Housing Bubble Bursting

Sponge Bob

Deleted User wrote:

I would rather they used OUR money to build infrastructure instead of giving it away

WHY would you spend OUR money to build whats already there , especially if the state can pick it up really cheap which is what will happen in the Midlands in the next few years. Social housing is infrastructure.

miju

exactly sponge bob , dare i say it the government are actually being efficient here and giving the tax payer value for money for once

SkepticOne

I think the purpose of this money is to try and prop up prices a bit. Buy up as much land as possible at the top of the market and ear-mark it for social housing over the next ten years thereby preventing a dumping of land onto the market by speculators getting out.

Sponge Bob

the government will have to build in the main cities but in much of rural ireland the housing is there

1. in the midlands its empty, especially the north midlands.
2. in the west and south its holiday homes used some of the year

once the investors start to bail out , as they will, there has to be a point at which the government buys this pre -existing stock . In so doing it

1. sets a floor under the market
2. cycles property into permanent use as social housing and discharges its obligation to the poorer members of society.

I would think that this surplus of housing does not exist in the Pale or in the main cities and that it must therefore be built .

County Galway has over 20% of its housing lying empty as I write this but that is largely comprised of holiday homes along the coast and a pure overbuilt surplus inland in east Galway. While I can see the council mopping up the east Galway surplus as it comes available at a reasonable cost to the taxpayer I do not _yet_ see a market weakness in the holiday home areas like Clifden/Cleggan/Ballyconneely where the prices are still too high and where it is cheaper to build anew.

I am adamant that the €21bn will not be spent building new homes as we have plenty of them in so many places already .

I am equally adamant the government will NEVER come out and SAY this lest they be accused of precipitating the inevitable crash in places like Roscommon, at least not until after the election.

SimpleSam06

Sponge Bob wrote:

I am adamant that the €21bn will not be spent building new homes as we have plenty of them in so many places already .

But you need to look at who is building the properties. Builders can now put together an estate, guaranteed to move at least 20% to the local council, and skim the cream off the top of the rest of the properties. 20% they were by no means guaranteed to move in a declining market.

Not to mention that many local authorities are allowed to take cash in lieu of social housing, which most of them have, obviously. So will this end up with the government funnelling €21 billion into local councils?

At the same time, assuming it all doesn't vanish into the pockets of Killian O'Councillor, it will only accelerate a housing price collapse, since all of those FTBs will breath a sigh of relief and climb onto the social housing bandwagon. Asuming €100k per house, on average, thats two hundred and ten thousand houses. The entire FTB market will dry up overnight.

Sponge Bob

SimpleSam06 wrote:

But you need to look at who is building the properties.

I have and I am still adamant. Property developers FUND Fianna Fáil as we know but they do not VOTE them in.

Its more politically astute to guarantee existing prices by acting as guarantor of last resort and setting a price floor than it is to keep building.

In the 1980s the government clocked up much of its massive 125% of GDP national debt in supporting the building industry.

1. They brought in the £3000 FTB grant when you could still buy a new house or apartment for £15000 , that means that 20% of the property was funded tax free by the taxpayer if you were an FTB although the price was more oftent £30k or £40k which diluted teh subsidy effect. Still its like an FTB in Dublin being handed €40k tax free today . Much bigger than an SSIA what ???
2. They also had grants of up to £5,000 (IIRC) for refurbishment like roofing or windows. That was not a FF scheme either , anybody remember the " house improvement grant " which was abolished in march 1987 by Ray Mc Sharry , an FF er would you credit

From that link !

Mr. Michael Noonan (Limerick East): I accept that, but the Minister does not seem to appreciate the devastation caused by his decision to abolish the housing grants, in particular the £5,000 grant.


Mr. MacSharry: Half of the country have applied for those grants and will be paid.

Public funding of the construction sector is a drug , basically. €21bn is an overdose. Less of that please.In the past decade they have completely lost the run of themselves. Once the building stops in places like Roscommon and Leitrim , as it will shortly, I would be very surprised if any new property was built in places like Carrick on Shannon FOR AS LONG AS I LIVE.

Thats the extent of the misallocation of resources that has occured in the North Midlands in the past decade.

