Property bubble: NYT article on Japan's experience

patto_chan

Found this interesting article online.
They draw comparisons between Japan and the current US property boom but it's a useful read from Ireland's point of view also.

Take It From Japan: Bubbles Hurt - New York Times
http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html

TempestSabre

FYI - You need to register to read.

ronbyrne2005

i didnt need to register but i am register so maybe the site remembered me

KASHIWA, Japan

FOURTEEN years ago, Yoshihisa Nakashima looked at this sleepy suburb an hour and 20 minutes from downtown Tokyo and saw all the trappings of middle-class Japanese bliss: cherry-tree-lined roads, a cozy community where neighbors greeted one another in the morning and schools within easy walking distance for his two daughters.

So Mr. Nakashima, a Tokyo city government employee who was then 36, took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell.

Or so he thought. Not long after he bought the apartment, Japan's property market collapsed. Today, the apartment is worth half what he paid. He said he would like to move closer to the city but cannot: the sale price would not cover the $300,000 he still owes the bank.

With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan. What Americans see may scare them, but they may also learn ways to ease the pain.

To be sure, there are several major differences between Japan in the 1980's and the United States today. One is the fact that property prices rose much faster and more steeply in Japan, partly because speculators used paper profits from a booming stock market to invest in property, insupportably leveraging the prices of both higher and higher.

Another difference is that the biggest speculators in Japan's frenzy were deep-pocketed corporations, and they pumped up the commercial property market at the same time that home prices were inflating.

Still, for anyone wondering why even the possibility of a housing bubble in the United States preoccupies so many economists, it is worth looking at how the property crash in Japan helped to flatten that economy, which is second only to that of the United States, and to keep it on the canvas for more than a decade.

And as American homeowners contemplate what might happen if their property values fell -particularly if they fell hard - there are lessons in the bitter experiences of their Japanese counterparts like Mr. Nakashima.

JAPAN suffered one of the biggest property market collapses in modern history. At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.

Then came the crashes in both stocks and property, after the Japanese central bank moved too aggressively to raise interest rates. Both markets spiraled downward as investors sold stocks to cover losses in the land market, and vice versa, plunging prices into a 14-year trough, from which they are only now starting to recover.

Now the land in Japan is worth less than half its 1991 peak, while property in the United States has more than tripled in value, to about $17 trillion.

Homeowners were among the biggest victims of the Japanese real estate bubble. In Japan's six largest cities, residential prices dropped 64 percent from 1991 to last year. By most estimates, millions of homebuyers took substantial losses on the largest purchase of their lives.

Their experiences contain many warnings. One is to shun the sort of temptations that appear in red-hot real estate markets, particularly the use of risky or exotic loans to borrow beyond one's means. Another is to avoid property that may be hard to unload when the market cools.

Economists say Japan also contains lessons for United States policy makers, like Ben S. Bernanke, who is expected to become chairman of the Federal Reserve at the end of January. At the top of the list is to learn from the failure of Japan's central bank to slow the rise of the country's real estate and stock bubbles, and then its failure to soften their collapse. Only recently did Japan finally find ways to revive the real estate market, by using deregulation to spur new development.

Most of all, economists say, Japan's experience teaches the need to be skeptical of that fundamental myth behind all asset bubbles: that prices will keep rising forever. Like their United States counterparts today, too many Japanese homebuyers overextended their debt, buying property that cost more than they could rationally afford because they assumed that values would only rise. When prices dropped, many buyers were financially battered or even wiped out.

ronbyrne2005

continued....


"The biggest lesson from Japan is not to fall into the same state of denial that existed here," said Yukio Noguchi, a finance professor at Waseda University in Tokyo who is perhaps the leading authority on the Japanese bubble.

"During a bubble, people don't believe that prices will fall," he said. "This has been proven wrong so many times in the past. But there's something in human nature that makes us unable to learn from history."

In the 1980's, Professor Noguchi said, the frenzy in Japan reached such extremes that companies tried to outbid one another even for land of little or no use. At the peak, an empty three-square-meter parcel (about 32 square feet) in a corner of the Ginza shopping district in Tokyo sold for $600,000, even though it was too small to build on.

Plots only slightly larger gave birth to bizarre structures known as pencil buildings: tall, thin structures that often had just one small room per floor.

As a result, Japan's property market in the 1980's was much more fragile than America's today, Professor Noguchi said. And when the market fell, it fell hard. Because of all the corporate speculation, the collapse wiped out company balance sheets, crippled the nation's banks and gave the overall economy a blow to the chin.

