Why do things cost more here?

Zaph0d

Like the rest of you, I am annoyed that I have to pay more for many things in this country than I do abroad. Why is this? From reading this forum it seems that this question is not asked but that there are a set of commonly held assumptions along the following lines:

Prices are high because retailers are greedy
It has become traditional in Ireland to swindle people at the point of sale
Prices are high because Irish people don't complain
If there is a going rate for a product or service then it is immoral to charge twice that amount for that item elsewhere.
This rule should be enforced by law
Government rips us off just as much as private business by overtaxing us

However my assumptions have always been:
Prices are high in some sectors (pharmacies, pubs etc) because competition is artificially limited by central government regulation or by local government planning rules.
Reduced competition leads to local monopolies that can charge high margins to consumers with no choice but to pay or do without.
In some sectors (some areas of food/agriculture etc) illegals cartels are likely to be operating that are fixing prices between competitors.
Economies of scale are smaller in Ireland than in France/UK/Germany.
Distribution costs for UK/European sourced goods are high due to our geography.
Retailers are no greedier than anyone else they just charge the highest possible price they can for their goods, which due to above reasons is higher than the UK price.
Some retailers choose to sell their products at amazingly high prices but spend a load of money on interior design or premises on a fashionable street and some people voluntarily buy products there for the 'atmosphere'.

So what? Well how do you solve the problem? How do you reduce prices?
It depends which set of assumptions you believe. If you think the problem is caused by greedy retailers operating in a competitive environment then you can become rich by opening up next door to them and undercutting their prices. We know Irish people are price sensitive since the plastic bag tax came in and no-one was willing to shell out the 15c for a bag. You could also make a mint by investing in Irish retail chains that must be money machines.

If you believe the second set of assumptions then you would fix the problem by asking the government to relax anti-competitive regulations such as the rules that set
maximum number of pharmacies in a geographical area or
maximum number of pub licenses or
maximum number of radio stations on the FM band (below the technical limit)
Then you would press for more money spent on cartel busting
You would press for the legal system to be reformed by someone other than the legal establishment. etc etc

A recent survey showed that house prices are higher in Dublin than they are in any city in Europe other than London. Is this because people who sell their houses are greedy and charge way over the price they originally paid themselves? In a way this is true.

It may also be caused by demand increasing due to the average number of people per dwelling dropping while incomes have increased. Meanwhile, the supply of new houses has been artificially limited by maximum densities in planning regulations.

Anyhow, I feel like an atheist in a church now.

Does anyone agree with me...?

David19

Don't forget we have one of the highest average incomes in the world. People have made a lot of money here in the last few years. Higher incomes means higher prices. If you want cheaper things move to eastern europe or asia. You won't make nearly as much as you do here though. That doesn't explain everything, its still an expensive country, but people seem to forget all of the above.

John R

David19 wrote:

People have made a lot of money here in the last few years.

SOME people have made alot of money.
The rip-off costs apply to everyone not just those who have made a killing out of the economy.

David19

Yes thats a fair point. I should have said that but really wages across the board are very high here. There's not many other countries where you could earn more money than ireland regardless of the job. Its just something to remember. I still believe its too expensive here.

Imposter

I agree with your points Zaph0d.
Comparing the price of goods and services only really works when we compare it to other countries, such as those we have been to on holiday. Yes Spain, Greece etc is cheaper but people who live in those countries don't earn as much as Irish people (I know this has already being said, but i hope i'm getting to a point soon!). For me the real measure of how rich a country is, is in the standard of living.

Take me as an example. If I was living in Ireland doing a similar job to what i'm doing now, living in a similar sized city, driving a similar car etc. I would be earning more but have far less money in real terms. Accomodation, insurance and entertainment spending would all be significantly more (even in proportion to my wages) than they are here in Austria. Then add things like personal safety, infrastructure and general facilities into the mix and Ireland comes out really bad from this comparision.

I also think that this is why Irish people tend to holiday abroad a lot (other than the lack of sun in Ireland). They can get a cheaper, more relaxing holidays by flying off to other countries. They can spend freely and it doesn't break the bank. In some cases even something like a weekend break in Europe can work out cheaper than one in Ireland.

I do think people are realising this now and are altering there priorities and their spending habits. I suppose that is the first step towards changing things but that will only happen when enough people start making these changes. That, I think, is a bit off yet.