Then again Tallaght and Lucan were originally built on public funds. Corpo tenants in Dublin got £5000 to move out and buy a house in Tallaght until the same ole McSharry abolished that grant as well as the improvement grant in 1987 . £5000 was a lot of house in Tallaght in the 1980s, 20-25% I would think.

SimpleSam06

Sponge Bob wrote:

I have and I am still adamant. Property developers FUND Fianna Fáil as we know but they do not VOTE them in.

I must admit, I'm not clear how what you are saying refutes what I am saying... Whether it was intended to or not, its not going to stop builders from building. It actually gives them more reason to keep building.

Sponge Bob wrote:

Its more politically astute to guarantee existing prices by acting as guarantor of last resort and setting a price floor than it is to keep building.

But its not guaranteeing existing prices, its guaranteeing much much lower prices. Hence "affordable housing", and that will send the current pricing of houses into a nose dive.

Sponge Bob wrote:

Public funding of the construction sector is a drug , basically. €21bn is an overdose. Less of that please.

Well its going to happen anyway, should get in a good few votes. May as well look at the consequences.

Edi: And I might also say, very little if any of that money is going to go on existing houses. Most of those are owned by investors or second home buyers, maybe BTL-ers. Is the government going to seize houses from investors throughout the country and pay them a nominal fee in return? There would be civil war. No, its going on new housing alright.

Sponge Bob

SimpleSam06 wrote:

I must admit, I'm not clear how what you are saying refutes what I am saying.

Not entirely, we agree in a cackhanded way.

But its not guaranteeing existing prices, its guaranteeing much much lower prices. Hence "affordable housing", and that will send the current pricing of houses into a nose dive.

social housing is "bought" at current prices. If prices drop then a huge swoosh of property comes on the market becuase it is held for speculative appreciation . Prices drop more . Builders stop building

That means they stop building their 100% of homes OF WHICH 20% must go to Part V use or a payment in kind and the 80% may be sold by the builder.

100% of **** all is **** all Sam , do the math

If the government has no supply of new homes from which it can cream 20% then it must provision social housing from what is already built and is surplus to requirements.

As I explained earlier there are more houses on the market in Roscommon than persons on the waiting list for social housing in Roscommon ( but not counting those who want affordable and not social housing in case you are reading this and think I lumped yiz in there K ? ) .

There are certainly as many houses in Roscommon today as there are people looking for houses in Roscommon. The only disequilibrium will be in the disorderly transfer of private speculation into public stock. This will happen over time.

Every bubble bursts Sam, way it is was and will be .

SimpleSam06

I see your point, and its a good one, but builders aren't going to stop building and take up graphic design. They build, thats what they do. They might not be making the tremendous profits they once were, but they will always be building and developing, albeit at a slower pace since fewer of them will be at it. And even then, the slowdown in build rates will take years.

If all else fails, how hard would it be to cut out the middle man and just build the housing under the direct pay of the government? They don't care about making a profit, they have taxes for that.

I mean, are you suggesting the government is going to requisition houses from investors and BTL-ers? I can't even imagine the chaos that would ensue, never mind the party that suggested it would be driven into the Atlantic, literally.

spongebob wrote:

social housing is "bought" at current prices.

Nope, its bought at cost. The government might not be making a profit, but they sure as hell aren't going to be taking a loss either.

Sponge Bob

SimpleSam06 wrote:

I mean, are you suggesting the government is going to requisition houses from investors and BTL-ers? I can't even imagine the chaos that would ensue, never mind the party that suggested it would be driven into the Atlantic, literally.

But is they set a floor like I said they may end up stopping the price of a house going below €100k where it would otherwise keep going down. Nor could they build a house for €100k so its good use of taxpayers money compared to building where there is oversupply .

Nor will they start buying until the market failure dictates they must. The íntervetion price will differ according to circumstances, they may step in at €259k in Dublin for example

The_Conductor

Historically the government has not stepped in and bought large quantities of second hand housing stock, ever. It has always been purposely built housing, or new social housing units in new developments (which in many cases has been better finished that other housing stock, hence the prices a lot of ex-council estates are going for).

I would be shocked if the government were to step in and set an articificial ceiling below which it would support the housing market by mopping up excess stock.