Since 1991, Japan has spent 11 years sliding in and out of recession. It is only now showing meaningful signs of recovering, with the World Bank forecasting that Japan's economy will grow by a solid 2.2 percent this year

Despite the differences, Professor Noguchi said he also saw parallels between Japan then and America now. Last year, as a visiting professor at Stanford, he said he read real estate articles in local newspapers that sounded eerily familiar. Houses were routinely selling for $10 million or more, he said, with buyers saying they felt that they had no choice but to buy now, before prices rose even further.

"It was déjà vu," Professor Noguchi said. "People were in a rush to buy, and at extraordinary prices. I saw this same haste psychology in Japan" in the 1980's. "The classic definition of a bubble," he added, "is people buying on false expectations about future prices, and buying with the hope of selling in the future."

Economists and real estate experts see other parallels as well. In the 1980's, the expectation of rising real estate prices made many Japanese homebuyers feel comfortable about taking on huge debt. And they did so by using exotic loans that required little money upfront and that promised low monthly payments, at least for a short time.

A similar pattern is found today in the United States, where the methods include interest-only mortgages, which allow homebuyers to repay no principal for a few years. Japan had its own versions of these loans, including the so-called three-generation loan, a 90- or even 100-year mortgage that permitted buyers to spread payments out over their lifetimes and those of their children and grandchildren.

But when property prices dropped in Japan, homeowners found themselves saddled with loans far larger than the value of their real estate. Many fell into bankruptcy, especially those who lost their jobs or took pay cuts as declining property prices helped to incite a broader recession. From 1994 to 2003, the number of personal bankruptcies rose sixfold, to a record high of 242,357, according to the Japanese Supreme Court, which tracks such data.

Even many of those who avoided financial collapse found themselves marooned in homes that they never intended as lifelong residences. For many Japanese homebuyers in the 1980's, land prices had risen so high that the only places they could afford were far from central Tokyo. Many went deep into debt to buy tiny or shoddily built homes that were two hours away from their offices.

Now, after years of tumbling land prices have made Tokyo more affordable again, few people are shopping for homes in the distant suburbs. That has led to severe declines in property values in these outlying areas, leaving many people with homes that are worth less than the balance on their mortgages from a decade or more ago.

Mr. Nakashima, who bought the apartment here in Kashiwa, said it would take him at least another decade to whittle down his loan to the point that he could pay it off by selling his home. And this assumes that the apartment does not drop further in value - a real possibility, because lower prices in Tokyo have led to a recent boom in construction of newer apartments in neighborhoods closer to downtown.

"We can't sell and get something better because we'll take such a huge loss," said Mr. Nakashima, a serious man who recounts his story with careful precision, sometimes pausing to check dates. "The collapse of the bubble robbed us of our freedom to choose where we can live."

He rues the idea that homes came to be seen as just another investment. "Homes should be different from stocks," he said. "They shouldn't be the object of speculative investing. If home prices move too much, they can ruin your life."

Mr. Nakashima says he is resigned to spending the rest of his days in Kashiwa. It is peaceful here, after all, he said. There is also a bit of history: he pointed to two tree-covered mounds in a corner of the apartment complex that are said to contain the severed heads of samurai killed in a battle here five centuries ago.

Some economists say that there are probably millions of people like Mr. Nakashima, trying to make the best of life in homes that are distant from work and for which they grossly overpaid. "There is a whole generation of homebuyers stuck out in far suburbs," said Atsushi Nakajima, chief economist at the research arm of the Mizuho Financial Group in Tokyo. "It's sad, but Japan has basically forgotten about them, and is moving on. They are just left out there."

Mr. Nakajima said he had barely missed being stuck out there himself. In 1991, he was looking at a 100-square-meter apartment (1,080 square feet) for about $600,000 about two hours outside Tokyo. He said his wife stopped him. Six years later, he spent the same amount to buy a more spacious house in a downtown neighborhood. "Maybe my wife should be the economist," he said.

Now that Japan's real estate market is finally showing signs of recovering from the 1991 collapse, economists say it offers a lesson for Americans in how to end - and not to end - a long slide in property prices.

For years after the real estate bubble burst, the Japanese government tried to resuscitate the market and other parts of the economy with expensive public works projects, but they were so poorly planned that they succeeded only in inflating the national debt.