Ripwave

Zaph0d wrote:

It may also be caused by demand increasing due to the average number of people per dwelling dropping while incomes have increased. Meanwhile, the supply of new houses has been artificially limited by maximum densities in planning regulations.

Given that the the number of dwellings built each year has trebled in the last 10 years, I don't think I could agree with that conclusion.

http://www.cso.ie/principalstats/pristat10a.html

New Dwellings Completed
         Social
Year  Housing*  Private     Total
1992    1,482    20,982    22,464
1993    2,090    19,301    21,391
1994    3,275    23,588    26,863
1995    3,971    26,604    30,575
1996    3,593    30,132    33,725
1997    3,388    35,454    38,842
1998    3,256    39,093    42,349
1999    3,488    43,024    46,512
2000    3,155    46,657    49,812
2001    4,875    47,727    52,602
2002    5,763    51,932    57,695
2003    6,133    62,686    68,819
Source: Department of Environment
*Does not include houses acquired by local authorities

Hagar

David19 wrote:

wages across the board are very high here.

Are you implying that prices are high because wages are high?
I would contend the opposite, wages have to be high or we would starve naked on the streets because you couldn't live here on what would be a decent wage in other counties.
In Ireland you can be on minimum legal wage and still pay tax.
People on the fringes of poverty are paying tax. Holy Christ it's madness.
I think the Government deliberately underfunds the Defence Forces to forstall any possiblity of a coup. And no, I don't advocate violence nor am I an anarchist.

Zaph0d

Ripwave wrote:

Given that the the number of dwellings built each year has trebled in the last 10 years, I don't think I could agree with that conclusion.

http://www.cso.ie/principalstats/pristat10a.html

These figures show a huge 45% rise in housing supply over the 10 years 1993-2002 so how could house prices also rise during this time?

Could it be that demand has actually outpaced this supply increase due to:

an increase in the house buying 18-34 population

interest rates falls following Euro entry

average take home incomes rising following income tax cuts and higher salaries

average household sizes decreasing (particularly in Dublin) due to Irish sociological changes

increased number of investors due to the falls in equity returns

Planning rules which most people support, prevent the increased demand from being met. Builders would happily have replaced low density housing estates with apartment blocks in Dublin had they been allowed. If housing supply had kept pace with demand, prices would not have increased as much. (I am not suggesting that we should ditch all planning rules to help supply).

I hope that some of the above demand increases will drop off in the future (population/ interest rates / investors) and that I will eventually be able to afford a house but I'm not holding my breath.

Paddy20

1; Capitalist greed.[Rampant and unregulated] Other Countries charge Companie's double and treble tax where outrageous profiteering is obvious, Banking being one example.

2; Corruption

3; Just about the highest VAT rate in Europe.

4; General population pay the price's they are being charged, if they stopped or complained. Things would change for the better.

5; General apathy amongst population.

6; The 'Golden circle', the Irish Mafia, and it's Countrywide local community influence.

Try that on just for starter's ?..

Ripwave

Zaph0d wrote:

Planning rules which most people support, prevent the increased demand from being met.

You provide absolutely no evidence to support this contention. Yet this notion that it's all the Governments fault appears to be central to your whole thesis.

There's little doubt that Dublins low density is responsible for much of our traffic chaos, but I don't see anything to suggest that Developers are being hampered in any way by this - in fact the figures suggest exactly the opposite. Developers were able to treble supply (from 22 thousand to 66 thousand is far more than than a 45% increase) but it is not in the Developers interest to actually increase supply enough to meet demand - that will simply cause prices, and profit margins, to drop. When demand drops, prices will still remain high, because Developers will cut back on supply just enough to squeeze things.

From what I can see, the market for Apartments seems to be largely for "investment" purposes - even the small proportion of people who are actually buying an apartment to live in see it as a short term option, and that they expect to sell it on later to "trade up" to a "real" house.

The real problem here is that the tax system does nothing to discourage the upward spiral of house prices (and land prices). There is no property tax, and people who bought a house 10 years ago for €100K have little difficulty getting a €200K mortgage on it now, with which to finance a second "rental" property. Renters don't have much choice in the matter - they have to live somewhere, and they can't even get on the start of the ladder themselves because they are spending so much on rent (though that market has at last cooled down a little bit, though news of this doesn't seem to have filtered through to some buyers yet).