Even if house prices halved, with the increases in interest rates- most people would be exactly the same position purchasing 1/2 price houses, over their colleagues who bought self same houses for double the sum at half the interest rate levels...... (an over-simplification, but relevant nonetheless)

A bubble is a bubble, is a bubble, is a bubble......

SimpleSam06

Sponge Bob wrote:

But is they set a floor like I said they may end up stopping the price of a house going below €100k where it would otherwise keep going down. Nor could they build a house for €100k so its good use of taxpayers money compared to building where there is oversupply .

Nor will they start buying until the market failure dictates they must. The íntervetion price will differ according to circumstances, they may step in at €259k in Dublin for example

I'm with smccarrick here, this is more or less entirely fantasy land. I've the affordable homes handbook sitting in front of me (don't take that as an indication I will be getting one), and it explains the process of how affordable homes become affordable.

Builders give 20% of new builds, or money in lieu, as part of their obligation to social and affordable housing. This is sold at cost of build, which is far, far below market price. The government does not purchase or requisition second hand homes or investment properties.

Putting 210,000 dirt cheap new houses on the market will kill the bubble stone dead in a heartbeat, assuming, as I said, the councils don't pocket the bulk of that. It really is a complete decapitation of the housing market, unless I'm missing something.

As for the €100,000 house, the bulk of the price of a house is the land and taxes. In a declining market land prices decrease too, so I can see that happening. Also remember these new builds are going to be in lower value areas on the outskirts of cities and towns. And as for taxes, why would they tax something they are buying, especially if it is to be redistributed for the public good?

smccarrick wrote:

Even if house prices halved, with the increases in interest rates- most people would be exactly the same position purchasing 1/2 price houses, over their colleagues who bought self same houses for double the sum at half the interest rate levels...... (an over-simplification, but relevant nonetheless)

I'd have to disagree with that one, for starters people will have a higher percentage of the initial price saved, reducing the interest amount. Also there is no indication that interest rates will double, and I'd be quite surprised if they did, given the state of the eurozone economy. Even if they did, you'd be much better off paying double the interest on 100k as opposed to half the interest on 400k. And inflation makes €100,000 bearable a lot faster than €400,000.

Sponge Bob

smccarrick wrote:

Historically the government has not stepped in and bought large quantities of second hand housing stock, ever. It has always been purposely built housing, or new social housing units in new developments (which in many cases has been better finished that other housing stock, hence the prices a lot of ex-council estates are going for).

Historically the stock was not there to buy. You are historically correct in saying they never bought the stock but tended to build .

It has always been purposely built housing, or new social housing units in new developments (which in many cases has been better finished that other housing stock, hence the prices a lot of ex-council estates are going for).

2 things. It was not until the late mid/late 1980s that the build quality on social housing was noticably very good. I will concur that the vast majority of social housing BUILT by local authorities in the period since then is of a higher build standard and is better built than normal private housing of the same era

The same cannot be said of 1960s and 1970s stock which is desperate.

Older stock tends to be very CENTRAL which largely explains its worth and tends to be built on LARGE sites . Thats not to say its intrinsically great housing . Crumlin was once as far out as Blachardstown is now

I would be shocked if the government were to step in and set an articificial ceiling below which it would support the housing market by mopping up excess stock.

Look at it this way. If it costs €100k to buy a house and €150k to build one then why build one . We have never had an issue in Ireland with large amounts of new build lying empty ....until now.

No developed country ever had such a high % of its modern housing stock idle ...not since the 30 years war in Germany that is

How do you propose explaining spending €150k to the public accounts committee in those circumstances ?

There is evidence of local authority purchasing in private estates already but not systemically . Its not an absolute that they build.

Even if house prices halved, with the increases in interest rates- most people would be exactly the same position purchasing 1/2 price houses, over their colleagues who bought self same houses for double the sum at half the interest rate levels...... (an over-simplification, but relevant nonetheless)

for those moving up and down and sideways then yes. They sell one to buy one and they move up and down at the same prices , crudely. Social housing is for those who do not OWN a house.

A bubble is a bubble, is a bubble, is a bubble......

