Housing bubble starting to pop?

Sizzler

Afuera wrote:

Try telling that to the Japanese who bought 15 years ago and are still stuck with property worth less than they paid for it back then!

Just because you only remember the times when there has been year-on-year rises doesn't mean it's alway or will always be like this. Check out Irish prices in late 70's early 80's for a different story.

We dont live in Japan son and there is no comparison with their economy and ours nor their lifestyle etc etc

whizzbang

Sizzler wrote:

We dont live in Japan son and there is no comparison with their economy and ours nor their lifestyle etc etc

You are right, the Japanese are very hard working (to a fault) and highly productive. They also have a large manufacturing base that remains profitible despite the relativly high labour costs.

No, we are in a much worse position than the Japanese were

*waves red rag at bulls*

daveirl

This post has been deleted.

Idleater

whizzbang wrote:

No, we are in a much worse position than the Japanese were

In that case you are as much up the creek without a paddle as everyone else.

Relatively speaking of course.

L.

whizzbang

nereid wrote:

In that case you are as much up the creek without a paddle as everyone else.

Relatively speaking of course.

L.

absolutely, but I'm planning for the decline, are you?

SouperComputer

nah, sizzler is right "ireland is different"

whizzbang

whizzbang wrote:

absolutely, but I'm planning for the decline, are you?

amen to that

i have planned for the decline............sold the house took the money off to australia soon. good luck everybody

thats how seriously i take this. plus had a hard time shifting the house took six months and a drop in price of 40 grand. my house was not overvalued as three other similar houses nearby sold a few months before ours went on the market and ours was originally put up on the market for the same price.
simply no interest in it had to drop the price got out while i could.
lets just say it wont crash that it will even out . well i aint takin that risk
i have the money now off to oz with me and even if i stay for a year or two and come back and if its levelled off i lost a little if it crashes i saved a lot

good luck i hope the greedy people rot in hell

D'Peoples Voice

Sizzler wrote:

Of course theres always going to be growth! Even in the poxy early 90's peoples houses had some sort of point rise....but never double digit!

House prices do not always rise with inflation, why should they? Prices of goods and services rise with inflation because input costs are rising, but in a flat property market, the price of development land is falling and labour will be relatively cheap.
You are in dangerous ground basing your beliefs on earlier periods, like the early 90's, because you must remember that not everything is comparable. Back then we had a far smaller number of places available to let, but then again we had far fewer immigrants, also back then Labour/FF abolished the property tax to start the property boom, now we are more likley to increase taxation. Back then interest rates were extremely high but prices low, now interest rates are very low and prices high. But perhaps the biggest difference in my mind is that back then investors didn't invest in foreign property as easily as they do now. Since the introduction of the euro and the removal of exchange rate risk, investors think nothing of selling up here and investing in professionally managed foreign property funds, something not very common back in the early 1990s. Hence property investors would be slow to move out of Ireland, this is not the case any more. If growth is very slow in Ireland while continental europe is growing at 4% plus, investors will sell up to cover their borrowing costs unless rents significantly rise from their current yield of 3.25%(DAFT.ie)!

Idleater

whizzbang wrote:

absolutely, but I'm planning for the decline, are you?

Of course I am, what makes you think I amn't?

L.

we fought the british and kicked out the absentee landlords, in the countryside we took our lands back and in the cities where we lived in cramped tenements we moved into houses.

while the apartment blocks rising up everywhere are no where near as bad as the tenements 100years ago I do wonder that in the years of our boom
did we really improve our quality of life??
is progress spending a fortune to get a second hand semi or apartment or ex council house.
should progress not be bigger better houses more money for ourselves etc

whizzbang

nereid wrote:

Of course I am, what makes you think I amn't?

L.

Glad to hear it! Now if we could only get the rest of the country to do the same!

Idleater

whizzbang wrote:

Glad to hear it! Now if we could only get the rest of the country to do the same!

You seem awfully concerned about everyone else. What makes you think that everyone else isn't doing likewise?

I don't recall a question on that on the census.

I hope you are not one of those people who spends their time looking at everyone else and forgets to do something for themselves.


L.

whizzbang

nereid wrote:

You seem awfully concerned about everyone else. What makes you think that everyone else isn't doing likewise?

