‘WE’LL NEVER SEE prices get to where they were during the boom’ is an oft repeated mantra, the same was said in the UK after the early 90s crash – and not long after they had exceeded those levels and gone bang again.
Property booms and busts are cyclical, they come and go time after time. Knowing this can make you quite the economic forecaster – something a few people in that space have caught on to.
For instance, all you have to do now is predict a boom and then a bust in the 2020s because, based on an 18-20 year cycle, that’s when the next one will occur. We have done this many times before and learned nothing from it.
A more than 10 per cent rise in Dublin prices is being heralded as ‘recovery’ in some quarters, other more hawkish voices are saying that it’s a ‘mini-bubble’, and yet others look at it as a supply side issue. What’s the truth?
Sadly I don’t know, because in something as perilous, opaque and heterogeneous as property nobody can ever truly ‘know’ what’s going on, but here are a few points to consider.
Supply is an issue, in an area like Dublin 4 there are only 59 houses for sale and about 52 apartments. Two years ago there was more than four times that number of houses for sale in the same area.
Why isn’t there more supply? Surely NAMA will be able to offload some property to cool this down won’t they? They said they would sell 10,000 apartments, surely that ought to suppress prices? While 54 per cent of NAMA properties are in Ireland, only 12 per cent are residential and not all are completed and they aren’t all in Dublin. Of the c. 14,000 NAMA have in excess of 700 are definitely already sold and more were added to the ‘for sale’ list last year.
The other problem is that NAMA don’t want to sell to the end user, they want to sell the properties in large lots to investment firms, meaning they probably won’t make a material difference to supply ‘for sale’ unless the buyers choose to offload themselves.
According to Aoife Brennan of Lisney about ‘40 per cent are executor sales‘ when it comes to South Dublin. That means a person died in order for the property to come on the market. Newsflash, people: in South Dublin aren’t dying in their droves, which means instead that you have a stagnant supply concern.
If you look at a field full of rabbits is it a sign that you have too many rabbits or too few foxes? Looking at supply only tells you one thing, looking at the reasons for the lack of supply tell you another.
Negative equity is a massive issue, in particular in Dublin, banks report that the deepest degree of negative equity is in the city because firstly the loan amounts were highest and secondly the city crashed worse than everywhere else. These combined effects cannot be underestimated.
Add to this the tracker mortgage dilemma, the very time line of when trackers became available matches the boom exactly (this isn’t causation but is correlation), the inability to take these with you, or to opt for other choices when in negative equity create a market with fewer transactions.
The absence of building permit applications, of planning grants, of development land for sale and of existing land that is still held by bust developers and not on the market are all fuelling the issue as well.
The absence of credit (which despite being promised a ‘doubling of’ in 2013 will probably not match 2012‘s draw-downs), increased underwriting criteria, higher Standard Variables and lack of resource within banks to lending due to collections being the primary concern are also a factor.
There is no optimism when looking at transactions year to date, in 2012 there were 15,926 transactions in the year to September, in 2013 the figure is 16,840 that 5.7 per cent increase is marginal, but look underneath them, what are price levels telling us?
In 2013 just over 6,000 of the properties sold year to date cleared for under €100,000 last year only 4,800 sold for less than €100,000.
So we have this ‘recovery’ where more properties are selling for less this year than last year? Something seems to be missing…
Property market year to date is about €3 billion when you strip out errors in the registry (such as terraced house in Ballyfermot which apparently sold for €55,690,000!), forecasting mortgage draw downs you’d expect third quarter to come in at about €1.35 billion in the year to date. This implies that over half of the market is being traded in cash only, a trend more common in South America and Asia.
Every part of the process is riddled with dysfunction, that any part of the market can see double digit increases is a symptom of dysfunction, not a sign of success.
Some will cheerlead the rise but the beneficiaries are the incumbents, this spares no thought for those who have yet to buy, it doesn’t consider that a shortage of rental properties – where prices are going up – come at a cost to somebody.
The incumbents sit tight, while over 100,000 are in arrears (many two years and more) and those properties are not coming on the market. While separately 19,000 buy to lets are over a year in arrears and are not on the market.
This latent, or ‘shadow’, supply that isn’t on the market creates false scarcity, false scarcity creates price rises that are as false as the foundations upon which they are built. Having said that, the market can stay irrational for a long duration to the point that such prices become more embedded in fact, but that doesn’t mean the basis upon which they arrived there is reasonable or healthy.
Imagine if we didn’t have mass interference and a genetic predisposition to thinking that only through property ownership can you become a valued member of society? Imagine if local authorities ended up fronting development contributions (given that they now get annual property tax that concession should come about) which embed up to 15 per cent into a property cost?
Imagine lots of things that bang of reason, common sense, and reality and you’ll be imagining something that won’t be happening here because the national blinkers shine to brightly to allow the light of truth through.
Our property market is as dysfunctional as ever, but like a person out of luck, hell bent on keeping up appearances, we’ll do everything we can to avoid letting the rest of the world know it. We just need a little more debt lobbyist, bank bullshit, and political hot air to cover up the fact that we’ll be burning the furniture to heat the gaff.
Karl Deeter is a founder and Compliance Manager at Irish Mortgage Brokers in Dublin 2. His expertise is in credit, regulation and financial advice. Follow @irishmortgages on Twitter.
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