Yep, however the 16% of the housing stock currently lying empty is new territory for Ireland and is more prevalent in rural areas and my comments on Roscommon are not nationally applicable.

They apply right across the middle of Ireland and in Donegal and Kerry and Kerry with their massive estates of recently built holiday homes but in the big cities the surplus is not as marked and new build will be required to deliver social and affordable housing

Dogbandit

Do-more wrote:

Jaysus Sponge Bob, ya should have posted that one on "Bargain Alerts".

Thanks anyway, I have me valuer working on it now, should be able to spring a 120% mortgage on it, now I must dig out me junkmail for the pre-approved loans from BOI and AIB and get another few bob off the credit union and I'll be able to get the helicopter and not worry about the traffic into Galway.

Keepin' up with the Jones' me arse, I'll just change me name to Jones too. Sure everybodies doin' it, why not me too. And sure the ERSI says it'll be a soft landin', very handy in helicopters them soft landings!!!

Brilliant!!

SimpleSam06

Sponge Bob wrote:

Look at it this way. If it costs €100k to buy a house and €150k to build one then why build one .

Erm, if houses are going for €100k, why would anyone bother with the social housing program, and just go buy a house instead?

Exactly - the bubble is dead and gone - people will realise that soon enough. Why spend billions on these houses? I really dont have faith in the Government getting value for the taxpayers money. The whole idea just doesnt sit well with me.

The money should be spent on our brutal roads - I drove Dublin to Waterford via the N11 the other day and via Carlow the other day - the roads are bumpy narrow in places and full of bad bends. This is not acceptable in 2007 for two of our cities, both on the east coast, to be so badly connected. Im sure the money could be spent on better things I dont like it going on property!

miju

because if houses are going for 100k at that stage the economy will be well on its way up **** creek without a paddle

I see where your coming from - and its not a bad idea. But how about using it to boost our infastructure big time and make our economy more "normal" the percentage of our construction industry as part of the economy as a whole is too big - unsustainable.
But we are talking about money the country does not have yet and may not make - remember in this declining market the stamp duty income will be down.
But we are both thinking of ways to help the economy - were on the same side.
I cant put my finger on it yet but i have a bad feeling about that money!!! lol

SkepticOne

The money will be used in an attempt to prop up the housing market and maintain employment (and profits) in the construction sector. This is FF we are talking about.

What they don't want is falling house prices - a major vote loser in itself, layoffs in construction, a huge source of new employment in the last five years, and a cutting of FF funding from the builders.

The only thing is that I think they have underestimated the amount it will take once falling prices become established. They will need to move fast.

Sponge Bob

We were told the entire national housing stock is worth €500Bn according to some survey published yesterday. FF propose to spend €21bn in 7 years on housing or €3bn a year .

€3Bn a year is 0.6% of the value of the national housing stock (today that is). We will really notice that will we not !

In my way of acounting 0.6% of 100% is **** all if you will kindly excuse my French . Its not even worth calling "liquidity" . Thet would be too kind.

It can only be used, in extremis , to indicate a market floor or as a sort of yellowpack sticking plaster that won't stick . Thats why I say floor, its of greater overall marginal worth as a FLOOR .

Its an insignificant amount at peak but were prices to fall 50% it would mean the government will be spending 1.2% of the market value every year.

Whoop de doop de DOOP like !

SimpleSam06

miju wrote:

because if houses are going for 100k at that stage the economy will be well on its way up **** creek without a paddle

But if thats the case you won't be able to afford "affordable" housing either. Its not like you get a free house, it does come with a mortgage.

What worries me most about this whole situation is where exactly they think they are going to ge the money for all these houses. Its as though they think they can have a bubble++, housing will remain stable (along with the revenues from that), AND they can build a few hundred thousand rock bottom houses as well.

Come the plummet, they are going to have a seriously hard time just retaining the civil service at its current level, never mind sustaining what has to be the largest welfare program in the history of the state.

I'm cautiously in favour of this, but I am far from sure that they will be actually able to pull it off.

Victor

pjbrady1 wrote:

In his final sum up he encouraged people to band together and not sellup, just so that we can get past this temporary blip. I reckon he must have bought a 2nd investment property last year, why else would a single home owning well paid journalist care about prices stagnating or falling slightly on his residence where he lives.

