Property Market 2015

gaius c

handlemaster wrote: »

Agreed on that. That should have been all dealth with by now but then you cant apply that to land owners and then turn around to home owners and say you are different

I double checked his post and Sean was specifically talking about development land where the loan is not performing and they can't (or don't want to) crystalise the loss.

The Thomas Reid case is an interesting look at "taking" land from people who own it outright and don't want to sell.

But that's not what Sean is talking about. He's talking about folks sitting on the land until buyers come along to clear their non-performing debts for them.

Villa05

SeanSouth wrote:

The only way to resolve the current problem is to reduce taxes on houses,reduce regulation to mid tier european level and increase income tax credit on interest. We also need to build much smaller houses that we can afford and lower our expectations dramatically. If you are Joe average on a modest income, you just cant afford to live in a big detached property in a leafy suburb. No where in the world will you find this. The celtic tiger is dead gone and buried and will never be seen again. It was a once off !! The new reality that we need to adjust to now is much smaller homes that are affordable and this is what we need to start building.

Funny how home buyers need to adjust expectations and not people who are mortgaged to the hilt and underwater on development land loans

The only solution for mortgaged to the hilt and underwater is debt resolution and sell off of the underlying assets

handlemaster

Sleepy wrote: »

Simple: triple the existing property tax on vacant units.

So if you have a property and no one whats to rent it that would be harsh

SeanSouth

So just to go back to the numbers again :

Average couple earning a combined 70K are allowed to borrow(central bank rules) - 245K. They also need a 20% deposit (60K)
Total capacity to buy a house 305K.

Lets say they want to buy a new 1800sq ft house in one of Dublin's "less expensive" suburbs.

Cost of building a 1800sq ft house - 270,000
Cost of land based on traditional land value 1/3 RULE - 90,000
TOTAL cost of house 360,000.
Obviously this fictitious average couple cannot afford to buy such a house as they only have 305,000 available to them

Now it appears to me that most people on this thread are suggesting that the owner of the land is the one to be screwed to make the formula work !! No one seems to be suggesting that the government takes less tax or that the regulations should be relaxed. We're basically saying that the developer who got caught out when the market tumbled should be forced to crystallise his losses and make the land available. You are also saying that he should now be willing to accept far less for his land than was the norm 20,30 or 40 years ago. In fact to make the current formula work it would mean that the development land will have almost no value at all. All the money available, 305 K in this case to be reserved for the building and the tax man !! Some are even going further again by suggesting that the landowner should "use it or lose it" if he fails to partake in this new unbalanced shake out of the spoils.

Common sense dictates that a balanced approach is needed. The government must concede that it takes less tax from the house building process, the regulations need to be relaxed to drive down cost and the landowner must also accept less for his land. The buyer too must accept that their money will no longer extend to the large mansions that were once possible. Until a new balance is struck between all these interest groups, building supply will continue to stagnate.

The_Conductor

handlemaster wrote: »

So if you have a property and no one whats to rent it that would be harsh

It is harsh- but presumably- you'd reduce the rent, and keep reducing it- until eventually someone was willing to rent it- and the government would then sell this as a win-win- you know how they'd spin it........

SeanSouth

SeanSouth wrote: »

So just to go back to the numbers again :

Average couple earning a combined 70K are allowed to borrow(central bank rules) - 245K. They also need a 20% deposit (60K)
Total capacity to buy a house 305K.

Lets say they want to buy a new 1800sq ft house in one of Dublin's "less expensive" suburbs.

Cost of building a 1800sq ft house - 270,000
Cost of land based on traditional land value 1/3 RULE - 90,000
TOTAL cost of house 360,000.
Obviously this fictitious average couple cannot afford to buy such a house as they only have 305,000 available to them

Now it appears to me that most people on this thread are suggesting that the owner of the land is the one to be screwed to make the formula work !! No one seems to be suggesting that the government takes less tax or that the regulations should be relaxed. We're basically saying that the developer who got caught out when the market tumbled should be forced to crystallise his losses and make the land available. You are also saying that he should now be willing to accept far less for his land than was the norm 20,30 or 40 years ago. In fact to make the current formula work it would mean that the development land will have almost no value at all. All the money available, 305 K in this case to be reserved for the building and the tax man !! Some are even going further again by suggesting that the landowner should "use it or lose it" if he fails to partake in this new unbalanced shake out of the spoils.

