Political ramifications of a property crash

Cantab.

Given the huge economic reliance on the buying and selling of houses, what effect will a slow-down in the market have on the average citizen who's left with huge mortgage repayments because of tax-incentive-scheme-fuelled investor/speculator activity in recent years?

Will the fall-out be just in the commuter areas outside Dublin, or will the revolt be more widespread? Could an election be called early in the event of public sentiment towards the Irish property market changing? Will an early election be used as a diversionary tactic to cover up an approacing tsunami that is the Irish property market?

Dirk Gently

This is one of my biggest concerns over the lifetime of the next Government. If the property market / construction industry does go belly up and have a significantly negative effect on the economy, leaving people with huge mortgages that they can't pay off, I can see rough times for what ever government is in power at the time.

The thing that worries me most though is that FF/PD might be in opposition when it happens and could capitalise politically from a crash which happened under someone else’s watch. Imagine if Labour / FG where elected to government and the crash arrives on their watch. It could collapse the new Government and have people calling for FF/PD to be put back into power, resigning the likes of labour to another extended period in opposition.Many people want to see the back of FF/PD but those same people could be calling for them to come back should a crash happen under a new government, a crash I think will probably happen regardless of who is in power at the time.

Tricity Bendix

Cantab. wrote:

Will the fall-out be just in the commuter areas outside Dublin, or will the revolt be more widespread?

Those living in their red bricked ivory towers in the long-established communities in and around D4 will have little to worry about in comparison to those living in the new communities springing up on the fringes and outside of Dublin. Their houses will always be sought-after. If they have invested in property elsewhere, the worst that can happen them would be if they lost a chunk of the value of their investment.

With a bit of luck, investors and speculators will be scared off before the event, leading to a gradual deflation or slow down in house prices. This would at least allow first time buyers to get a foot onto the property ladder before a general economic slump sets in.

Sgt. Sensible

A lot of people will lose their homes and will probably blame immigrants.

Cantab.

Sgt. Sensible wrote:

A lot of people will lose their homes and will probably blame immigrants.

The blame game will go on for years AFAIK - whether it's immigrants, FF, 'the government', estate agents, auctioneers, banks, developers, etc.

Sgt. Sensible

Cantab. wrote:

The blame game will go on for years AFAIK - whether it's immigrants, FF, 'the government', estate agents, auctioneers, banks, developers, etc.

Everyone except themselves.

DublinWriter

First of all OP, you're assuming a crash in the first place.

This particular bone has been worried at length on here in various threads.

Me? I don't think anything as dramatic as a crash will happen unless the ECB go totally postal and put interest rates up into double-digits in the next 12 months.

Personally, I think property prices are now starting to peak-out and growth in prices will slow down to inflationary rates...i.e., a soft landing.

Even in the event of a crash, Irish people have very short term political memories post-Celtic Tiger. Look at the underage sex scandal and how people were talking about storming Leinster House at the time.

Nowadays it's just yesterdays news. Meh.

RE*AC*TOR

Property crash.... well the building industry is among the most powerful lobbies in the country... so you'll probably see all sorts of new tax breaks or incentives introduced to "soften the blow".

The people most recently on the ladder may end up with negative equity. We may see a return of reposessions and bad debts to the banking sector. Once the middle classes are affected we'll probably have a growing discontent with the immigrant population. The more right wing parties will probably jump on this. However, a large part of the immigrant population who are employed in construction will probably bugger off to greener pastures, leaving an even bigger hole in the rental and owning sides of the property market. So to a certain extent that might compound any recession in the industry.

Cantab.

RE*AC*TOR wrote:

Property crash.... well the building industry is among the most powerful lobbies in the country... so you'll probably see all sorts of new tax breaks or incentives introduced to "soften the blow".

There is nothing left in the magic box of tricks that can hold back the fact that we are building 100k housing units this year, 1 in 8 people are employed in construction and that construction receipts account for a huge proportion of government income.

RE*AC*TOR wrote:

The people most recently on the ladder may end up with negative equity. We may see a return of reposessions and bad debts to the banking sector. Once the middle classes are affected we'll probably have a growing discontent with the immigrant population. The more right wing parties will probably jump on this. However, a large part of the immigrant population who are employed in construction will probably bugger off to greener pastures, leaving an even bigger hole in the rental and owning sides of the property market. So to a certain extent that might compound any recession in the industry.

