The property bubble

dan_d

Probably could have been stopped or depressed a bit in a few ways. But nobody stood up and said stop loud enough.
If the length of time mortgages could be borrowed over had been limited, it would set a limit on how much people could borrow as they can only afford a certain percentage of their salary in repayments. If there had been a ban on 100percent mortgages...doesn't need explaining. More regulation of developers...higher standards in housing quality, a certain number of 1/2/3/4 bed houses/apartments per development (with NO loopholes) and more 3/4 beds than 1/2 beds. Also a large onus on developers to supply the necessary infrastructure, as in drainage,roads,public transport links (would it have killed them to stick a bus stop at the entrance to developments???). And not allowing a piece of land to become worth more than the building on it (witness Jury's hotel site in Ballsbridge) or the potential building on it.
With some or all of the above measures we could still have had a boom, but certainly not anything like what we had.And let's face it, the higher you are the further you have to fall.And we were pretty high......
Can I ask another question? What do people think should be done with thethe current areas of land that are now standing unused because developers won't build on them now? Should they be obliged to hand them back to, say the county councils, maybe for a nominal fee, to be used as public land if they aren't going to use them within a certain time frame??Or maybe they should have to provide playgrounds/parks??Or am I asking a ridiculous question??It's just there is a lot of weed covered empty land around where I'm living and it'll probably never be used now and never cleared up either.

thebman

dan_d wrote: »

Probably could have been stopped or depressed a bit in a few ways. But nobody stood up and said stop loud enough.
If the length of time mortgages could be borrowed over had been limited, it would set a limit on how much people could borrow as they can only afford a certain percentage of their salary in repayments. If there had been a ban on 100percent mortgages...doesn't need explaining. More regulation of developers...higher standards in housing quality, a certain number of 1/2/3/4 bed houses/apartments per development (with NO loopholes) and more 3/4 beds than 1/2 beds. Also a large onus on developers to supply the necessary infrastructure, as in drainage,roads,public transport links (would it have killed them to stick a bus stop at the entrance to developments???). And not allowing a piece of land to become worth more than the building on it (witness Jury's hotel site in Ballsbridge) or the potential building on it.
With some or all of the above measures we could still have had a boom, but certainly not anything like what we had.And let's face it, the higher you are the further you have to fall.And we were pretty high......

I think we can all agree the government had many ways to slow the property bubble if they wanted to but choose to let the banks run riot giving mortgages left right and centre to people that shouldn't of been getting them.

Can I ask another question? What do people think should be done with thethe current areas of land that are now standing unused because developers won't build on them now? Should they be obliged to hand them back to, say the county councils, maybe for a nominal fee, to be used as public land if they aren't going to use them within a certain time frame??Or maybe they should have to provide playgrounds/parks??Or am I asking a ridiculous question??It's just there is a lot of weed covered empty land around where I'm living and it'll probably never be used now and never cleared up either.

I don't think anything should be done. If they own the land fair enough. If they have a contract to build on the land but aren't within a reasonable time, the contract should be torn up. There is no shortage of commercial and residential property so building on land lying idle isn't the problem.

The lack of local amenities and poor planning and poor quality of housing is what we should now start working on IMO. We should have had proper policies in place before we let the developers go nuts but that is besides the point. It is too late for that.

Amnesiac_ie

I think everyone is looking for someone to blame; the government, the developers, the banks but I think we all have to realise that as a nation most of us bought into the madness of the bubble. We elected Fianna Fáil into government three elections in a row. A lot of us took on 100% mortgages and racked up large amounts of personal debt. We are at the start of a painful recession and there is a lot of correction and hardship to come. I do want to see change in the banks and a change of government but I think as a people we need to fundamentally change our own attitudes and way of living and accept our own role in the predictable boom/bust crash of the bubble.

Sand

Okay - Lets cover the basics of what the government is to blame for:

Firstly, sacrificing good planning laws and sensible land rezoning in favour of the construction industry.

Secondly, deliberately provoking demand by incentivising speculative demand in property - this was at a time when property was already in much demand, and the government decided to throw petrol on it.

