly overvalued in the minds of those who own it. In part, this is because people bought it at pre-crash prices, and they simply can't recognise that it is worth far less than they paid for it (and in many cases less than they borrowed to buy it).

Time might sort the problem. After, say, two years trying to sell a plot for €4m, it might eventually strike a landowner that its market value, the price that somebody is actually willing to pay, is €1.5m.

MysticalRain

I wouldn't take the "I wouldn't get out of bed for less than 10 grand a day" argument too seriously in relation to builders refusing to build. If they refuse to work, it's either back to the dole queue or a one way trip to Australia or Canada. The main blocker for builders at the moment is lack of credit and available land.

The government are talking about implementing a use-it-or-lose it tax for undeveloped land. Potentially land owners could circumvent this by applying for planning permission every 3 years to reset the time limit. But those kinds of shenanigans may also be dealt in future legislation if it's implemented.

The Spider

MysticalRain wrote: »

I wouldn't take the "I wouldn't get out of bed for less than 10 grand a day" argument too seriously in relation to builders refusing to build. If they refuse to work, it's either back to the dole queue or a one way trip to Australia or Canada. The main blocker for builders at the moment is lack of credit and available land.

The government are talking about implementing a use-it-or-lose it tax for undeveloped land. Potentially land owners could circumvent this by applying for planning permission every 3 years to reset the time limit. But those kinds of shenanigans may also be dealt in future legislation if it's implemented.

it could be easy to get around those taxes, if hypothetically there's a vacant 2 acre site in the city centre, whats to stop a landowner erecting a pre made house, putting a fence around it and calling it his garden?

http://www.hanse-haus.co.uk/house_overview.html

It would cost a lot less than the potential tax liability as you already own the land. Then you can sit on it until you get a price you want. Technically you're using the land, you could rent out the house.

desertcircus

The Spider wrote: »

it could be easy to get around those taxes, if hypothetically there's a vacant 2 acre site in the city centre, whats to stop a landowner erecting a pre made house, putting a fence around it and calling it his garden?

http://www.hanse-haus.co.uk/house_overview.html

It would cost a lot less than the potential tax liability as you already own the land. Then you can sit on it until you get a price you want. Technically you're using the land, you could rent out the house.

Refuse planning permission for anything low-density in high-demand areas.

The Spider

desertcircus wrote: »

Refuse planning permission for anything low-density in high-demand areas.

Think that could be tricky, you'd be confiscating land essentially.

P. Breathnach

The Spider wrote: »

Think that could be tricky, you'd be confiscating land essentially.

It's not necessarily impossible to provide in law for such restrictions on planning. Land can be zoned for certain types of development.

But it's not a stand-alone measure. Greater density creates more pressure on resources and infrastructure. That would need to be worked on.

And then we would have the irony that a "desirable" area becomes less desirable because of the higher housing density.

I understand that people want to live in areas that they consider nicer than some other places. But the harsh reality is that, as things are at present, there are not enough properties available to satisfy all those that want to live in such areas. Price is the allocation mechanism: those with access to more money secure the properties available. What's the short-term alternative? I don't see one. If I were selling a property in, say, Dublin 6, I have a right to sell it to the highest bidder. Those who can't compete on price should perhaps consider Dublin 8 or Dublin 14.

ciaranlong

Deleted User wrote: »

Someone over on IrishEconomy.com summed up current policy recently more or less as follows:

'We have to keep prices up so that builders will build so that supply will increase so that houses will become more affordable for first-time-buyers".

It's all a bit chicken-egg-chicken-egg-chicken innit

Are there not so many builders that need work that they will build houses regardless of how high prices rise in the property market?

ciaranlong

makeorbrake wrote: »

So if this measure had been in place back in 2005, it would have made no difference? I don't accept that for a second.

Sorry: I meant to say that it was not a very "suitable" measure, as opposed to an "effective" measure. My bad.

makeorbrake wrote: »

It's not consigning a generation to renting - its consigning a generation to plan years in advance of purchasing....and that is to be welcomed.

The Department of Finance do not agree with your comment above.

makeorbrake wrote: »

He's not messing around with demand! He's preventing the ability of people to overpay for an asset - to over extend. In the same action, he's ensuring that banks are less likely to end up with an asset that they lose disproportionately on.