Yup, once the work drys up, the immigrants will jump on the next low-cost flight out of here leaving their interest-only landlords with an empty flat in a crappy location, compounding the problem.
And to further compound the problem, my opinion is that builders are in a mad rush to get their apartment complexes finished before the deluge - they are employing as much immigrant labour as possible to get the places finished as soon as they can. The longer the Irish property situation continues, the greater the risk for the builder, so he must build as fast as he possibly can and sell as many apartments off plans as possible to minimise his risk. Once the air is let out of the baloon, all this high-demand labour will vanish over night and all we'll be left with is debt and crappy, poorly-built apartment complexes in the middle of nowhere.

jank

Interesting thread. I think that people will blame the current government rather the ones that are on the watch when it happens. Banks will of course get some of the blame but people will have to look at themsleves and say why they were so niaive.

constitutionus

another effect most havent mentioned yet will be cut back in the public sector. stamp duty accounts for more income than all the income tax put together. if the market collapeses that a lot of the governments day to day spending gone, seeing as the gov would be hesitant to put up taxes in order to ensure what busineses are left dont leave the only option (besides a massive increase in stealth taxes, which'd be a non runner because of its affect on business,not joe soap) would be huge cut backs in public services . basically the health service would go in the crapper and the education sector too by my estimation .

dont worry though, there still will be plenty of money to pay all those ex politicians ,who got us in this mess by cowtowing to the developers, all their index linked pensions . god forbid the sector that could most easily afford a private pension should be compelled to do so. saving us a few quid:rolleyes:

Mad Finn

A property crash would be good news for those not yet on the property ladder. Especially if it was caused by something other than a hike in interest rates. And it could be.

Confidence is a HUGE factor in the property market. In fact, excessive confidence--some might say exuberance--is what has pushed it to its current heights.

If there were a few more factory closures by large foreign companies--eg Dell ain't going to be in Limerick for ever, especially after it builds its new plant in Poland--suddenly people may be less willing to take on the sort of mortgages that are necessary now. Depressed demand inevitably leads to depressed prices.

There would be casualties in such a market. Specifically those who had just bought recently and had lost their ability to make repayments. They would be in the quandary of having to sell their house and still be in debt.

But for the majority of people who had bought their houses some years ago, the falling prices may not be enough to put them into negative equity--the horrible position where your house is worth less than the loan you have raised to pay for it.

It might also be good news for those aghast at the shylocking rate of stamp duty as well. One of the things the Brits did in the early 1990s when their property market hit the skids was to suspend ALL stamp duty on property. Your stamp duty was effectively zero. This was an attempt to get the market moving again. It might have worked eventually but it took years for confidence to return to the British property market.

Remember UK interest rates started falling drastically after they withdrew from the European Exchange Rate Mechanism in September 1992. Yet it took at least four or five years for that cheap money to reinvigorate the property market. Even at zero rate stamp duty.

Cantab.

constitutionus wrote:

..stamp duty accounts for more income than all the income tax put together.

Is this really the case? :eek:

Mad Finn wrote:

A property crash would be good news for those not yet on the property ladder.

No it would not. The knock-on economic effects would be devestating. If a crash does occur, and you're not employed in the public sector or an export orientated company, I would say get on the next low-cost flight out of this country (bringing those savings with you). Message to young people: To put your savings back into Irish property would mean you being stuck in a miserable, depressed and debt-ridden country for the foreseeable future. There will be no bargains to be had in the event of a property crash.

http://en.wikipedia.org/wiki/Dead_cat_bounce

LostinBlanch

Not wishing to rain on anyones parade but. . . .

http://www.guardian.co.uk/usa/story/0,,1859157,00.html

Of course it may just be scaremongering :eek:

Firetrap

If there was a property crash, this government would deserve to get it in the neck. They're so much in love with builders that they've allowed things to get to the stage they're in. It's morally wrong that houses are so overpriced that most ordinary people struggle to afford them. Forcing people to buy houses 70 miles from where they work, then having them clog up the roads as they trek back to Dublin is wrong.