Thirdly, taking the short term tax yield from the property bubble ( stamp duty) and instead of saving it as a reserve for hard times, instead used it to pay themselves wage increaes, to pay their buddies in the social partnership talks wage increases, and to throw money around uselessly. To the point where the government is spending 65 BILLION EURO a year, though it can only raise, at best, 34 BILLION EURO this year. Thats how badly they kept spending under control. How terrible they are at fiscal discipline.

Fourth, their complete feckless gombeen man style politics - perhaps best illustrated by the criminally wasteful decentralisation scheme which was simply an exercise by rural Fianna Fail TDs to buy votes from their constituents, using construction contracts and payoffs from the decentralisation cash cow. All at the tax payers expense.

Fifth, ignoring the loss of Irelands competitive edge - see the massive pay rises they gave to themselves and their buddies in the trade unions. And remember, all of this was paid for on stamp duty - hardly a long term revenue stream but Fianna Fail spent it on long term costs like doubling the public sectors wage bill in only a few years.

Sixth, completely abdicating from their responsibility to ensure oversight of the banks, which were allowed - indeed encouraged - to lend and lend and lend and lend with few or no controls or practical limits enforced. Indeed, the Government wilfully colluded with the Irish banks to attempt to falsify their books and to mislead and deceive shareholders - something they continue to do up to now. Much of the lending that the banks carried out directly contributed to the run away inflation in the housing market - people were given the money, so they spent it. If they didnt, someone else did.

Thats just off the top of my head.

Why should the government have to ban things like 100% mortgages? Surely it is up to the individual to act responsibly.

Sure, for issues of individual importance. Where risks become so great that they are systematic - see Irish banks and their mortgage lending - then the government, or some other neutral market regulator that we might as well call the government usually gets involved.

And in a harsh capitalist world banks like Anglo Irish, AIB and Bank of Ireland would be left to burn. But they havent been left to burn, so we are not in an harsh capitalist world. If the government is going to required to bail out the banks when they **** up, then its got an interest in preventing them from doing very dumb stuff.

zootroid

Jaysoose wrote: »

Without an economics degree i cant comment on who is to blame, what i do find astounding is the general lack of personal responibility being shown in the country at the minute. The bank did not twist anybodies arm to take astoundingly stupid and risky levels of personal debt. Nobody forced anybody to buy a bog standard 3 bed semi for more than 300K.

People chose to ignore the continued warnings in the media from people like Mcwilliams and Mr George Lee. They also chose to ignore the dubious actions of a former leader of the country whose didnt have a bank account but hundreds of thousands of euros in his briefcase, the same leader that told us it would last forver shortly before skipping off into the sunset with his pockets stuffed full of taxpayers moneys and developers "gifts"

Banks didnt help but then the irish people walked into this with their collective heads up their arse.

I bought at the wrong time like a lot of people but i accept the fact that i went looking for the credit so have no choice to take it on the chin.

Thats all well and good, but what about the people who didn't take out huge mortgages to pay for over-priced houses? Even though people may have been prudent, they still may end up on the dole. The economy was being built on construction, it was not sustainable and should never have been allowed to happen in the first place. There were huge failings in macro-economic policy on the governments behalf. But people who had nothing to do with fuelling the property bubble are still affected by it now it has collapsed.

The three groups responsible for the mess we are in now are (in order)

1. The government
2. The banks
3. Property developers

Just my 2 cents

asdasd

My list

1. The banks, and their economists, and the ESRI.
2. The people who elected the government and who believed property never would fall.
3. The Government.
4. Property developers

Once the government had allowed the thing out of control there was no way back, because people are economically illiterate. I remember a discussion with a woman where I was complaining about 100% mortgages. She was in favour because she wondered how otherwise would people afford a house.

The banks played down that, of course. Every new financial innovation was great news for first time buyers.

And politicians, in democracies, are not necessarily intellectuals, or scientists. The government probably believed what Dan McLaughlin was saying, and the ESRI - predicting 4% growth last year, and a soft landing.

Lastly would the government be allowed to curtail mortgage lending once it starts. Imagine the opposition - people are going to be priced out if 100% mortgages are curtailed, or 40 year mortgages banned ( remember people didn't see links between the types of mortgages and the price of housing).