NOT until the late 1990's did the government try a new tack: deregulation. To kick-start the economy, Tokyo started loosening restrictions on the financial industry. While most of this effort was aimed at reviving the banking industry, it also allowed investors to create real estate investment trusts, essentially mutual funds that invest in commercial property. A few years later, the government also eased building codes, such as height limits, and cut approval times for building permits.

Economists and real estate executives credit these changes with bringing new money into the market, and with making redevelopment easier. The results are visible in a boom that is dotting the Tokyo skyline with cranes and new high-rises.

They are also visible in statistics. Residential home prices in Tokyo rose 0.5 percent in the 12 months through July, the first gain in 15 years, the government said in September. Nationwide, land prices are still down, but the pace of decline has slowed to a crawl, the government said.

"Deregulation revived the Tokyo land market," said Toshio Nagashima, executive vice president at Mitsubishi Estate, one of Japan's largest real estate companies. He said the changes were one reason that his company committed to spend $4.5 billion by 2007 to build six skyscrapers in the central Marunouchi financial district.

Japanese economists say the United States is not likely to suffer a decline that is as severe or long-lasting as Japan's, because they see a more skilled hand at the tiller of the American economy: the Federal Reserve. Japan's central bank, the Bank of Japan, failed to curb the stock and real estate bubbles until mid-1989, when it was too late and prices were sky-high, they said.

When it did take action, it moved faster and more drastically than Japan's overinflated land and stock markets could handle, raising its benchmark interest rate to 6 percent from 2.5 percent over 15 months. Economists say that this pulled the rug out from under both markets at the same time.

Akio Makabe, a finance professor at Shinshu University in Matsumoto, says the Fed has been more deft in handling the rise in America's property market, which he believes is definitely in a bubble. He praised the Fed for apparently learning from Japan's mistakes, tightening more gradually and taking the economy's pulse as it does so.

"Japan shows the importance of avoiding a hard landing," Professor Makabe said. "Avoid big shocks. That is the biggest lesson of Japan's bubble."

bounty

i like this chart showing uk house prices from nationwide:

zod

Are you into cameras? Do you marvel at the quality you can get from the most ordinary models these days?
Or what about the extraordinary technology in normal camcorders? Like me, are you amazed at the quality of images from a bog-standard laser printer?

All these are made possible by Canon, the highly innovative Japanese consumer goods company. Canon, like so many other Japanese companies, was in the doldrums ten years ago, but today it is the market leader again. The man behind the resurgent Canon is a quiet, thoughtful septuagenarian called Michiyo Nakamoto.

Nakamoto is no globalisation-obsessed chief executive warning that, unless people work harder for less, jobs will all disappear to China or Mexico, while at the same time, paying himself a fortune.On the contrary, he believes in keeping as many good jobs as possible in expensive Japan.

His entire board is Japanese, despite 87 per cent of Canon's sales coming from outside Japan. He is shameless when it comes to putting Japanese workers and interests first. According to Nakamoto, if Japan continues to innovate it has little to worry about. Like any good industrialist, he sees the direct link between productivity, the return on equity and wages.


When asked where did Japan go wrong in the 1990s, he spits out the word "land". You can hear the contempt in his voice when he remembers the land frenzy that almost bankrupted Japan in the late 1980s and early 1990s.The link between land speculation and future debt problems is so well documented that it is amazing we need to re-examine it.


But with our central bank warning this week about house prices, it's worth examining the land problem in Ireland and how it devalues the currency in our pockets.

Irish banking operates a land standard. The soaring price of land and houses are intricately linked to the profitability of our banking system and as such, both are part of the problem.

Unfortunately, because rising property prices keep the banks looking profitable, the banks have a vested interest in ensuring that the great Irish land rip-off remains in business. The "land standard" is a useful term to explain why credit in Ireland is rising so quickly.The flip side of credit is always debt.

Historically, banks only lent money against gold, otherwise, loosely printed money would soon become worthless. Here in Ireland, land has replaced gold and banks take land or houses as collateral. So, for example, a house worth €300,000 is used as collateral to borrow €270,000 to buy another apartment for investment. The extra €270,000 goes into the system. The golden rule of monetary economics is that the more money in the system, the greater the upward price pressures on all other things.

Thus, the extra cash sloshing around in the system puts upward price pressure on houses because there is too much money chasing too few houses. This makes the original collateral now increase in "value" to €330,000. The bank extends another loan on the same collateral, failing to distinguish the chicken from the egg.