Common sense dictates that a balanced approach is needed. The government must concede that it takes less tax from the house building process, the regulations need to be relaxed to drive down cost and the landowner must also accept less for his land. The buyer too must accept that their money will no longer extend to the large mansions that were once possible. Until a new balance is struck between all these interest groups, building supply will continue to stagnate.

The value of your investment may go up or down.

gaius c

SeanSouth wrote: »

So just to go back to the numbers again :

Average couple earning a combined 70K are allowed to borrow(central bank rules) - 245K. They also need a 20% deposit (60K)
Total capacity to buy a house 305K.

Lets say they want to buy a new 1800sq ft house in one of Dublin's "less expensive" suburbs.

Cost of building a 1800sq ft house - 270,000
Cost of land based on traditional land value 1/3 RULE - 90,000
TOTAL cost of house 360,000.
Obviously this fictitious average couple cannot afford to buy such a house as they only have 305,000 available to them

Now it appears to me that most people on this thread are suggesting that the owner of the land is the one to be screwed to make the formula work !! No one seems to be suggesting that the government takes less tax or that the regulations should be relaxed. We're basically saying that the developer who got caught out when the market tumbled should be forced to crystallise his losses and make the land available. You are also saying that he should now be willing to accept far less for his land than was the norm 20,30 or 40 years ago. In fact to make the current formula work it would mean that the development land will have almost no value at all. All the money available, 305 K in this case to be reserved for the building and the tax man !! Some are even going further again by suggesting that the landowner should "use it or lose it" if he fails to partake in this new unbalanced shake out of the spoils.

Common sense dictates that a balanced approach is needed. The government must concede that it takes less tax from the house building process, the regulations need to be relaxed to drive down cost and the landowner must also accept less for his land. The buyer too must accept that their money will no longer extend to the large mansions that were once possible. Until a new balance is struck between all these interest groups, building supply will continue to stagnate.

Interesting approach of ignoring folk who've interacted directly with you and instead address imaginary opposition & distort their viewpoints for you to swiftly demolish with your lance of truthiness.

Bob24

SeanSouth wrote: »

Cost of land based on traditional land value 1/3 RULE - 90,000

Can you elaborate that rule??

SeanSouth

Glad you found it interesting (tongue-in-cheek)

With some seriousness though i am trying to provoke some balance in this discussion.Thirty years ago we built very basic houses in this country at low cost and low taxes. If we introduce much higher costs into the process, someone must pay and its illogical to say that this must be the land owner (alone) !!

SeanSouth

Bob, it was a rule of thumb in the building game. Site cost, 1/3 of building cost in
city locations

keane2097

Sure if the land can't be built on because nobody can afford the house after what is the value of the land?

You've just arbitrarily decided a value intrinsic to the land that makes it essentially valueless.

SeanSouth

Thats very interesting Keane2097. The converse of that statement must be - If you cant afford the land to build your house you cant have a house so therefore you're homeless. If nobody can afford to build a house then the land is worthless as you say. A Mercedes costs 50,000 but if nobody has 50,000 then its worth less or anything else for that matter. Price is derived from supply and demand. As long as development land is in demand it will have a price. the price is dictated by the point where the supply curve meets the demand curve (economics 101) Only if there is no demand will it have no value.

SeanSouth

SeanSouth wrote: »

Thats very interesting Keane2097. The converse of that statement must be - If you cant afford the land to build your house you cant have a house so therefore you're homeless. If nobody can afford to build a house then the land is worthless as you say. A Mercedes is worth 50,000 but if nobody has 50,000 then its worthless also or anything else. Price is derived from supply and demand. As long as development land is in demand it will have a price. the price is dictated by the point where the supply curve meets the demand curve (economics 101) Only if there is no demand will it have no value.

Can you tell me where on the supply curve "Cost of House / 3" is?

SeanSouth

Dont know if your question is in jest or not but to answer your question, NO supply at that point

SeanSouth

SeanSouth wrote: »

Dont know if your question is in jest or not but to answer your question, NO supply at that point

At what point?