Eurorunner

A lot of it has to do with the fact that whilst 99.9% of the irish population agree that they pay over the odds for goods and services, as a general rule we don't shop around. We can blame the government in not tackling anti-competitive practices but we can't expect others to act when we can't motivate ourselves to take the time out to get the best deal possible...

Zaph0d

Ripwave wrote:

There's little doubt that Dublins low density is responsible for much of our traffic chaos, but I don't see anything to suggest that Developers are being hampered in any way by this - in fact the figures suggest exactly the opposite. Developers were able to treble supply (from 22 thousand to 66 thousand is far more than than a 45% increase)

Sorry, I wasn't clear. I meant that overall housing stock had increased in the country from about 900,000 dwellings to about 1.3M during this ten year period. This is a 45% increase. The rate of change of growth did triple during this time, you are right.

Ripwave wrote:

but it is not in the Developers interest to actually increase supply enough to meet demand - that will simply cause prices, and profit margins, to drop. When demand drops, prices will still remain high, because Developers will cut back on supply just enough to squeeze things.

Holding back supply in order to maintain high prices would require a conspiracy between the major landowners. Many people believe this exists. This was discussed in an article in Business and Finance magazine recently.

Ripwave wrote:

The real problem here is that the tax system does nothing to discourage the upward spiral of house prices (and land prices). There is no property tax, and people who bought a house 10 years ago for €100K have little difficulty getting a €200K mortgage on it now, with which to finance a second "rental" property.

Not having any property tax definitely makes property investment more attractive in Ireland. Bringing in a mild property tax was extremely unpopular the last time it was tried around here.

Ripwave

Zaph0d wrote:

Holding back supply in order to maintain high prices would require a conspiracy between the major landowners.

No, it doesn't. Given that there are relatively high barriers to entry, it just needs a common understanding of the market for players to come to the same conclusion. Builders don't undercut one another because their "commodities" aren't perishable - a Developer can leave a half finished site sit for a year or two at relatively little cost (depending on how much has actually been spent on it, and how desperate he is for cash). But barring some sort of crisis, any slowdown in demand is likely to occur over a long enough period that builders can just stop new starts, rather than leaving unsold properties sitting on the market, depressing prices further.

Zaph0d wrote:

Not having any property tax definitely makes property investment more attractive in Ireland. Bringing in a mild property tax was extremely unpopular the last time it was tried around here.

Typical short-termism.

From the point of view of the state, capital invested in property is effectively wasted - it doesn't generate jobs or taxes. Now, when the country is awash with capital, is when the Government should be encouraging investment in companies in the Manufacturing and Services sectors, so that when we start to price ourselves out of the Multinational market, there will be indigenous businesses there to take up the slack.

Zaph0d

Ripwave wrote:

No, it doesn't <require a conspiracy between the major landowners to maintain high land prices>. Given that there are relatively high barriers to entry, it just needs a common understanding of the market for players to come to the same conclusion. Builders don't undercut one another because their "commodities" aren't perishable - a Developer can leave a half finished site sit for a year or two at relatively little cost (depending on how much has actually been spent on it, and how desperate he is for cash). But barring some sort of crisis, any slowdown in demand is likely to occur over a long enough period that builders can just stop new starts, rather than leaving unsold properties sitting on the market, depressing prices further.

So we can summarise your assumptions about the supply-side causes of high property prices as :

Lack of property tax attracts speculative investment in housing

Homeowners taking advantage of cheap credit to buy second properties

Greedy landowners constraining supply to maintain high demand and prices

I agree with these except that I think the last is a possibility and not a certainty.

I would also add to the list:

Planning rules constrain the supply of housing

which you disagree with.

I think we can agree to disagree.

Ripwave

Zaph0d wrote:

Greedy landowners constraining supply to maintain high demand and prices

Absolutely not - there is no evidence that landowners are constraining supply. Developers almost never build on "virgin" land, developers typically have large banks of development land that they bought years ago. (This is true around the larger towns and cities all over the country).

Owners of land zoned for agricultural use can't sell land to a developer unless a developer wants to buy it. And if a developer wants it, he'll pay twice the agricultural value of the land (because he knows that when he gets planning permission it'll be worth twice as much again. And he knows how to get planning permission, even where the original owner has failed to get it). The Landowner won't benefit from constraining the availability of land, because the price paid for agricultural land isn't a factor of the availability of the land itself, it's more to do with the potential price of the houses that will be built on the land, and that's something the the devloper buying the land has more control over than the landowner does.