I don't recall a question on that on the census.

I hope you are not one of those people who spends their time looking at everyone else and forgets to do something for themselves.


L.

What can I say? I'm a caring guy!

The fact that personal debt is rising at a scarey rate suggests people are not prepared for a slump.

I'm a doer and a watcher thanks, although I appreciate your concern

SimpleSam06

Sizzler wrote:

So stop the nonsense and let people make their own decisions for whats right for them.

And heres me thinking this thread is useful to people thinking about selling off the next 35 years of their life. Would you call that right for them? The bulls would like nothing better than to quiet down threads like the one here and on askaboutmoney, but sorry, its not going to happen.

Pa ElGrande

Sizzler wrote:

LOL. Calm down there son. You are one the people that I referred to earlier thats looking for the pat on the back when and if things hit a brick wall.The longer you keep banging on about it the closer you are to something happening. A bit like me starting a Thread in the politics forum saying "Bertie's term is drawing to a close"....my point being, course it will, you just dont know when. So stop the nonsense and let people make their own decisions for whats right for them.

The time to shout is now, when the bubble bursts its too late and there is no benefit nor desire saying I told you so after the fact. I'm neither the borrower nor the lender so I have no vested interest in maintaining the property price inflation. It is in my interest to raise a flag about the increasing risks of entering the current market, and hopefully people will do a thorough risk analysis and don't just focus on the maximum they can afford to pay per month on their current wages and actively question the myth of the soft landing that everyone seems to have bought into.
I have no doubt most people will listen to the Taoiseach's advice over mine any day, so there is no fear of a few boards members with contrary views causing a crash. Though with over 100,000 views in a month on the subject of sentiment towards the housing market the members over at askaboutmoney.com are well on their way

Taoiseach Bertie Ahern said yesterday higher inflation was a sign of a strengthening economy: "In actual fact the reason it's on the rise is because probably the boom times are getting even more boomer."

Economic growth shows little sign of letting up
http://www.ireland.com/newspaper/front/2006/0714/930304623HM1ECON.html

"I mean quite frankly, if you had taken the advice a year ago you would have lost a lot of money. Everybody said we're going to see a huge downturn in 2005 linking into 2006 - they were entirely wrong.

"Really we should have an examination into why so many people got it so wrong. My view is there's not a great problem. Really, the bad advice of last year given by so many has maybe made some people make mistakes, that they should have bought last year.

No indication of property downturn, says Ahern
http://www.ireland.com/newspaper/front/2006/0408/3447877711HM1NEWBERT.html

Moving on from the when will it happen debate, What's going to happen when the amount owing on the house is higher than the market value?

In today's property market, negative equity is quite unusual. However, there's always a risk that property prices could fall. You will be more at risk if you have:

• fallen behind on your mortgage payments
• borrowed a large proportion of the property's value
• increased the size of your mortgage when property values were high
• taken out other loans using your home as collateral
• a mortgage with high interest rates

Negative equity
http://england.shelter.org.uk/advice/advice-262.cfm#wipTest-576-1

Could Irish owners face a negative equity situation? Sunday, July 08, 2001
http://archives.tcm.ie/businesspost/2001/07/08/story578380928.asp

In reality, negative equity will mean nothing to people who have no intention of moving house (i.e. the vast majority of people), as their payments will remain the same on their mortgage, irrespective of large changes in house price valuation.
But negative equity frightens the crap out of banks, because suddenly their asset sheets take a big hit. Ditto the investors in the market.
What happens if we hit the credit crunch in a few years and what actions can we take to avoid it now?

The only thing that we could do is let the state borrow enormously by issuing Irish banking bonds to international investors. This cash could then be given to the crippled banks in the form of a 30-year swap, on the condition that the increased liquidity be squeezed into the system, preventing a credit crunch from taking hold.

But who would pay for this? Well, we would, because a special tax would have to be levied initially to pay the repayments of the bonds until the banks' balance sheets recovered. It is a scary prospect and one that the 100 per cent 35-year mortgage brokers or the guys involved in ‘Irish pricing' dare not contemplate.

Awhile back I heard one of our most successful bankers musing about national plans, financial war cabinets and credit crunches. And if you know he is worried about the ramifications of Moonie economics, you should be too.