Back in the real world,the only fundamental reason for house prices to rise is if the income from rent is rising. This is not the case in Ireland. Rents have been falling, according to the Central Statistics Office for over 12 months now. If the income from the asset is falling relative to the value of the asset, then we have a problem.

So why does the price not adjust downwards?

Well for a variety of short-term reasons, but mainly because the cheap credit keeps the whole game in business. Yes, there is demand, but this only explains the direction of prices, not the extent of price increases.

History is replete with examples of accommodation shortages. For example, in post-war Germany demand for accommodation was enormous, yet house prices did not increase dramatically because there was no credit.The key in a credit-driven boom is not to be the last buyer.

As long as credit is cheap,the banks will lend. Indeed, the banks are the main reason land prices remain high and the bank's future is so tied up in land that if they stop lending now prices would fall. Any fall in prices would lead to bad debts, profit warnings, share price collapses and bank takeovers.

No chief executive of an Irish bank would survive such a scenario, so there are good careerist and personal, as well as corporate, reasons for double digit lending to a workforce whose personal income is only rising by 2 or 3 per cent.

Sometimes,we fail to see that banks are simply selling money. Therefore, instead of being the guardians of prudence, the banks can become the agents of profligacy.

And where does all the borrowed money come from? It is not ours in the first place. It comes largely from other people's hard-earned savings, from the older savings of continental Europe. European Monetary Union means we borrow their savings on the cheap and our banking system trousers the commission.

But forget the land market for a minute and ask what return does the country get from all of our money going into land and houses. Do bricks and mortar generate innovation? No. Once built, do houses generate wages, employment, Vat, income taxes? No. Does investment in bricks and mortar allow Irish productivity and thus wages to rise? No. Does such investment equip us with the skills to compete with Canon? No way, baby!

Ironically, when looked at from the general economic standpoint, money invested in bricks and mortar is actually "dead money" - a term usually reserved by estate agents to describe renting.

If those billions of borrowed euro were diverted into productive rather than unproductive capacity what would happen? First, investment in humans, rather than bricks, would increase our productivity.This raises the return on equity in the country. The greater the return on equity, the more profits and wages that can be paid.

Thus both wages and profits could rise simultaneously.This, surely, is the point of the exercise, is it not? If Irish workers get paid more per hour of work because we are producing more, then we can have more free cash to spend in our free time.

But no, we do precisely the opposite. We invest all we can in land and houses.The opportunity cost of this is lower productivity per worker. This means relatively lower wages than our German neighbours. Lower wages and a much higher proportion of our after-tax take home wage going to rents and mortgages (historically, low interest rates notwithstanding), means less disposable income.

Equally, the huge rise in land prices causes a huge transfer of cash from workers to landlords, for doing nothing and, more egregiously, from the young, who shoulder the debts to the old and middle-aged who own the land. This is not how a modern, sophisticated economy works; it is demographic feudalism.

Mr Nakamoto must be sitting back laughing, because at least he knows there is one country that will never challenge the livelihood of his Japanese workers. "The Irish," he might say, "we used to worry about them, but they've been seduced by the mirage of land, and they will impoverish themselves before they realise that the Emperor is in the raw."

David McWilliams SBP

TempestSabre

Food for thought indeed. Great posts. I enjoyed reading them.

Bluehair

TempestSabre wrote:

Food for thought indeed. Great posts. I enjoyed reading them.

Ditto. It's history in the making here I feel, these will be regarded in the future as the 'wasted years'. Everyone knows the problem here but there are so many vested interests still profiting from it no-one wants to admit it.... until it's waaaaay too late..

coolhandluke

Bluehair wrote:

Ditto. It's history in the making here I feel, these will be regarded in the future as the 'wasted years'. Everyone knows the problem here but there are so many vested interests still profiting from it no-one wants to admit it.... until it's waaaaay too late..

It's kind of sad really,it's like one of them disaster movies where the brakes have failed on the train and the bridge ahead has collapsed,just how long will it take to reach the bridge ?

Not one measure in the budget to cool rising house prices,the fools !.

Bluehair

coolhandluke wrote:

Not one measure in the budget to cool rising house prices,the fools !.

Political suicide not to mention being one of the vested interests mentioned though I grant you it could/should have been done years ago. No one wants to jump first either for fear of being 'blamed' for causing the inevitable drop, so we all trundel merrily onwards and keep our fingers crossed that Ireland really is different.