You still haven't provided any logical argument to support your contention that, despite a trebling of the number of houses being built each year over the last 10 years, planning regulations are acting as a constraint on the supply of housing.

Zaph0d

Ripwave wrote:

You still haven't provided any logical argument to support your contention that, despite a trebling of the number of houses being built each year over the last 10 years, planning regulations are acting as a constraint on the supply of housing.

Demand for housing is not being satisfied despite increased building.
This is proven by the fact that house prices are rising.

Planning permission

determines that only a certain proportion of available land may be built on. This is zoning.

specifies maximum densities that may be built on that zoned land.

These rules act to reduce the supply of housing.

Without these rules, supply of building land would increase causing prices to drop. House prices are partly determined by land prices and would also drop.

The zoning and density rules are not set in stone. Over time cities rezone more land as residential and sanction higher densities in an attempt to meet the housing needs of the public or in exchange for bribes. If you are a landowner/developer with property within or at the edge of the city limits, it may make sense to wait for densities in your area to increase before applying for planning. I think this is the 'common understanding of the market' you referred to earlier.

Ripwave

Zaph0d wrote:

Demand for housing is not being satisfied despite increased building.
This is proven by the fact that house prices are rising.

Planning permission

determines that only a certain proportion of available land may be built on. This is zoning.

specifies maximum densities that may be built on that zoned land.

These rules act to reduce the supply of housing.

You have this fixation with the notion that Government regulation is constraining the availability of houses, and because this is ideologically satisfactory to you, you seem to refuse to actually look for facts that either back this position up, or refute it.

If the lack of building land was the problem, then there would be builders lying idle waiting for land to become available. This is patently not the case - which is why increased labour costs are also adding to the price of houses, and anyone who wants work done on their own house is paying huge amounts for it.

Then there's the fact that only last week, the Minister blamed the lack of Social and Affordable Housing being provided on the fact that developers were still providing houses built on the basis of planning permission that was granted before those provisions were enacted.

Land supply is not the problem, and planning constraints not the problem. The historically low density regulations certainly have an impact on traffic, but you have provided absolutely nothing to back up your argument that they have any impact on price.

The bottom line is that the market is currently able to bear the price being asked, because of distortions in the tax structure that discourage the productive use of capital, and encourage "landlordism" (as distinct from encouraging home owning - the tax code doesn't do much to help a person move from being a renter to being a home owner). Developers are not constrained by the availability of land, and even labour constraints are "soft" constraints, as long as the market is prepared to pay the current prices.

Zaph0d

Ripwave wrote:

You have this fixation with the notion that Government regulation is constraining the availability of houses, and because this is ideologically satisfactory to you, you seem to refuse to actually look for facts that either back this position up, or refute it.

My previous post was the best I could do at a logical argument for how planning rules have a negative effect on housing supply. In short, I believe that a developer who owns a piece of land would like to build the absolute maximum number of housing units physically possible in order to maximise profits. The reason he does not do this is that planning rules set a maximum density below this level. The result is a constraint on supply.

I may be wrong. My only basis for this belief is empathy: if I owned an acre of land in Dublin, I'd want to build a 13 storey apartment building but the council would be likely to constrain me to the same density as the surrounding dwellings. The result woud be that I would supply the market with less dwellings than I could have. If Iwere a farmer, I would want all my agricultural land rezoned residential so that I could live a life of idle luxury.

(Average agricultural land prices in Dublin/Wicklow/Kildare for 2002 were €8,271 per acre in 2002. Two years later, residential land prices in Dublin were well over €1m/acre)
http://www.iavi.ie/pv/Spring%202003/PV%20spring%2020025.pdf
http://www.hok.ie/pdfs/propertyOutlook04.pdf

I had a quick look on Google and found this paper that discusses the relationship between planning policies, housing supply and developer strategies through the last boom bust cycle in one region of the UK.
http://www.jrf.org.uk/knowledge/findings/housing/H121.asp

I am going to shut up now and I promise not to post in this forum again because I think it's rude of me to question your assumptions.

cheers and peace

Ripwave

Zaph0d wrote:

I am going to shut up now and I promise not to post in this forum again because I think it's rude of me to question your assumptions.