How secure will you be when the credit runs out? 03/08/2005
http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=292

SimpleSam06

Pa ElGrande wrote:

In reality, negative equity will mean nothing to people who have no intention of moving house (i.e. the vast majority of people)

With 270,000 homes sitting empty, I would question that the vast majority are not going to be affected.

Beta2

Deleted User wrote:

while the apartment blocks rising up everywhere are no where near as bad as the tenements 100years ago I do wonder that in the years of our boom
did we really improve our quality of life??
is progress spending a fortune to get a second hand semi or apartment or ex council house.
should progress not be bigger better houses more money for ourselves etc

This is so true and its a crying shame. We've had 10 years of a booming economy, at times the best performing economy in the world, and what do we have to show for it? Absolutely Nothing.

ircoha

Deleted User wrote:

amen to that

i have planned for the decline............sold the house took the money off to australia soon. good luck everybody

thats how seriously i take this. plus had a hard time shifting the house took six months and a drop in price of 40 grand. my house was not overvalued as three other similar houses nearby sold a few months before ours went on the market and ours was originally put up on the market for the same price.
simply no interest in it had to drop the price got out while i could.
lets just say it wont crash that it will even out . well i aint takin that risk
i have the money now off to oz with me and even if i stay for a year or two and come back and if its levelled off i lost a little if it crashes i saved a lot

good luck i hope the greedy people rot in hell

Interesting, u off to OZ.
u happy that the OZ economy is such that u dont have a serious FX risk if u go into A$ for a 2 year period or are u keeping ur loot in euro?.

also what are the outward capital movement rules for OZ?

Idleater

No one care to comment interview on the business news on RTE this morning with Pat McArdle from Ulster Bank on the extent of inflation figures in the eurozone being lower than expected. Thus the "abnormally" low interest rates would not in fact need to rise as much as was originally expected due to stronger growth figures in said markets.

About 21:00 mins into the RealPlayer stream.

L.

Pa ElGrande

nereid wrote:

No one care to comment interview on the business news on RTE this morning with Pat McArdle from Ulster Bank on the extent of inflation figures in the eurozone being lower than expected. Thus the "abnormally" low interest rates would not in fact need to rise as much as was originally expected due to stronger growth figures in said markets.

About 21:00 mins into the RealPlayer stream.

L.

Here is the transcript:

[David Murphy] For homeowners and particularily those who have bought at record prices rising interest rates are a big issue for the household budget. Over the past months there have been four interest rate increases. Some experts predict there could be four more, but all of that depends on inflation and economic growth in Europe. Over the past few days there's been new information released which is making some economists question how many more interest rate rises are actually in the pipeline. To hear a little bit more we are joined now by Pat McArdle, who is chief economist with Ulster Bank. Good morning Pat, what exactly is the latest information and what does it say?

[Pat McArdle] Morning David, Well first of all, if we look to the US rather than Europe, there have been a sucession of weaker numbers, in the US, the engine of the world economy. Emm, focused on growth, jobs, housing and indeed most recently yesterday, the leading indicators which fell for the first time in several years. Moving into Europe, this scene is more mixed, growth figures for the start of this week were stronger than expected, but then subsequently, we got a number of weak figures, industrial production actualy fell which is a key indicator for the European activity, and, indeed yesterday, on inflation which is of course what the European Central Bank focuses on, it came in slightly better that expected at 2.4 per cent instead of 2.5

[DM] So what exactly does this mean to the average person who is looking at their mortgage and wondering what the situation's going to be over the coming 12 months or so.

[PMc] Well, markets go up and markets go down, I suppose what this means is that perhaps some of the more pessimistic expectations might not be realised. Having said that, the European Central Bank has a very specific inflation focus mandate and its not going to change its tack very easily, and it is coming from a situation where interest rates are regarded by them as abnormally low in Europe, so I think we can look forward, first of all to more increases, just by one inflation number of 2.4, which is still above their target, by the way their target is 2 per cent. That's not going to stop them in their tracks,,I think, I think, ah provided the numbers allow for it and that's an important consideration you will see a couple of more rises. What it does say, however, I think, is that perhaps people looking for higher figures of another one per cent, ah, I think that will very much depend on how things go next year and the international economy is looking a bit more unsettled than it was, so I think there are question marks over the extent of rises, but I think another half per cent is certainly in the bag.

[DM] So, if we are having half a per cent, when will we have it this year?

[PMc] Emm, there's a good chance we'll get all of it this year, indeed, amm, baring some very significant change, I think the European Central Bank feels that they are as we say on the markets behind the curve, we are starting from a situation of abnormally low rates, 2 per cent for them and they want to get back to where they want to be closer to a neutral zone as fast as they can, and, the growth at the moment is quite strong, we've got a strong figure this week, I think, this year the growth figures in Europe will propably remain reasonably good, I think its next year the question marks are over. So I think next year the chances are we'll so more action between now and next year.

[DM] Ok, Pat McArdle of Ulster Bank, thanks very much for joining us.

Translation: I have no idea what the ECB are going to do, beyond what they have already indicated and 2007 is not looking good.

Pa ElGrande

Mark Mahorney submits: I’ve been watching the housing markets. Home prices are still up 3% year-over-year. That’s not much of a slowdown. Home prices are still increasing at the rate of broader inflation.

Inflation is a very tricky thing because it’s always true that when we have to pay more for one thing, we have less money left to buy other things, and that puts pressure on the prices of those other things, offsetting the increase in inflation in that first thing. When home prices rise, on average people will have less money to spend on other things. They can tap their homes equity by borrowing against it, but that’s just delaying the inevitable because they’ve got to pay back the loan eventually and they will then have less money to spend on other things by the amount of their new higher loan payments. So the consumption benefits are temporary.

It’s only when you build something that other people want that wealth and value is created. Just purely bidding up prices without building anything is only inflationary. If the price of your home goes up for no other reason than because people are now willing to pay more for it than before, then the people who are paying more for it have less money to spend. But if the value increases because you improved your property and in doing so you purchased goods and services, then you added to other peoples’ wealth and that offsets the higher amount people are paying for property.

Homes alone aren’t really a source of wealth creation. That’s a myth. They do nothing to increase the overall productivity of the economy. The only reason we, on average, can own bigger and bigger homes is from a very macroeconomic perspective, we are spending less time and energy on our basic needs and we are having them met much more cheaply than in the past.

People are choosing to spend more on homes because they can. The same goes for healthcare. Economists and market bears like to worry about the rising cost of healthcare. The way they measure this is the average amount people are spending on healthcare and the total size of the industry. But they never consider that perhaps the portion of our healthcare expenses that is relatively discretionary is increasing. In other words, people are paying more for healthcare in part because they are choosing to do so, because they can afford to make that choice, because even at today’s high prices for gasoline and many other commodities, people still have relatively more money to spend on healthcare.

The Myth of Housing as a Source of Wealth Creation
Mark Mahoney
http://usmarket.seekingalpha.com/article/15716

Another viewpoint from stateside and one that applies here, the differnce we don't get bigger houses.

antoinolachtnai

The thing is that in certain circumstances (such as inner cities) urban development *is* is a driver of the economy. Increasing the density does have positive economic effects.

Of course there is a lot more to urban development than selling houses. But increased demand for and investment in the built environment does drive things along.

Idleater

Pa ElGrande wrote:

Translation: I have no idea what the ECB are going to do, beyond what they have already indicated and 2007 is not looking good.

Quite true, or another way of looking at could be:

The eurozone is doing better than expected and hence forecasts can be altered to take the actual values into account rather than the values we expected to have into account.


Don't get me wrong, I too believe that property is over valued, all I am saying is that if you take the viewpoint of the man in the interview, it is not overvalued as much as was thought, hence the bubble is not as big as some would say. Of course that is iff it is a bubble.

In other words, if over the next couple of years (short term) the eurozone economy does strengthen, then house prices may match (to some extent) the value in the economy in a similar way to a part of your extract that you did not highlight:

But if the value increases because you improved your property and in doing so you purchased goods and services, then you added to other peoples’ wealth and that offsets the higher amount people are paying for property

You seem to ignore the facts that nowadays planning is entering a much more rigourous and structured format. See Adamstown and the next planned zone east of that at Balgaddy. These zones are structured to provide services and communities.

Though, I agree that there currently exists plenty of unstructured development.

Anyway, at the very least it can be shown that there arguments that support both sides of the argument - agree with them or not they do exist and are valid. Until something actually does (or does not) change then it is speculation and hypothesising by both sides.

L.

SimpleSam06

Beta2 wrote:

This is so true and its a crying shame. We've had 10 years of a booming economy, at times the best performing economy in the world, and what do we have to show for it? Absolutely Nothing.

Nonsense, we have developed one of the largest, most impressive civil service beaurocracies on earth! Why, as a result of every little petty empire builder and aspiring politico in the hierarchies, not only have we one of the biggest, we have one of the best paid, getting pay rises about three times what the private sector gets, despite being the more secure jobs!

If thats not bang for your tax buck, I don't know what is!

:rolleyes:

Pa ElGrande

antoinolachtnai wrote:

The thing is that in certain circumstances (such as inner cities) urban development *is* is a driver of the economy. Increasing the density does have positive economic effects.

Of course there is a lot more to urban development than selling houses. But increased demand for and investment in the built environment does drive things along.

Increasing the density does have positive effects when you put in all the services to support economic activity at an acceptable cost. The problem with the current property price inflation is that its leading to mis-allocation of resources on a grand scale, since households and businesses are making decisions they would never make in a more certain low inflation environment.

Imagine all the "real things" that could be done by all the clever people who, even in an Ireland of even moderate inflation, are focused instead on forecasting inflation, creating and trading financial instruments designed to retain their value in an inflationary world, and modifying or interpreting a tax system affected in significant ways by inflation. In an Ireland of low and stable inflation, these valuable resources can instead be used to do the things we really care about — design computer programs, or write books, invent a better mouse trap, whatever etc. But that's not the way our monetary system works.

The property market has evolved to exist for its own sake, as a profit vehicle for land owners, speculators, estate agents, banks, and even the government has become punch drunk on it. To enter the market you have to borrow even more money than ever before, people are using property price inflation to leverage more money (mortgage equity withdrawal) which they use to buy more property or in worst exmples live a lifesytle beyond their means, making the bubble even bigger. Not only that, the bigger it gets, the more resources (labour+capital+materials) it demands to the point where domestic economic activity revolves around construction and speculation.

Step back and consider the logistics of keeping this boom going.

• How much money must be borrowed next year to sustain the current rate of growth?
• When interest rates rise by 1% year on year, how much extra is servicing the current debt going to cost?
• How many more people will be needed to keep the current rate of growth going?
• What effect will faster rising energy costs have disposable income? cost of production? employment?
• How will Ireland reduce its price indices to the ECB target of 2%?
• How much money does property that is sitting idle earn?
• What sector of the economy is producing the wealth to fund the building boom?

Over two days in the Polish capital, a total of 8,000 people visited the Sheraton Hotel in the hope of landing a lucrative contract with an Irish building firm.
"It was extraordinary. Some had travelled distances of six or seven hours," said FAS corporate affairs director Greg Craig.
Also represented were the Construction Industry Federation (CIF) and the Irish Congress of Trade Unions, which gave advice on employment rights, the minimum wage and union recognition.
"We're producing more houses than anyone else in the developed world. Construction is very important in the Irish economy," said Martin Whelan, head of public affairs with the CIF.

They queue in their thousands to reach the promised (Ire)land
http://www.unison.ie/irish_independent/stories.php3?ca=9&si=1673699&issue_id=14531 [free registration required]

antoinolachtnai

Well, wealth is being created. The quality of the housing stock has generally improved in the last ten years. There is also more of it.

We have no major problem getting more people to keep the growth going. They are queuing up in Poland. A problem we do encounter is finding reasonably priced accommodation for them all. But there is a lot of unoccupied property, according to correspondents to this thread, which means there is potentially a cushion available.

Unoccupied property doesn't earn anything, no matter how valuable it is. However, having high-priced land encourages owners to develop it, or sell it at a high price to someone who will develop it.

Rising energy costs will make centrally located land even more valuable.

A lot of Ireland's wealth comes from foreign direct investment.

I am not saying that this growth is sustainable forever. But it isn't likely to go into a complete, crazy bust.

(PS The house I mentioned before eventually went for 21 percent over the asking, on its sixth day on the market. It was priced to sell, but it was still 12 percent more than the owners expected.)

SimpleSam06

antoinolachtnai wrote:

Well, wealth is being created. The quality of the housing stock has generally improved in the last ten years. There is also more of it.

Nope, wealth is being loaned. It will have to be paid off by someone over the next 35 years. The only ones getting wealthy out of this is the banks.

antoinolachtnai wrote:

We have no major problem getting more people to keep the growth going. They are queuing up in Poland.

The people keeping the growth going are the buyers. The Polish are queueing up for jobs. Once the well dries up, they'll be off to Germany or wherever. They have no interest in settling here.

antoinolachtnai wrote:

A problem we do encounter is finding reasonably priced accommodation for them all. But there is a lot of unoccupied property, according to correspondents to this thread, which means there is potentially a cushion available.

Those empty properties are investment properties bought with capital appreciation in mind. Thats not a cushion, its a cliff.

antoinolachtnai wrote:

Unoccupied property doesn't earn anything, no matter how valuable it is. However, having high-priced land encourages owners to develop it, or sell it at a high price to someone who will develop it.

Prices based on sentiment, not lack of supply.

antoinolachtnai wrote:

Rising energy costs will make centrally located land even more valuable.

Hard to argue with that. It depends on what your definition of central is. Are petrol prices going to be so high that it outweighs the cost of your mortgage repayments? I'd have my doubts.

antoinolachtnai wrote:

A lot of Ireland's wealth comes from foreign direct investment.

Until the US government catches up with what amounts to tax avoidance, as they are in the process of doing.

antoinolachtnai wrote:

(PS The house I mentioned before eventually went for 21 percent over the asking, on its sixth day on the market. It was priced to sell, but it was still 12 percent more than the owners expected.)

But there are a hundred other anecdotes people could trot out, and they would still be anecdotes.

antoinolachtnai

Re money being loaned - well the housing stock has to be capitalized somehow. This is how the money system works. The money supply is increased through lending to match the wealth being created.

Re the Polish queue. The falloff could be years away. When the Transport 21 projects come on-stream that will absorb labour once again, and may well kick off another cycle of construction, who knows? Anyway, the question you asked was where the people would come from to sustain the boom. There are plenty there. And besides them, there are over 50m people on the adjacent island even though it is not much bigger than our one. Immigration from there will happen too.

You say the price is based on sentiment, not lack of supply? Where is the supply then? It looks to me like there is a shortage of supply of quality, well-located homes. Otherwise it wouldn't be a buyer's market, no matter what the sentiment was like.

Re petrol prices, my definition of central would be 'not mainly dependent on private transport'. An increase in petrol bills could end up as a cost of a hundred euros a month for a family. That could provide a reason to spend extra tens of thousands or so on a centrally located home.

Re FDI and US money, if you are convinced that the Irish economy and talent pool is in such a bad state that all the money is just going to flee, then you are saying there is a problem with the economy as a whole, not just with the property sector. You could be onto something there, but it is a different argument. There is no evidence that this sector is collapsing. I am a little surprised by that myself, but the evidence just isn't there.

Pa ElGrande

nereid wrote:

Quite true, or another way of looking at could be:

The eurozone is doing better than expected and hence forecasts can be altered to take the actual values into account rather than the values we expected to have into account.

This carries both an oppertunity and risk for countries like Ireland and Spain, and oppertunity in that we can export to the continent, and shield ourselves against the tanking US economy and a risk as interest rates will rise further than anyone has expected.

The European economy grew at its fastest rate in six years during the second quarter of 2006, raising the pressure for yet more interest rate hikes. Growth hit 0.9pc in both the 12-nation euro currency zone and the 25-country EU in the April-June period, compared to January-March.

BUSINESS WEEK : Rates pressure rises as euro economy surges
http://www.unison.ie/irish_independent/stories.php3?ca=35&si=1673723&issue_id=14531

nereid wrote:

Don't get me wrong, I too believe that property is over valued, all I am saying is that if you take the viewpoint of the man in the interview, it is not overvalued as much as was thought, hence the bubble is not as big as some would say. Of course that is if it is a bubble.