You've first told us that land value is defined by (or at least can be inferred from) the cost of the house that is to reside on it (1/3 cost of build).

You've then told us that land value is defined in the market by the point of the intersection of the supply and demand curves.

Which is it? Or if it is indeed both, can you tell me where on the supply curve the value '1/3 cost of house to be built on top of this land' is?

SeanSouth

Misquote there i'm afraid

I referred to a rule of thumb in the building game that said that land prices were 1/3 of building cost on average and this was cited in simple laymans language. In economic terms we explain this as a positive corelation between the demand and price for finished houses and the demand and price for building land which tended to move in tandem to maintain a constant ratio between the two. As the demand and prices for houses rose relative to supply so did the demand and price for building land rise in relation to its supply. Yes both are correct

Sorry, I dont understand your question about the supply curve.

SeanSouth

to answer your question which I dont fully understand lol, lets tease it out with numbers.

If a house costs 300K to build then at a price of 100K (1/3 of its cost) I wouldnt expect any houses to be supplied at 100K so the answer is zero, no supply at 100K not on the supply curve at all.

Villa05

SeanSouth wrote:

Cost of building a 1800sq ft house - 270,000 Cost of land based on traditional land value 1/3 RULE - 90,000 TOTAL cost of house 360,000. Obviously this fictitious average couple cannot afford to buy such a house as they only have 305,000 available to them

The vast majority of people do not buy a 1800sq ft house. The avg house is far less than that.
The cost of construction also needs to be addressed.

the_syco

Villa05 wrote: »

The cost of construction also needs to be addressed.

I'd say the cost of land is a large percentage of the build cost. And if you cap the sale price of land, I'd say the price of houses would rise due to lack of supply.

Villa05

the_syco wrote: »

I'd say the cost of land is a large percentage of the build cost. And if you cap the sale price of land, I'd say the price of houses would rise due to lack of supply.

I don't think anyone is suggesting capping the sale price of land, merely a charge should be placed on land that has been zoned for development but is currently idle. This charge shoud increase over time making land banking un-viable

To offset this a reduction in building taxes should also be introduced

jay0109

I have no problem in capping the sale price of land...if we had done that in the 70's as recommended in the Kenny report, imagine where'd we'd be today

gaius c

SeanSouth wrote: »

Thats very interesting Keane2097. The converse of that statement must be - If you cant afford the land to build your house you cant have a house so therefore you're homeless. If nobody can afford to build a house then the land is worthless as you say. A Mercedes costs 50,000 but if nobody has 50,000 then its worth less or anything else for that matter. Price is derived from supply and demand. As long as development land is in demand it will have a price. the price is dictated by the point where the supply curve meets the demand curve (economics 101) Only if there is no demand will it have no value.

Luckily the NAMA fairy exists to indecently assault the notion of market pricing with it's magic LTEV wand.

"That's what we've decided the price is and if you don't want to pay it, emigrate or rent"

the_syco

Villa05 wrote: »

This charge shoud increase over time making land banking un-viable

I think the main reason for most of the land banking now is that should anything get built on the land, the developer won't get anywhere near what they spent on the land. Never mind the price to build the actual house.

jay0109 wrote: »

I have no problem in capping the sale price of land...if we had done that in the 70's as recommended in the Kenny report, imagine where'd we'd be today

I'd wonder how many less houses we'd be?

jay0109

the_syco wrote: »

I'd wonder how many less houses we'd be?

I'd wonder how many more we'd have....how many tens of thousands wouldn't be in debt up to their necks now, most of it never repayable and so is foisted on the taxpayer...how much more money there would be to go round the economy....how many more children would have been born to families that weren't at the pin of their collar.

The Kenny report was in the 70's. If it had being introduced then, we'd be well used to it by now and would have adapted along the way

guile4582

speaking to a broker recently we gave him our details and where we are savings wise.

with mortgage rules, we are looking to draw down 280k

now we wont have the deposit figure needed for a 350k house until june earliest, but the broker seems to think we can get loan approval in January given we about 20k away from our figure.

is he right? are they maybe leniant on the rules in certain circumstances?