Feel free to question my assumptions.

But you'd be far better off questioning your own.

RicardoSmith

Dublins transport infrasture can't handle demands created by high density housing in the suburbs and beyond. Its right to control these kind of developments, and encourage them in the city itself.

D.15 is a case in point. The developers are trying to build high storey, high density housing in the land thats left. Whereas the transport infrastructure in the area is already a shambles. Has been for years. Putting more pressure on the system is criminal.

Just because you can do something doesn't mean you should.

BrianD

Irish people generally aren't price sensitive. The classic example is the price of the pint - we'll still pay what ever the bar man asks because its part of our cultural identity. Though it would seem in recent times that even pub goers are getting shy of the prices charged. I would say there are three reasons for higher prices:

Lack of price sensitivity (and not shopping around)
VAT and taxes
Cost of distribution

Don't forget we have one of the highest average incomes in the world.

I assume you mean GDP. This is actually incorrect as this calculation is based on all the wealth generated by all working nationals and non-nationals divided by working nationals only. A farce of a situation but a boast that Irish politicans were making all over Europe. In Romania, one of the poorest though rapidly changing countries in Europe, they were laughing in the media about these claims from ireland.

Gillo

As far as I can see it's a vicious circle;

The country has a high consumer price index / cost of living

Therefore people demand to be paid more (through the likes of SIPYU & ICTU who negiotate the like of partnership 2000, PESP etc etc)

As a result of increased overheads for companies through paying higher wages (On a point it is generally recognised that wages / salaries are one of the largest expenditures of companies), prices need to be increased to sustain profitability

because of this the countries consumer price index / cost of living increases

and it all starts over again.

EVERYONE BOTH COMPANIES, UNIONS AND PEOPLE NEED TO SETTLE DOWN

Paddy20

Also, local business people need to stop being so inward looking.

Here in Dear old Donegal, [Ballybofey] - ALDI wanted to open a store. However, before the ordinary people got a chance to turn around. The local business community had ganged up and objected too the Local Authority in an anti-competitive manner which was accepted. So, it was no ALDI with it's great cheap pricing policy for us.

Thanks in the main to the parochial narrow minded self protective mindset of our local business community. Which has never appreciated that competition is healthy.

sceptre

Paddy20 wrote:

Here in Dear old Donegal, [Ballybofey] - ALDI wanted to open a store. However, before the ordinary people got a chance to turn around. The local business community had ganged up and objected too the Local Authority in an anti-competitive manner which was accepted. So, it was no ALDI with it's great cheap pricing policy for us.

And that's happened around the country. Particularly in small towns as the local business types can gain and retain control of suitable land. Or take the cheaper option and just do what you mentioned above (Newcastlewest is a more recent example for Tesco). From what I've heard (and I don't know how prevelant it is), there are plenty of small supermarket types with five or ten year options on sites suitable for other supermarkets so the Germans and Tesco can't get their paws on them. I see construction is starting on that new Aldi in Gort though.

Paddy20

Glad to hear about Aldi opening in Gort, from my experience the German's will not give up, and I am now looking forward to 'LIDL' attempting to enter the Twin-Towns of Ballybofey/Stranorlar.

The old fashioned cohorts are finished, as far as I am concerned.

Typedef

Paddy, it's very heartening to hear of your coming retail emancipation, it really is.

pork99

Isn't it the case that there is a regulatory limit on the maximium size of retail premises? And that this keeps retailers such as Ikea out of Ireland?

ChipZilla

Didn't I read in here somewhere that Tesco or B&Q built two buildings to the maximum size beside each other and then join them together with a walkway type thing to get around that?

Fenster

Similar things happened in Galway. Dunnes Stores took control of all the land that Boots were looking at, so as to keep them out. Happened a few years back.

Paddy20

Letterkenny in Donegal. Has it's own town council and not only is it the fastest growing town in Ireland, but it also has both a LIDL an ALDI a Giant Tesco, a Dunne's a new Argos shortly and a multiplex Cinema along with just about every other amenity.

Most savvy shoppers from Ballybofey/Stranorlar now head down the 14 Miles once a week and stock up with just about everything.

So the Ballybofey/Stranorlar Business Mafia. Have really kicked themselve's where it hurt's by blocking ALDI's application to open here. :cool: