Irish Property Market chat II - *read mod note post #1 before posting*

I think you are totally missing the point I was making.... maybe I was not that clear.... At any point in time only a small % of the population will be impacted by rising creche costs.... The fact that it decreases because kids go to school is irrelevant as any point in time you will only have x% with childcare costs and therefore it is given the relevant weighting in the CPI.

An individual may have a perception that inflation is way higher than CPI because the inflation may be real to them e.g. the may have childcare cost and paying rent etc... But that does not mean that inflation in the wider economy is higher than the published CPI figure.

Even if you just look at childcare, insurance, housing and energy costs, it doesn't seem like these expenses are given sufficiently broad representation in the CPI based on how much they impact on the cash that people have in their possession and how many people that consume these services. These probably account for well over half of household expenses for the average family. I think it was only the other week that energy bills climbed 9/10% on top of the increases which we experienced earlier this year in our energy services, so either inflation is not relevant to measure cost of living increases or else there is something wrong with CPI (fair enough, I was a bit David McWilliams' hyperbolic by describing it as a scam).

This is a side discussion to property really, so to loop it back; I think the wage increases that are coming will be far higher than CPI-inflation would indicate they should be to keep up with the cost of living, which will in turn push the CPI (and cost of living) higher until interest rate rises/QE tapering happens, which will likely cool asset prices should it happen.

Families that have kids under 14 years of age is only about 10 -14% of the population so childcare costs would not be a normal household expense for the average family.

But as you say to keep this on track and related to property.... If you expect wage inflation higher than CPI then it is fair to expect house prices to continue to rise and not fall as people will have more disposable income..... Personally I don't see this happening as most companies will use CPI to calculate wage increases for the average worker..... Obviously there will be a bell curve where a small cohort of employees will get a larger increase because of performance while there will be another cohort that won't get any increase but overall it usually tends to correlate to the CPI

We are moving ever closer to a blanket rent freeze in the country - but this is just more useless tinkering rather than solving the actual issue that rents at the moment are on average far too high for the actual renters themselves to be satisfied - and there doesn't seem to be any accompanying statement from the minister that these measures will serve a purpose in the overall, declining rental market by temporarily halting the continued increase in rents while supply comes on stream which we hope will drag down average rents. The government will blame the likes of SF when these half-measures don't fix the problem as the populists were the ones calling for them, but it does seem clean that this constant, around-the-edges tinkering is what is going to ensure SF have a good chance of being in power very soon.

I noted elsewhere that Goodbody's analyst commentary in relation to i-RES REIT already flags for investors the risk posed to real estate by a SF government. The fear of SF will do more to alleviate the housing crisis than anything SF could actively do themselves to fix the crisis!

Because the annualised inflation rate went from 1.5% to 5% in that period of time. It changed the game and suddenly.

Rents control / caps do not work. There are many empirical studies which showed it had the opposite effect. It will constrain the supply further plus many other issues.

I wonder is SF purposely stoking the 'social fire' to completely wipe out FFG. Playing gvrmnt to introduce such measures to completely suffocate them with housing crises.

From what I ve seen, I fail to find anyone from government parties who has some critical thinking ability or imagination. Hence why everyone from lobbyist to developers to now SF are running rings around them. Or maybe its corruption disgusted as incompetence.

There is no time left to buy from tightening up rent controls. Looks like a lot of landlords who saw tenants voluntarily leave last year decided to keep their properties off the market until they had chalked up the two years of vacancy that permits an unrestricted rent review, but an unconditional freeze will make this cohort sell up as well.

As for the bit about the fear of SF, it makes me think about my rather tongue-in-cheek comment about SF deliberately crashing the market.

Do the low %rates not pilfer senior citizens savings in a 5% inflation environment and rising

One of the aims of QE is to generate inflation in the economy on the back of economic growth!!!

There would have been a bigger crash than 2008 if the central banks didn't step in and undertake QE. The ECB have already started tapering there asset purchasing programs

https://www.ft.com/content/576861c4-1c1a-43f6-b35b-02298f3ac551

Saying that Grey haired people benefit at the expense of younger people is BS.... It is people with money to invest and that are willing to take a risk that have benefited (And may be the same people that will suffer if/when a correction occurs) If a Grey haired individual as you put doesn't want to risk his money by investing in overpriced assets and keeps his money in the bank he is actually loosing out.

If a house is a home it makes no difference what the value of it is (with the exception of property tax). If they sell to buy another property there is no benefit as the new property has increased in price. They may have some benefit if they downsize and move to to a cheaper neighbourhood but that doesn't happen that often due to the costs involved. All that matters is the cost of purchasing it on day one not what it's worth today as the home owner has not benefited unless they plan on selling the property and moving to a different country with lower house prices.

The central banks have no intention of deflating asset prices. They have been cutting interest rates for 40 years which has pushed up the price of assets. The QE program is not a change to this policy and is only an extension of it because they are no longer able to reduce the central bank interest rate any lower.

History of the last 40 years has told us that a very small interest rate rise puts the brakes on the economy but over the longer term that they will need to continue to cut rates (or undertake QE) to keep the economy ticking over.

I fully expect that once the central banks will start issuing new "Green Bonds" to develop a more environmentally friendly infrastructure to be able to meet emission targets. This although not called QE will have the same effect and will result in low rates for a long time to come.

The central banks are like the drug manufacturers with money being the drug they have manufactured. Imagine this scenario where the drug manufacturers (central banks) were working on a covid drug which they managed to create and distribute to the market which seemingly had solid demand for it and therefore requested more and more of it. The supply of the covid drugs was made on credit but the drug manufacturer didn't care as it felt it was doing an altruistic deed by supplying the market with this covid wonder drug. However, when the covid drug manufacturer thinks it has made sufficient covid drugs to meet the demand of the market what happens if the covid drug manufacturer realises that the market it supplied its drug to was actually just a small group of people and therefore the demand it was meeting was many times smaller than it actually should've been meeting? The covid drug manufacturer has been operating on a "use now, pay later" basis and is not really geared up to ramp up supply dramatically as a result until it gets paid. But there is a whole portion of society still at risk from covid and another sector oversupplied with covid drugs. The right thing for the drug manufacturer to do would be to call in the debts of those who already received the covid drugs in order to ramp up supply to get more covid drugs out to those who were left behind, whilst also restricting further supply of the covid drugs to that oversupplied sector. However, central banks are not doing this and instead are continuing to supply the saturated sectors with covid drugs at the expense of other sectors of the market. And it gets worse; the oversupplied sector of the market then resell the covid drugs to the rest of the market making quite a bit of money for itself. As well, the government starts to buy from the oversupplied sector, competing with private individuals, in order to get covid drugs for the desperate, undersupplied sectors of the market. The oversupplied sector commands authority with the government's and claims to speak for the market as a whole. Since it has a good set up, it advocates for more of the same.

Where and how does it end?

There is no way whatsoever that we can have stock markets and house prices continuing to rocket the way they have done in recent years without something giving. The only way I see current prices staying the same or increasing further is if wages significantly increase or if more levrage is allowed in the market. We are again hitting the affordability ceiling which starts to filter into economic growth and negatively impacts it as housing money is dead money, not frequently recycled into the economy and sloshing around, never at rest.

I understand you’re disheartened. This isn’t the best time of year to be trying to buy, and supply of new builds is down more than usual thanks to Covid restrictions on building over the past couple of years. There should be a big jump in supply of new housing next year. Is there a reason you’re focused on new builds? Where I live they tend to be a lot more expensive than similarly sized second-hand houses.

I don’t know how much things have changed in the last 12 months but I was buying last year and I had a couple of estate agents selling new estates call me back months later because there were a couple of houses where the sale has fallen through.