It isn't of course... :rolleyes:

Sponge Bob

The train is too late and too big to stop, Mc Williams is entirely correct of course .

ronbyrne2005

the government should act to slow the housing market and even cause a controlled corection on our own terms rather than wait for an external shock like a global economic slowdown etc where we would have little or no control,but for political reasons they wont as the election is nearby.if they had balls they would lower demand by taxes etc or increase supply by forcing the owners of land banks to release it to be built on-theres loads of space to build in ireland but land owners are sitting on landbanks etc.the higher the prices go the worse the correction will be,fundamental economics cant be ignored forever.

lomb

i dont think there are alot of landowners sitting on zonedresidental or town zone land. theres alot sitting on hope land that they are waiting to rezone. there is loads of land, just like the sea where theres loads of water and none thats fresh, theres loads of land, just most of it is agricultural.

lomb

ronbyrne2005 wrote:

the government should act to slow the housing market and even cause a controlled corection on our own terms rather than wait for an external shock like a global economic slowdown etc where we would have little or no control,but for political reasons they wont as the election is nearby

to correct it properly u need to raise interest rates every 3 months .5% at a time to a minimum of 6% after 3 years a fair rate imho(this is approximately what u pay on a mortgage in the uk and its still on the low side imo)
everyone should be told the rates will be 6% shortly. i think that will fix the problem dont u?

IvaBigWun

Scary reading there for someone who is thinking about taking the plunge next year, me included.

Time to emigrate!

Great article btw

TempestSabre

IvaBigWun wrote:

Scary reading there for someone who is thinking about taking the plunge next year, me included.

Time to emigrate!

Great article btw

I think the point is not to over extend yourself. Only pay what you can afford. Even if you end up in negative equity, you'll still be able to pay it. The alternative is to rent for a few years and that is dead money.

coolhandluke

TempestSabre wrote:

I think the point is not to over extend yourself. Only pay what you can afford. Even if you end up in negative equity, you'll still be able to pay it. The alternative is to rent for a few years and that is dead money.

The people who are really going to get creamed when the bubble bursts are the mickey mouse investors,who've recently gone out and bought second and third properties,thinking they can't lose.
I recently saw new 3 bed semi's(1200sqft) in a provincial town going on sale for E300,000 that were only getting E850p/m in rent,how can that be an investment ???
The mortgage is way above the rental income,so your gambling on capital gains,but realistically how much more can that expect to rise in a provincial town.

TempestSabre wrote:

The alternative is to rent for a few years and that is dead money.

In that senario above the renter is roughly E300 a month better off,gets a fully furnished house and doesn't have to fork out any maintenance costs.
It would certainly to be worth his while to hold on and see what happens.

tooley

The Economist: Worldwide rise in house prices is the biggest bubble in history

Never before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history. http://notoole.blogspot.com/2005_10_01_notoole_archive.html

Also check out http://notoole.blogspot.com/2005_11_01_notoole_archive.html for:

(1) Robert Shiller: "Our experience with home prices is that they slow down, stabilise and then fall."
(2) OECD believes Irish property market overvalued by 15%
(3) Central Bank Ireland: Assessing Interest-Rate Risk

antoinolachtnai

I don't see how rising interest rates (resulting in reduced affordability for owner-occupiers, or the same affordability if the prices drop, and increased rents for people who don't buy) will do anyone much good.

coolhandluke

Bluehair wrote:

Political suicide not to mention being one of the vested interests mentioned though I grant you it could/should have been done years ago. No one wants to jump first either for fear of being 'blamed' for causing the inevitable drop, so we all trundel merrily onwards and keep our fingers crossed that Ireland really is different.

It isn't of course... :rolleyes:

I don't see how making houses more affordble for the ordinary man on the street could be political suicide as you put it.Personally i think it has more to to with the power that the "galway races tent" has on the current government than anything else.
IMHO people have a right to own property,but if you want to own more than your PPR you should have to pay hansomely for that right,investors are the people competing with hard pressed citizens up and down the country (pushing the prices through the roof)who just want somewhere to live,nothing more.
It's dog eat dog out there,and the government has done f**k all about it.

jhegarty

can everyone predicting the crash , and who wasn’t predicting a crash last year ,and the year before please stand up?

also can I get the exact date of the crash please ?

lomb

the only people talking of a crash are those that cant afford it, there are many factors to affordability- current/future economy, interest rates, demographicv shifts, rational/ irrational thought, inheritance etc none of these are a science. although it has to be said there are alot of low 'value' properties out there
(mostly apartments in the suburbs at hyper inflated prices with poor amenitys) , as long as u avoid these and stick to freeholds in dublin things can only keep going..

coolhandluke

lomb wrote:

the only people talking of a crash are those that cant afford it, there are many factors to affordability- current/future economy, interest rates, demographicv shifts, rational/ irrational thought, inheritance etc none of these are a science. although it has to be said there are alot of low 'value' properties out there
(mostly apartments in the suburbs at hyper inflated prices with poor amenitys) , as long as u avoid these and stick to freeholds in dublin things can only keep going..

One word "fundamentals".

The only thing that's prevented a crash so far are contining low interest rates and 100,000 east europeans.

whizzbang

Has anyone seen "The Grange" hoarding on the N11 where the old Esso HQ was? Having paid something like €84 million for the site each appartment is going to have a base cost of something like €240,000 per appartment for the land alone (figures based on their initialy planning application, I'm not sure how many appartments they have added since then). This seems to me to be really pushing the boat out on costs. I reckon that it will be at least 2008/9 before all these are completed and that whoever is buying these is taking on a serious risk. We all know someone is going to lose out when the property market dips, will this be the high profile "I paid €500k and its only worth €400k now" example people will quote in 10 years time?

Also the fact that the planned appartments are tiny isn't going to help them no matter how many pretentious black and white posters they put up

J

lomb

whizzbang wrote:

Also the fact that the planned appartments are tiny isn't going to help them no matter how many pretentious black and white posters they put up

J

the only thing for those apartments is they are prime in that they are in a presitigous area, but will that ensure they rent, i dont think it does, they will come in around 500k, and u wont be able to swing cat in them and the yield is edging down to 3%-3.5%, lunacy.
there is still value out there but it isnt in apartments except prime city center apartments.
developers continue to buy at higher and higher per unit site prices, they have confidence, as their existing units are selling well so who knows?

dochasach

zod wrote:

...
Sometimes,we fail to see that banks are simply selling money. Therefore, instead of being the guardians of prudence, the banks can become the agents of profligacy.

Well, you'd think this would be balanced against the fact that the banks do hope to get paid back eventually. Or are they relying on some government subsidized insurance to cover their buts if they're suddenly stuck with thousands of defaulted properties in locations that are only suitable for builders who are working on the properties?

zod wrote:

And where does all the borrowed money come from? It is not ours in the first place. It comes largely from other people's hard-earned savings, from the older savings of continental Europe. European Monetary Union means we borrow their savings on the cheap and our banking system trousers the commission.
...

zod wrote:

If those billions of borrowed euro were diverted into productive rather than unproductive capacity what would happen? First, investment in humans, rather than bricks, would increase our productivity.This raises the return on equity in the country. The greater the return on equity, the more profits and wages that can be paid.
...

Nah, our economy shoud be based on building homes to be rented to home builders.

zod wrote:

Equally, the huge rise in land prices causes a huge transfer of cash from workers to landlords, for doing nothing and, more egregiously, from the young, who shoulder the debts to the old and middle-aged who own the land. This is not how a modern, sophisticated economy works; it is demographic feudalism.
...

Well if the young and newcomers who were screwed by arriving on the property scene after 1997 would use their political cloud instead of assuming that they'll be next in the easy money queue, this feudalism could evaporate.

zod wrote:

"The Irish," he might say, "we used to worry about them, but they've been seduced by the mirage of land, and they will impoverish themselves before they realise that the Emperor is in the raw."

David McWilliams SBP

Is this entire post a quote from David McWilliams? What is the source? Whomever wrote and published this was spot-on with several of the points highlighted above. At one point the land in Tokyo was worth more on paper than the continental U.S. I worked out a rough estimate for Dublin city based on the 500,000/acre someone paid for a recent south dublin lot and the 28406 acres of Dublin you'd only get about 14 billion for all of the land in Dublin (assuming entirely undeveloped property). So if we want to buy the U.S. we'll have to sell the whole fricken country or wait for our property values to approach new levels of insanity, or wait for U.S. property values to collapse (which has started to happen already.)

I have no doubt that property values in Ireland will eventually fall in inflation adjusted terms if not in real terms, I just wonder whether the government will make a late attempt at averting disaster or if we will paint ourselves into an economic corner and price ourselves out of any hope of lasting prosperity.

TempestSabre

dochasach wrote:

...
Well if the young and newcomers who were screwed by arriving on the property scene after 1997 would use their political cloud instead of assuming that they'll be next in the easy money queue, this feudalism could evaporate.
....I just wonder whether the government will make a late attempt at averting disaster...

I think thats the crux of the matter. Apathy is more likely from the voters and the govt.

ronbyrne2005

dochasach wrote:

Well, you'd think this would be balanced against the fact that the banks do hope to get paid back eventually. Or are they relying on some government subsidized insurance to cover their buts if they're suddenly stuck with thousands of defaulted properties in locations that are only suitable for builders who are working on the properties?





Nah, our economy shoud be based on building homes to be rented to home builders.



Well if the young and newcomers who were screwed by arriving on the property scene after 1997 would use their political cloud instead of assuming that they'll be next in the easy money queue, this feudalism could evaporate.



Is this entire post a quote from David McWilliams? What is the source? Whomever wrote and published this was spot-on with several of the points highlighted above. At one point the land in Tokyo was worth more on paper than the continental U.S. I worked out a rough estimate for Dublin city based on the 500,000/acre someone paid for a recent south dublin lot and the 28406 acres of Dublin you'd only get about 14 billion for all of the land in Dublin (assuming entirely undeveloped property). So if we want to buy the U.S. we'll have to sell the whole fricken country or wait for our property values to approach new levels of insanity, or wait for U.S. property values to collapse (which has started to happen already.)

I have no doubt that property values in Ireland will eventually fall in inflation adjusted terms if not in real terms, I just wonder whether the government will make a late attempt at averting disaster or if we will paint ourselves into an economic corner and price ourselves out of any hope of lasting prosperity.

500k an acre? thats nothing sure the dublin 4 site went for 82million an acre.i'd say average is a few million an acre maybe 4million an acre for whole of dublin. japan is 5.5 times larger than ireland so i do think your comparing like with like there. 28406 acres *4million= 200billion approx for land alone ,at least double it to include cost of all buildings (bricks building costs etc) =at least 400billion for value of dublin land and property alone at least triple that to allow for rest of country =1.2trillion(value of all land and property in republic) and multiply by 5.5 to equate to japans size and you have 6.6 trillion relative value ,mad numbers

ronbyrne2005

just thinking, japans only 5.5 times bigger than us but has a population 32 times us! so they cram nearly six times as many onto the land than us which would have given a naturally higher land price as theres too many people too little land,here we have loads of land to build so the supply will catch up and then the prices falls.

ronbyrne2005

jhegarty wrote:

can everyone predicting the crash , and who wasn’t predicting a crash last year ,and the year before please stand up?

also can I get the exact date of the crash please ?

no one can know the exact timing of a property crash by its very nature,but with yields on properties in dublin being under 3% you can assume speculation and can assume price increases wont last.

article from guardian
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An encounter with Andrew Oswald, one of the country's leading economics professors, is not for the faint-hearted. He thinks booming oil prices and a probable house price crash could spell the end of more than a decade of strong economic growth and falling unemployment in Britain.
Oswald, who has worked at Oxford University, the London School of Economics as well as Princeton and Dartmouth, two of America's most prestigious universities, is well versed in the ways of the "dismal science", as economics is known.

He has been in it all his professional life. He grew up in Edinburgh and attended his local comprehensive and the University of Stirling where he got the top first class degree of his year. A second degree at Oxford led to a teaching job there and then to a succession of top posts.

So, perhaps not surprisingly, he plays Dr Doom about house prices. He thinks the current pace of house price inflation, as well as house price levels, is way out of kilter with long-term trends, totally unsustainable and, as has happened in the past, will end in tears.

He brushes aside the idea that house prices will simply stop growing and stay steady for several years to allow wage growth to catch up and re-establish the long-term ratio between them.

The optimists say that low interest rates and low unemployment will prevent house prices falling. "That argument is unpersuasive and I continue to believe house prices will crash. And I also expect them to overshoot by more than the current over-valuation would suggest." Oswald, who correctly predicted the house price crash of the early 1990s, knows this is an unpopular view which has drawn a lot of flak from the general public.

"It is our responsibility as economists to speak out when the data are telling us something, even though we may sometimes be wrong or unpopular.

"A major problem in this country is that most comment on the housing market is made by people who have a vested interest in high house prices," he says, referring in particular to the Nationwide and Halifax, big mortgage lenders who produce monthly house price indices.

Oswald simply does not believe the idea that we are in a new era of house prices which is different from the past and which justifies current high valuations. "When you hear people talk of a new era, you know you are in huge trouble. Remember people said that about the dotcom boom in the stock market in 2000 before it crashed."

A lot of respected economists such as Roger Bootle and the National Institute of Economic and Social Research are now echoing Oswald's views on house prices, as is fund manager Tony Dye, who famously sold his clients' shares for cash during the stock market bubble of the late 1990s. They are predicting falls of 30-40%.

The explosive growth of buy-to-let in recent years, Oswald thinks, creates a potential problem in that landlords could quickly sell their properties if rental yields continue to fall, putting rapid downward pressure on prices.

He likewise warns on consumer debt, which has risen rapidly on the back of house prices. People have borrowed against the inflated value of their house to fund spending on cars, holidays, and lots of other things besides.

If interest rates go up, as they did this week, and people start to worry about the amount of debt they are holding, they could cut back on spending, causing a knock-on effect throughout the economy, leading potentially to a vicious spiral of slowing growth and rising unemployment.

Most people, he thinks, have not realised that a period of low inflation and low interest rates does not just mean low monthly mortgage payments. It also means that debts do not get eroded by inflation as they did in the past.

This is an issue that also worries the Bank of England governor, Mervyn King, who has started to tell people that the old adage that you should mortgage yourself to the hilt and wait for inflation to quickly erode the debt as your pay rises, is no longer valid.

If you have read this far without bursting into tears, it may be refreshing to hear that Oswald does not just wear a Dr Doom hat. Some of his most detailed, and most interesting work, is about happiness.

"What can be more important than happiness? I started working on this issue in the early 1990s and many of my colleagues thought I was mad, and probably still do, but our work has become more mainstream nowadays."

The fundamental basis of economics is the study of "utility", or the benefit that people get from undertaking economic activity, be it work, investment or whatever.

The usual assumption is that "utility", or happiness, can, broadly speaking, be measured by the amount of money that people have. Intriguingly, says Oswald, this has turned out not to be true at all. In spite of the economic growth of the past 30 years, happiness has remained almost constant, according to data he and his students have gathered.

"The improvement in prosperity over the last 30 years has had no effect on reported levels of life satisfaction or happiness in the UK and that is quite remarkable."

Here Oswald frowns and admits he does not know why this is the case. "We think it may be because people are influenced by their relative position so that if we all get richer together, people don't feel happier.

"This is a serious challenge for policy makers as it appears to be very difficult to make people happy in the western world."

Oswald is about as far from your typical academic economist as you are likely to get. Far from being holed up in a dusty library, working on theses that only his academic peers will discuss, Oswald sits in a bright office on Warwick University's bright campus talking to, well, ordinary people like us.

In the United States economists such as Paul Krugman and Joseph Stiglitz are household names; in Britain economists, apart from those at the Bank of England who set interest rates, are virtually unknown. "Most are brought up not to talk to the press and I think that is a real shame. Economists should speak up about important issues," he says. Through regular press columns and public speeches, Oswald, along with Bootle, has become the nearest Britain has to a Krugman or Stiglitz.

So is he a standard bearer leading a whole generation of economists into the public eye to compete with their famous US counterparts?

No chance, he says. University funding in Britain is so poor, and young economists so badly paid that the future is bleak.

"The UK has produced many Nobel prize winning economists but I can't see that happening in the future.

"US universities get £25,000 to educate an undergraduate, British ones get £5,000. I very nearly stayed in the US, and possibly should have done."

He blames successive governments over the last 20 years for having ruined British universities. "I cannot recommend that anyone go into academia in Britain today."

He also wonders if he should have gone into the City and earned far more as a financial economist rather than an academic one.

He enjoys the intellectual rigour of a university and the time to think, and doubtless the security of tenure, but the money would have been much better at a big investment bank - but would he be happy?
........................................................................................................

dunkamania

ronbyrne2005 wrote:

just thinking, japans only 5.5 times bigger than us but has a population 32 times us! so they cram nearly six times as many onto the land than us which would have given a naturally higher land price as theres too many people too little land,here we have loads of land to build so the supply will catch up and then the prices falls.

Population density is intentionally kept lower in Ireland,restrictions on building sizes,no skyscrapers etc,so property in good locations should retain value well.