Eh, parody? Satire? Humour?

SimpleSam06 wrote:

There were many reasons for the housing bubble, supply and demand were only one of them, and not a very strong one. Also I don't see how a rising supply leads to rising prices, unless the demand is from "investors", and even that doesn't make a lot of sense.

If demand exceeds, even increasing supply, prices will tend to rise.

Sponge Bob

SkepticOne wrote:

The money will be used in an attempt to prop up the housing market and maintain employment (and profits) in the construction sector. This is FF we are talking about..

I thought that I fairly clearly explained earlier today that the greatest taxpayer subsidy levels for construction were during the mid 1980s under a blueshirt/dick spring regime .

The country was within a whisker of bankruptcy (default) when a FF minister, Ray Mc Sharry, pulled the plug on one big scheme , home improvement, in 1987 . Unemployment was 20% DURING the scheme. Subsidising construction was a crap idea.

We will not go there agin, trust me on that. Dreadful value for money .

Meanwhile , nobody with any cop on believes the upside scenarios, just look right here at the graph on the upper right side.

Soz

SimpleSam06

Alright heres my theory; they know they are screwed one way or the other, so they are pulling this stunt with no intention of seeing it through, so that after they can raise their hands and say "well we did our best to help!".

/but a politician would never lie to us!

Zambia

Sponge Bob wrote:

Meanwhile , nobody with any cop on believes the upside scenarios, just look right here at the graph on the upper right side.

Soz

Holy crap 100 apprx houses where sold yesterday I 0suspect the goverment !!!

If any houses fell to 100,000 there would be riots mass immigration, community suicides , baby selling , etc

Who here below the age of 40 can claim to have brought there gaff for less than 100,000 yo yos.

jesus_thats_gre

Jesus I know two lads who are 27/28 who bough houses for less than €100,00 just 4 years ago in Dundalk.

Gurgle

jesus_thats_gre wrote:

Jesus I know two lads who are 27/28 who bough houses for less than €100,00 just 4 years ago in Dundalk.

Ah, but Dundalk is in 'down the country somewhere'-land, and as we all know the 'Irish Housing Market' refers only to houses within 10 miles of the M50.

jesus_thats_gre

Gurgle wrote:

Ah, but Dundalk is in 'down the country somewhere'-land, and as we all know the 'Irish Housing Market' refers only to houses within 10 miles of the M50.

Don't be getting on your high horse yet I remember thinking at the time "I would my bollox pay 100k for this cardboard box".

Look at how much they pieces of ****e are going for now:

http://www.daft.ie/searchsale.daft?search=Search+%BB&s[cc_id]=c9&s[a_id][0]=3471&s[mnb]=&s[mxb]=&s[mnp]=&s[mxp]=&s[pt_id]=&s[house_type]=&s[mna]=&s[mxa]=&s[search_type]=sale&s[transport]=&s[advanced]=&s[price_per_room]=&s[refreshmap]=1&offset=10&limit=10&id=193571

Sponge Bob

Zambia232 wrote:

If any houses fell to 100,000 there would be riots mass immigration, community suicides , baby selling , etc

Depends on where. There should be €100k houses around where local wages and earnings and economic conditions dictate it be so. Your scenario would indeed apply if the €100k house ever appeared in Dublin again .

I consider that latter scenario to be most unlikely , ever.

Gurgle

jesus_thats_gre wrote:

Don't be getting on your high horse yet I remember thinking at the time "I would my bollox pay 100k for this cardboard box".

Look at how much they pieces of ****e are going for now:

http://www.daft.ie/searchsale.daft?search=Search+%BB&s[cc_id]=c9&s[a_id][0]=3471&s[mnb]=&s[mxb]=&s[mnp]=&s[mxp]=&s[pt_id]=&s[house_type]=&s[mna]=&s[mxa]=&s[search_type]=sale&s[transport]=&s[advanced]=&s[price_per_room]=&s[refreshmap]=1&offset=10&limit=10&id=193571

Actually, 265k is not a bad price for that house. It appears to be a decent sized 2 bed, and its in Blackrock, not some shady council estate in Dundalk itself.

Look for a similar house in a decent area in Dublin, you can start at double the price.