Imagine what would happen to the bank employee's career, if he publically admitted that Irish property is overvalued and that interest rates were going to go a lot higher than anyone expects, but there is no doubt in my mind a bubble exists in the Irish property market in 2006

To provide an answer to this one needs to establish, or define, exactly what a bubble is.

We can define a bubble as activities that spring up on the back of loose monetary policy of the central bank. In other words, in the absence of monetary pumping these activities would not emerge. Since bubble activities are not self-funded, their emergence must come at the expense of various self-funded or productive activities. This means that less real funding is left for productive activities, which in turn undermines those activities. In short, monetary pumping gives rise to the misallocation of resources, which as a rule manifests itself through a relative increase in non-productive activities against productive activities.

Housing Bubble: Myth or Reality? by Frank Shostak, March 04, 2003
http://www.mises.org/story/1177

nereid wrote:

In other words, if over the next couple of years (short term) the eurozone economy does strengthen, then house prices may match (to some extent) the value in the economy in a similar way to a part of your extract that you did not highlight:

You seem to ignore the facts that nowadays planning is entering a much more rigourous and structured format. See Adamstown and the next planned zone east of that at Balgaddy. These zones are structured to provide services and communities.

Though, I agree that there currently exists plenty of unstructured development.

I agree this is good and hopefully we will see the fruits of this over the next 10 years, but in the meantime

It's two weeks to term... but little Ian and 100 others have no school to go to
http://www.unison.ie/irish_independent/stories.php3?ca=36&si=1673751&issue_id=14531 [free registration required]

nereid wrote:

Anyway, at the very least it can be shown that there arguments that support both sides of the argument - agree with them or not they do exist and are valid. Until something actually does (or does not) change then it is speculation and hypothesising by both sides.

L.

I agree.

SimpleSam06

antoinolachtnai wrote:

Re money being loaned - well the housing stock has to be capitalized somehow. This is how the money system works. The money supply is increased through lending to match the wealth being created.

But that wealth doesn't exist in real terms. It will be drawn out of the economy for the next 35 years, like some 50% tax, to fill the pockets of the banks. The whole point I was making is that there is far too much capital being loaned out on far too flimsy pretexts.

antoinolachtnai wrote:

Re the Polish queue. The falloff could be years away. When the Transport 21 projects come on-stream that will absorb labour once again, and may well kick off another cycle of construction, who knows? Anyway, the question you asked was where the people would come from to sustain the boom. There are plenty there. And besides them, there are over 50m people on the adjacent island even though it is not much bigger than our one. Immigration from there will happen too.

What makes you think they would want to come here? We have poor infraststructure, grossly overpriced housing (10 to 15 times average salary), and a national culture of binge drinking. Yes, sounds appealing. Getting in labour has never been and never will be difficult. Its the employing of that labour that matters.

antoinolachtnai wrote:

You say the price is based on sentiment, not lack of supply? Where is the supply then? It looks to me like there is a shortage of supply of quality, well-located homes. Otherwise it wouldn't be a buyer's market, no matter what the sentiment was like.

4% of the country is urbanised. That leaves 96% not. Theres the supply. The fact that the banks have been lending crazy amounts of money over the last five years is the engine that drives the property bubble, the driver is sentiment.

antoinolachtnai wrote:

Re petrol prices, my definition of central would be 'not mainly dependent on private transport'. An increase in petrol bills could end up as a cost of a hundred euros a month for a family. That could provide a reason to spend extra tens of thousands or so on a centrally located home.

A hundred euros a month compares to how many hundreds for a 1% interest rate rise? And thats on a 300l loan over 35 years.

antoinolachtnai wrote:

Re FDI and US money, if you are convinced that the Irish economy and talent pool is in such a bad state that all the money is just going to flee, then you are saying there is a problem with the economy as a whole, not just with the property sector. You could be onto something there, but it is a different argument. There is no evidence that this sector is collapsing. I am a little surprised by that myself, but the evidence just isn't there.

American and most foreign companies don't come here because they like our sunny dispositions. They come here because there are enormous tax advantages for doing so. This has not escaped the attention of the tax officials of their home countries, and those officials are moving to close those loopholes. When they do so, you can wave goodbye to Dell and Microsoft, as they move their factories to Eastern Europe and India. Not to mention other poor countries have copped our trick and are starting to do it themselves.