And had government intervention stopped the madness in 2003 it would have reversed the economy in 2003 since construction was such a part of the economy since 2001.

People dont get counterfactuals. You cant really argue in 2003 that it would have been worse in 2009.

What was needed was honest economic reporting by the banks and their economists.

djpbarry

zootroid wrote: »

The three groups responsible for the mess we are in now are (in order)

1. The government
2. The banks
3. Property developers

So no personal responsibility whatsoever? Should the government step in to manage everyone’s personal finances?

SkepticOne

Bubbles are a normal characteristic of speculative markets. The problem comes when those who did not participate are punished in order to bail out those who gambled and lost. Note that I don't count ordinary homeowners here who are also being punished to bail out others, but rather banks, developers, builders and speculators.

AARRRGH

In my opinion there are a number of reasons. In no particular order...

1. FF think short term. This means they aren't willing to make difficult decisions such as curbing a property bubble, because it would have been unpopular (too many people were making money from the bubble.)
2. FF were in bed with the developers.
3. FF have never been the smartest bunch of people.
4. Our financial regulator was negligent/useless.
5. Once one bank started lending willy nilly, they all had to do it. This was a mixture of negligence and stupidity.
6. The average person is quite stupid, and doesn't understand the concept of personal responsibility, so they bought into the "get on the property ladder" scam.
7. Interest rates were historically low.
8. People generally don't understand economics (and don't want to understand) so they thought the bubble would last forever.
9. The US economy crashed due to their own property bubble.
10. Our economy was based on selling houses to each other using large loans. We never were wealthy.
11. The government was making so much money from stamp duty, etc.

What annoys me most about this, is conservative/intelligent people like me who refused to get on board the bubble are having to pay for so many other people's mistakes. It really makes me want to emigrate.

suckslikeafox

AARRRGH wrote: »

What annoys me most about this, is conservative/intelligent people like me who refused to get on board the bubble are having to pay for so many other people's mistakes. It really makes me want to emigrate.

With you there, its annoying me a serious amount. Worst part is that even after the pay cut I got I'm trying to save which is pointless due to rates being so low.

Maybe I should invest in property, I hear theres money there;)

thebman

djpbarry wrote: »

So no personal responsibility whatsoever? Should the government step in to manage everyone’s personal finances?

What it comes down to IMO is if you have a few people failing to pay back loans that is a failure of personal responsibility.

If hundreds of thousands are doing the same thing you have a failure of a system not individuals.

When everything was setup to try to get everyone into property in the country and borrowing more than 3 times their wages, it is partly the persons fault for being so stupid but there is clearly a much bigger problem when they were encouraged to act like this by government, lenders and the regulator who failed to block such lending.

/not involved in property in anyway unless you include renting so not just being in denial to make myself feel better

dan_d

I'd certainly be the first to say that banks and the gov and property developers have a lot to do with all this, but irish people bought into it all.I've beaten this to death with a stick by now (!), but people (I won't say we as I and many others didn't), ran out the door to grab all this property, cars etc, with very little thought to the future. thebman, I agree with your statement about a system failure.Initially people should have had the cop on not to behave like that.When it was blatantly getting out of control someone ( say 2000?2001?) in power needed to pull the reins in and call a halt.Everyone would have whined, but in the long term we would have been far better off. As AArgh says, FF think short term (As in about a month ahead imo). Plus they were like those cartoons you see, where characters go around with dollar signs in their eyes. Congratulating themselves on how wonderful things were, and sure wasn't Ireland great.Yes it was, but it would have been greater if it's Gov had been a bit more conservative and now had the money to get through the hard times.
Anyway, I'm sure we can all rant and rave about them for the rest of our lives.Hindsight is perfect vision. Question is, what are we going to do to fix the mess we're in, and who do we entrust it to? I'm not seeing any immediate answers to that right now.

jmayo

djpbarry wrote: »

So no personal responsibility whatsoever? Should the government step in to manage everyone’s personal finances?

Yes there is a big place for personal responsibility.
If a person believed all the hype without doing homework, went out and signed upto 40 year 100% mortgages that they were barely able to payback or bought multiple investment properties usig interest only mortgages, then they are damm well responsible for the mess they now find themsleves in.
And they should not be bailed out.

But you can't lump the blame for the sh** the banks did, the incompetence of the government in managing our economy or the ineptitude of authorities on individual members of the public.

The people are not responsible for the fact that the banks were offering crazy money to developers, that the bankers were pulling strokes and regulators and authorities were turning a blind eye, that the develoeprs were being aided by a government that made sure investors were being lured into the net by tax incentives.
The government did not act to take steam out of the martket, they actually did the opposite and stoked the flames higher.

The only way that individuals could be seen as responsible for the mess the government made is that they continued to support them and voted the fckkers back in in 2007.

IMHO it is the role of government to rule, to make decisions for the best interests of the country and it's citizens.
They abjected most of this responsibility and just saw how they could make a quick buck, both for themselves and their major supproters.

AARRRGH wrote: »

....
What annoys me most about this, is conservative/intelligent people like me who refused to get on board the bubble are having to pay for so many other people's mistakes. It really makes me want to emigrate.

+1
And what is worse when we did raise concerns and voiced our opinions that we were building ourselves a house of cards, we were either told to stop whinging or else to f**k off out if we didn't like the economic miracle that the great bertie had built.

I can name a good few posters, who on this forum before last GE, were lauding the great celtic tiger economy that bertie had built and what a great country he had created.

I can't say what I really think of these people, becuase I have been warned previously about wishing ill on ******.

johnnyskeleton

cm2000 wrote: »

But this is the thing I don't understand. My economic brain tells me that when you incentivise house building and therefore get more housing, this increases the supply of houses and therefore, it should have a deflationary effect on houses as supply increases. Obviously this isn't the case, however, I find it hard to reconcile the two variables of house prices rising because building was incentivised.

They didn't incentivise house building per se, they incentivised house purchasing, which indirectly incentivised house building.

If you tax something, you increase the price and thus discourage people from purchasing same. If they persist in purchasing, you benefit from the increased tax revenue (e.g. cigarettes). By contrast, if you subsidise something, you encourage people to buy. The government should have increased the proportionate amount of tax on increased house prices (e.g. kept stamp duty the same, introduced property tax over a certain treshold) but instead they subsidised it (e.g. section 23 & affordable housing). The net result was that towards the end of the bubble, the only people who were buying were buying because of s.23 relief, because they "won" the AH lottery, or because they had more money than sense.

What this meant was that instead of the increased supply reducing or stabilising house prices a few years ago, the subsidies increased the supply further which is why we now have a massive oversupply and little demand.

cm2000 wrote: »

So what you are saying is that the government, at a time of huge demand, should have regulated the building market to such an extent that there was a huge amount of people chasing very few properties pushing house prices up in the short term... But in this scenario, where are people supposed to live?

Viewed as a commodity, someone will get just as much benefit from a €100k property as they will from the same property valued at €300k. The problem is that people didn't view it as a commodity, and were encouraged in this view by, inter alia, the government.

The Raven.

dan_d wrote: »

Probably could have been stopped or depressed a bit in a few ways. But nobody stood up and said stop loud enough.

Nobody?

Have you ever taken the time to study the planning applications during the property boom?

Have you ever read any of the thousands of objections submitted against the massive, wide scale, unsustainable, sprawling property developments?

Have you ever read through the councils’ own planners’ reports, which they subsequently ignored?

Have you ever read through An Bord Pleanala’s planners’ reports? Some of these were also ignored.

Oh yes, thousands of people have stood up and shouted 'stop' in the only way that is legally possible.

zod

If McWilliams is right we are in for a decade of pain.

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=DAVID+McWilliams-qqqs=commentandanalysis-qqqid=41602-qqqx=1.asp


Is there any way we could accelerate the market finding the true value of property ?

In fact the government asking BOI and AIB to delay foreclosures might actually be delaying the inevitable.. and hence prolonging recession in Ireland for longer

SkepticOne

The Raven. wrote: »

Oh yes, thousands of people have stood up and shouted 'stop' in the only way that is legal.

But they were standing up against inappropriate development, not bubble prices. What people should have done was refused to pay the sort of money that being asked, but instead people queued up in greater and greater numbers than ever right up to the very point of the bursting of the bubble.

thebman

SkepticOne wrote: »

But they were standing up against inappropriate development, not bubble prices. What people should have done was refused to pay the sort of money that being asked, but instead people queued up in greater and greater numbers than ever right up to the very point of the bursting of the bubble.

It is the bank that should refuse to lend that much to people. They are supposed to put checks in place to protect themselves and to ensure the person can pay them back. Obviously they weren't.

You can't take away the rules for qualification and then complain that people are cheating. There were no rules so how could they be cheating?

Regulation and banks failing to protect themselves caused this crisis and now people are being asked to pay for their massive mistakes.

SkepticOne

thebman wrote: »

You can't take away the rules for qualification and then complain that people are cheating. There were no rules so how could they be cheating?

I didn't say people were cheating.

Regulation and banks failing to protect themselves caused this crisis and now people are being asked to pay for their massive mistakes.

Yes the banks were responsible too. They bought into the bubble as much as anyone else and now we're bailing them out.

AARRRGH

SkepticOne wrote: »

What people should have done was refused to pay the sort of money that being asked, but instead people queued up in greater and greater numbers than ever right up to the very point of the bursting of the bubble.

I refused to buy because I could see we were in a bubble.

My friends (and acquaintances) who wanted to buy, I tried to warn them that their purchase would come back to haunt them, but without fail they looked at me like I was a jealous moron.

Now these people are saying things like "no one could have predicted what's happened" or "it's the banks fault".

No, it's your own fault for not using your brain.

I swear, as I get older I am constantly being reminded that if the masses are doing it, it's probably wrong!

thebman

AARRRGH wrote: »

I refused to buy because I could see we were in a bubble.

My friends (and acquaintances) who wanted to buy, I tried to warn them that their purchase would come back to haunt them, but without fail they looked at me like I was a jealous moron.

Now these people are saying things like "no one could have predicted what's happened" or "it's the banks fault".

No, it's your own fault for not using your brain.

I swear, as I get older I am constantly being reminded that if the masses are doing it, it's probably wrong!

lol I didn't buy into it either and got the same crap from people. Got told I didn't know what I was talking about.

One thing seems certain though. No matter how stupid the masses act, as long as it is in masses, the government will screw everyone else to try to protect them which is what we seen now.

This is why the masses shouldn't be allowed make stupid decisions when they are trying to do it on a scale that can bankrupt the country.

Sleepy

The government-appointed financial regulator was incompetent.
The government introduced tax incentives for developers with no quality strings attached.
The government allowed the estate agency industry to self-regulate to the extent where one could become "certified" by writing a cheque.
The former taoiseach told those warning of a property bubble to hang themselves.

Yes, there are questions to be asked about personal responsibility but one could also argue that the government failed to ensure that the public had the facts available to them to make rational decisions about 'investing' in homes or second properties that were grossly over-valued...

Sleepy

thebman wrote: »

This is why the masses shouldn't be allowed make stupid decisions when they are trying to do it on a scale that can bankrupt the country.

So, you're saying that we need to out-law voting for Fianna Fail? I'm with you!

Fighting Irish

Sure if the banks weren't giving out 300K mortgages the same people who are complaining about bailing out the banks would be complaining that they couldn't get a mortgage

Fighting Irish

Roll on more price drops, soon enough i'll get a nice house for €100K

thebman

Fighting Irish wrote: »

Sure if the banks weren't giving out 300K mortgages the same people who are complaining about bailing out the banks would be complaining that they couldn't get a mortgage

Not really the price wouldn't go to 300K for a house if people couldn't get a 300K mortgage.

What people are willing to pay decides the price and in housing if there is a shortage, what people have to pay or how big a mortgage they can get decides the price so the person capable of taking out the largest mortgage can buy the house.

If you cap the amount a person can borrow to 3 times their basic wage then you have a realistic system in which prices are kept under control and don't balloon.

The reality of course is it paid a lot of people to not want to regulate the market properly.