This insatiable lust for property inherent in most Irish people is damaging our economy. Because property prices have risen so much, this has helped drive up our wages and reduced our competitiveness. I know some production centres that have closed and gone to places like India would've gone anyway but peoples' fundamental requirement of a decent wage just to make ends meet isn't helping us at all.

Stamp duty, VAT, income tax etc. are nice easy sources of income for the government. They're happy to sit back and watch the money flow in.

samb

allie_e17 wrote:

If there was a property crash, this government would deserve to get it in the neck. They're so much in love with builders that they've allowed things to get to the stage they're in. It's morally wrong that houses are so overpriced that most ordinary people struggle to afford them.

Stamp duty, VAT, income tax etc. are nice easy sources of income for the government. They're happy to sit back and watch the money flow in.

The most annoying thing about this situation is that Bertie openly advocates increasing property prices and critisised people for questioning its 'foundations'
. I suppose this is because he wants it to last until at least after the nexr election because at the moment most people who vote are home-owners who are happy. He obviously couldn't care less about the under 30's.

The ideal situation for the country would be a gradual cooling of the market (obviously) but the present government are making no effort to realise this scenario. But the oppostion are not making as much noise as they should, since imo this is the biggest threat to our economy. We should be delighted with gradual and slight ECB interest rate rises.

As for the last point above allie about taxes, I don't think the tax surpluses from now will be sufficient to fund everything into the future. The government doesn't seem to care about the future, perhaps because the public only judge's a government on its time in office. As Clown bag say FF could be in government for a long time to come if THIER bubble bursts under FG/L

Cork

Cantab. wrote:

The blame game will go on for years AFAIK - whether it's immigrants, FF, 'the government', estate agents, auctioneers, banks, developers, etc.

The last thing people will blame is their own financial stupidity.

The very same people who borrowed themseves to the hilt and even bought houses in the backs of the beyond.

These people then expect hospitals and schools in these locations.

The most annoying thing about this situation is that Bertie openly advocates increasing property prices and critisised people for questioning its 'foundations'

Brain Cowen has given many warnings.

The Central bank has given warnings.

These people need Eddie Hobbs to drill basic financial principles into their skulls.

Many people bought crap houses in crap locations at crazy prices.

They will have nobody to blame but themselves.

LostinBlanch

Cork wrote:

The last thing people will blame is their own financial stupidity.

The very same people who borrowed themseves to the hilt and even bought houses in the backs of the beyond.

These people then expect hospitals and schools in these locations.

So that's nothing to do with the chronic lack of decent planning that has plagued this country for the last 20 years then. People suddenly decided they wanted to buy houses in Mullingar for their proximity to Dublin then was it? Absolutely nothing to do with corruption at local and Dail level (cf various trubunals). Absolutely nothing to do with the fact that "property speculators" were allowed to buy up huge land banks and sit on them until they spent money to get them rezoned (or is it to help the democratic process? I can't remember) thus pushing property prices up so people had no option but to go to Moate or Mullingar if they wanted to own their own house. FF the new Cromwellianites - to hell or to Westmeath! Apologies to any westmeath residents reading this.

Cork wrote:

Brain [a pun surely] Cowen has given many warnings.

The Central bank has given warnings.

These people need Eddie Hobbs to drill basic financial principles into their skulls.

Many people bought crap houses in crap locations at crazy prices.

They will have nobody to blame but themselves.

And of course Bertie never said anything to the effect of people who didn't buy houses a couple of years ago should blame themselves for not buying then, because the price of houses has gone up in the meantime. Come on Cork stop trotting out the same tired olf FF lines. Does anyone with an ounce of sense and a bit of memory actually believe a good start, lot more to do crap? Well maybe you might given your FF leanings :rolleyes:

Firetrap

Cork wrote:

The last thing people will blame is their own financial stupidity.

The very same people who borrowed themseves to the hilt and even bought houses in the backs of the beyond.

These people then expect hospitals and schools in these locations.




Brain Cowen has given many warnings.

The Central bank has given warnings.

These people need Eddie Hobbs to drill basic financial principles into their skulls.

Many people bought crap houses in crap locations at crazy prices.

They will have nobody to blame but themselves.

For a lot of people, it's their desperation to get onto the property ladder that's making them do seemingly illogical things like buying cardboard houses in spawling estates 60 miles from Dublin. The fear is that if they don't buy this year, prices will have shot up so much next year that they'll have to borrow even more. That's what's making them ignore all warnings.

I can't see why we have to pay so much for a basic human requirement of having a roof over our heads. Why the hell should we be handing over so much of our hard earned salaries just so we can line the pockets of fat cat property developers?

hmmm

allie_e17 wrote:

Why the hell should we be handing over so much of our hard earned salaries just so we can line the pockets of fat cat property developers?

Who's forcing you to buy? Rent in a nice city centre location for half the cost of a mortgage, and let those who are taking part in this property pyramid scheme pay 10 times their salaries to buy in the middle of nowhere.

The outcome of the property crash to come will be the usual moaning and whinging about how "someone" should do "something" to help homeowners. The financial naivety that is being displayed is beyond comprehension, we'll be taking about the aftermath for decades.

Firetrap

hmmm wrote:

Who's forcing you to buy? Rent in a nice city centre location for half the cost of a mortgage, and let those who are taking part in this property pyramid scheme pay 10 times their salaries to buy in the middle of nowhere.

The outcome of the property crash to come will be the usual moaning and whinging about how "someone" should do "something" to help homeowners. The financial naivety that is being displayed is beyond comprehension, we'll be taking about the aftermath for decades.

I'm not pro or anti renting. I'm renting myself, would love to own my own place but am terrified of committing to paying a massive mortgage for the rest of my working life. I'm also coming under pressure from family to buy. There is an Irish mentality thing though when it comes to renting. You'll hear all the arguments like "you're paying someone else's mortgage" and "its all well and good renting for half the cost of a mortgage but you'll still have no house". All the time, the cost of housing continues to climb.

People have been going on for years that prices have got to stop rising. They aren't though. With all these new people buying property now - non-nationals etc., it's hard to see when it's going to stop.

Cantab.

allie_e17 wrote:

People have been going on for years that prices have got to stop rising.

Yeah, and history is a good indicator of future prices...

allie_e17 wrote:

They aren't though. With all these new people buying property now - non-nationals etc., it's hard to see when it's going to stop.

I've yet to see any reliable source to show that immigrants make up a significant part of the house-buying population. I'd love if someone could tell me who's going to live in:

- the 275,000 units lying empty according to the CSO's census
- the 100,000 units being built in 2006
- the 18,000 units for sale today on daft.ie

constitutionus

not to mention the 40% or so of the market thats bought by investors. theyre'll be a lot of empty houses when the mirgrant labour go home cause theres no jobs here. if you think theryre gonna switch to mimimum wage jobs after the goldmine that is the construction trade your mad

rlogue

There's a lot of empty houses just lying there at the moment. Personally I would steer well clear of purchasing any property in Ireland at the moment; the prices are not only at a stupid level but could only stay as high as they are providing the Eurozone interest rates stay relatively low.

Let's put things in perspective; you could buy a nice apartment in the 17th Arondissiment in Paris for €150000. What would €150000 buy you in Central Dublin?

I personally think the property prices in Ireland will crash and crash badly in the next couple of years. Maybe that €150000 will buy me a nice apartment in Ranelagh in two years time!

Tsar

Yes there will be a crash at some stage but this is always going to happen. For the last four years Ive heard about this crash and it has yet to happen so keep predicting it and it will have to happen somewhere along the line. I dont think FF/PD can be blamed for consumers paying over the odds for house's. I mean you all have a choice at the end of the day.

I also think this taking of 50 year mortgages is crazy too and the fact everyone just see's property as the only investment option with there houses in turkey and bulgaria of which they are paying over the odds on as well.

I think whoever is in power at the time should be held responsible cause its there job to act on the situations as they present themselves

KerranJast

There is an Irish mentality thing though when it comes to renting. You'll hear all the arguments like "you're paying someone else's mortgage" and "its all well and good renting for half the cost of a mortgage but you'll still have no house". All the time, the cost of housing continues to climb.

My response to those people is that you don't own your house. The bank does. At least for 30-40 years anyway. They are in effect renting from the bank.

Moriarty

KerranJast wrote:

My response to those people is that you don't own your house. The bank does. At least for 30-40 years anyway. They are in effect renting from the bank.

The difference is you'll have an asset at the end of X years of monthly payments on a mortgage. You'll have squat after X years of paying rent.

constitutionus

im sorry but i cant let the comment about not blaming FF/PD for the housing situation. by cowtowing to their property developer paymasters and land speculators (they still havent done anything to stop people sitting on land banks!) theyve artificially inflated the price of the average house .

for gods sake we still have the lowest population density in europe yet now we have the most expensive housing. how the hell can that happen without wholesale manipultion of the market?

look at it this way, we shouldve had somewhere in the region of 34000 social and affordable houses , costing somewhere in the region of 190 thousand so they're still not cheap, in the last 2 years. yet thanks to the gutting of part 5 which compelled developers to sell 20% of their houses at that rate (at the property developers request no less!, theres democracy for ya) we got some where around 1600. thats 21 times less than what shouldve been developed if they didnt allow the buy out clause (or as i like to call it, a plain old councill bribe. see we dont even use brown envelopes anymore now!)

this is soley down to the governments decision to look after the guys who donate to their parties instead of the under 30s who need these houses. and you know what? theyre probably right, cause those muppets dont vote. but without any shadow of a doubt, its their policy thats got the housing sector in the mess it is.

Mad Finn

Confidence is a vitally important factor in the property market, perhaps more so than in any other market except securities trading.

Here are a few things that could negatively affect confidence:

1) Reduced cost of labour. The East Europeans are currently cleaning our toilets, flipping our burgers and digging our roads. Shortly they will be plumbing and wiring up our new buildings and doing other skilled jobs because the next wave will be the skilled tradesmen who are already undercutting our own.

That's all well and good and you might think that these people won't be staying anyway, but the effect it will have on the wages of the indigenous population will be marked. In the long term, the biggest determinant of property prices is people's ability to pay. If such people feel they can't afford the asking prices, they will withdraw from the market, or at least depress the asking price.

2) Reduced desirability of asset
OK so you've bought a nice house in a nice area and then somebody comes along and messes it up. They take half your garden for a relief road, for example. Or some little gombeen man tries to build a car park over the nice park across the road from you. Your house gets blighted, in other words.

This is always a small risk because of the presence of Compulsory Purchase orders. But in our begrudging society you might find that the actions of the gombeen man could be cheered to the echo by some people who might think that nothing that happens in south Dublin could possibly affect them.

That increases the likelihood of chancers getting away with things, and if this guy gets away with it in this case, somebody else will get away with it elsewhere. Pretty soon, the confidence you can have that your environmental situation will be maintained by the authorities collapses and the desirability ie price of your property falls.

3) Increased cost of borrowing
OK so this is not likely to be as marked in the Euro zone as it was in the days of the good old punt but European interest rates still fluctuate. And if you have a huge loan, the effect of even a small rate change becomes more marked.

So the chances of a 'correction' becoming a crash are quite high. Whoever is in power when it happens will suffer.

constitutionus

yay im quoteable !

and for the record nothing in "south dublin " (though you really mean the D4/6 crowd, hardly reflective of most of south dublin!) can affect me. i got on the property market years ago. thered have to be a 75% reduction in the cost of housing to put me into negative equity and the councilors in my area dont sit on their asses and count their expenses instead of doing theyre jobs. corrupt planning has blighted my area in the past and we've got very good at keeping our civil servents honest

hmmm

All this "kowtowing to speculators" stuff is nonsense. We are building close on 100,000 houses a year which is ridiculous for a population of 4 million - I think the government has done a good job to free up supply. There is some tinkering at the edges that perhaps should be done re flipping and so on, but that's not going to cause a seachange in prices.

What they can't do is prevent people handing over insane amounts of money in a desperate bid to own property. If so called investors pay 500k for a house that rents for 1k a month (when they could get double that in a bank account), how can you stop them? If I decide I'm going to set fire to my paypacket, there's little the government can do about it.

The market will sort itself out. The key thing is not to let yourself get caught up in the hysteria and look at this market through cold financial eyes.