He's coming at the problem from the demand-side as opposed to the supply-side. I suppose I could re-phrase it like that. Although I know that it is all he can do, as he is a central banker.

I just don't think he should be doing anything, as there are other ways to skin this cat. And the consequences of his actions could be quite long-lasting.

ciaranlong

Michael D Not Higgins wrote: »

This already exists, NPPR. The bubble was not driven by second homes anyway.

The Central Bank are regulating the lending market. They are doing all in their power to prevent another bubble. It's the government's fault for the lack in supply. They are the ones with the power to implement policies which drive the supply.

I'd like to see your economic credentials which outweigh the extensive research and implementation of LTI and LTV limits in other markets, as demonstrated in the Central Bank's proposal paper.

How can you back up your claim that the bubble was *not* driven by speculation over additional properties to the family-home?

I agree that the Government is at fault. And I think that they should be the ones acting as opposed to the Central Bank. As we're dealing with a "supply" problem here. Not a "demand" one.

makeorbrake

ciaranlong wrote: »

Sorry: I meant to say that it was not a very "suitable" measure, as opposed to an "effective" measure. My bad.

Opinions differ and with that I guess I simply disagree. For the purpose that it is intended for (and this is where people are going astray as sorting out supply is not the remit of the CB), its both suitable and effective.

ciaranlong wrote: »

The Department of Finance do not agree with your comment above.

I'd question the motives of whomever in the Dept. of Finance spoke out on this. Of course you will say they shouldn't be politically motivated - but with senior civil servants having a day to day working relationship with the current administration....well, call me a cynic

ciaranlong wrote: »

He's coming at the problem from the demand-side as opposed to the supply-side. I suppose I could re-phrase it like that. Although I know that it is all he can do, as he is a central banker.

Their purpose here is not directly and primarily related to demand side / supply side (although clearly that is what everybody else is interpreting this through!). Consider it as bubble inflating or bubble deflating - and it's very much the latter.

ciaranlong wrote: »

Although I know that it is all he can do, as he is a central banker. I just don't think he should be doing anything, as there are other ways to skin this cat. And the consequences of his actions could be quite long-lasting.

If you have issues with supply constraint, talk to those who pull the strings on that - and that's NOT the CB - it's the government. Ask them if their CGT exemption has helped with that. Ask them if pursuing a stategy of high property prices is in the long term interests of the irish people.

[Deleted User]

ciaranlong wrote: »

Are there not so many builders that need work that they will build houses regardless of how high prices rise in the property market?

I suppose their argument is that they have to make a profit but, in my opinion, they are overstating their costs by claiming that it costs them 200k to build a one-bed apartment and that it has to sell for 270k to make it worthwhile.

Anyway, the point I was trying to make was that if they 'succeed' in keeping prices high enough for incentivise building it will lead prices to fall. I mean, if several builders decided in the summer to start a new development because 4-bed houses are 'worth' 500k, they might find that the additional supply they create causes prices to dip!

Bit ironic, that's all. Nothing much to do with the Central Bank mortgage rules. When are we to expect an announcement on that?

I was sure they would hold firm but, alas, now expect some watering down given the relentless and concerted effort to unpick the regulations. Hope I'm wrong.

MarkAnthony

makeorbrake wrote: »

If you have issues with supply constraint, talk to those who pull the strings on that - and that's NOT the CB - it's the government. Ask them if their CGT exemption has helped with that. Ask them if pursuing a stategy of high property prices is in the long term interests of the irish people.

In a cack-handed, arseways way it will, in the long term. Them CGT exemption should have been more limited but the purpose was clear. To get crap on to the market to be done up by investors are flogged off within 7 years.

The biggest issue in Dublin at the moment is the fact that due to a confluence of events apartments and cheap housing are tied up with wannbe/accidental property investors.

It's being compounded by large investment funds getting involved because rents are completely tied to mortgage rates in Dublin.

If rate go up rents will go up to a point; everyone wins (apart from the tenants ofc). When they get to the point they can't go up any more the investment funds will win as the wannbe/accidentals won't be able to compete anymore and the tenants will flock to the investment fund owned properties.