NinjaTruncs

From my experience BOI wouldn't take future savings into account. they would only consider what I had at the time of application.

SeanSouth

Capping the price of land, Now that's another interesting one. So lets say in our earlier example that you cap the price of the land at 35,000 to make the numbers work which would now look something like this

Income 70K
Deposit 60K
Mortgage 245K
Build Costs 270K
Land 35K

so now everyone (except the landowner) is happy, right ? No, not really......

Over in south county Dublin, 70 year old houses which were constructed to a very basic standard in the 1940s are now selling for 550K. The value of the bricks and mortar on that land is worth 100K maximum which gives a calculated value of the land/site on which the houses are situated to be 450K. So while you're capping the value of land on new builds at 35K,45K,55K (whatever you decide the cap to be) the site value of older houses in other parts of the city is still deemed to be worth half a million. You cant square the circle on this one !!
If you try to crash the price of second hand homes to reflect the new capped land value, you throw half the country into negative equity and you succeed in collapsing the banks (again)

As we all know now for a long long time, the only successful approach for government towards the property market is to back off and let market forces do the work. Trying to tweak things here and there to pander to particular interest groups will just make everything worse.

Unfortunately the only answer to solve the current problem (supply) is for house prices to rise and rise they will. The government knows this too but there's an election coming and this wont be popular on the doorsteps. When house prices rise sufficiently, supply of development land will become available again and building will recommence. The point is however that when building does recommence, the only thing that will work for the existing market price is very small houses and appartments. That's where the affordability level lies and thats what will be built

Cuddlesworth

SeanSouth wrote: »

Capping the price of land, Now that's another interesting one. So lets say in our earlier example that you cap the price of the land at 35,000 to make the numbers work which would now look something like this

Income 70K
Deposit 60K
Mortgage 245K
Build Costs 270K
Land 35K

so now everyone (except the landowner) is happy, right ? No, not really......

Over in south county Dublin, 70 year old houses which were constructed to a very basic standard in the 1940s are now selling for 550K. The value of the bricks and mortar on that land is worth 100K maximum which gives a calculated value of the land/site on which the houses are situated to be 450K. So while you're capping the value of land on new builds at 35K,45K,55K (whatever you decide the cap to be) the site value of older houses in other parts of the city is still deemed to be worth half a million. You cant square the circle on this one !!
If you try to crash the price of second hand homes to reflect the new capped land value, you throw half the country into negative equity and you succeed in collapsing the banks (again)

As we all know now for a long long time, the only successful approach for government towards the property market is to back off and let market forces do the work. Trying to tweak things here and there to pander to particular interest groups will just make everything worse.

Have you considered that build costs across the board in Ireland are something that could be addressed. Land, wages, timescales, materials and build methods are something that seem very out of whack with even our closest neighbour. They can build and profit from 3 bed homes in the UK for 200k Euro, so why is it that you can only quote a minimum figure of 300k with no profit? You keep quoting rules, like the land should be 1/3 the cost of the build. Have you considered that Irish rules might not be the best ones to follow considering our 20 year messed up construction market.

SeanSouth

Yes I have, Ive been considering it throughout this thread.

The reason that building costs in the UK are so much cheaper is that there is no VAT applicable in the UK (in Ireland 13.5%) and no council development levies.
Total tax on a house in Ireland runs at about 20%, and in the UK, zero. They also don't have the same onerous building regulations that we do. In fairness to the Britts they have much better policies than we do.

ec18

SeanSouth wrote: »

Unfortunately the only answer to solve the current problem is for house prices to rise and rise they will. The government knows this too but there's an election coming and this wont be popular on the doorsteps. When house prices rise sufficiently, supply of development land will become available again and building will recommence. The point is however that when building does recommence, the only thing that will work for the existing market price is very small houses and appartments. That's where the affordability level lies and thats what will be built

House prices can't rise or they won't sell though.....What really needs to happen is a revaluation of the land/building costs with the segment of the market that developers want to sell to. Whether this be by cutting VAT rates or the likes to leave introduce a profit margin into the cost. But the central bank rules essentially call for developers to be more targeted in building....irrelevant of Land costs the days of first time buyers getting 100% mortgages at 4.5-5 times there salary are gone....