A couple of days ago the PTSB/ESRI house price series was revealed for the third quarter of 2010. A day beforehand on here, I had tried to examine the accuracy of the PTSB series in light of PTSB apparently having less than 4% of the mortgage market and the significance of the non-cash market. I wrote to the ESRI yesterday setting out my concerns, pointing out that people expect to be able to treat ESRI information with confidence and that a house price series that is unrepresentative could have an immediate and damaging effect on the purchasing decisions of what are mainly first time buyers who represented 58% of all transactional mortgages granted in Q1 & Q2 of 2010. I wouldn’t expect a reply for a few days.
Because Irish Life and Permanent (PTSB’s parent) let slip in the half year report for 2010 that the company advanced gross new lending of €0.1bn, I was able to estimate the company’s share of the mortgage market (or to be more accurate the share of the Irish Banking Federation mortgage market which claims more than 95% of the State’s total mortgage lending). Assuming the house prices achieved in the IBF mortgage market display a normal statistical distribution I was able to calculate that the margin of error on PTSB’s average prices had roughly a 7-8% margin of error, ie a €200,000 average could be a €184,000 average of as high as a €216,000 average. Fine you might say, you could live with that level of estimating. Except of course that margin of error is understated because cash transactions will increase the margin of error. By how much?
The first information vacuum
We don’t know the number of residential transactions in this country. By which I mean the information is not compiled and/or made public. It is a very basic piece of economic information – see the attached for the UK’s information release each month. In the UK in September 2010 there were 78,000 residential property transactions. That was the size of the market. What about Ireland? We have no idea at all, not just for September 2010 but for any period it seems. Earlier this week the Revenue kindly provided stamp duty data from 2003 onwards for residential and 2007- for commercial. Whilst giving a partial picture of transactions, it was incomplete because it excluded stamp duty exempt transactions and the Revenue say that this information is not available. The IBF on the other hand release comprehensive information on mortgage drawdowns but they exclude cash transactions and indeed non-IBF member mortgages. So that too is a partial picture. If the UK had a market that was comparable to Ireland then those 78,000 transactions for 63m people in September 2010 might equate to just over 5,000 transactions for the State. The IBF claim to issue about 1,500 transactional mortgages each month. So would that imply that the State has about 3,500 cash transactions each month? Who knows, but if we did know we would be able to better quantify the margin of error in PTSB’s house price series. That is the first information vacuum.
The second information vacuum
As an interested observer I must say I was mildly shocked by the Minister for Planning, Sustainable Transport and Horticulture Ciaran Cuffe’s press announcement yesterday which accompanied the summary report on so-called ‘ghost estates’ in our State. Not only was the announcement unclear as to the remit of the recent review (“all housing developments of two or more dwellings built or granted permission in the last few years that had commenced by the time of the survey” – excludes finished estates, estates commenced before 2007 and estates where there is less than 10% vacancy and one-off housing), but it gave the impression that previous estimates of vacant housing in the State were wrong (“the market has lacked clear and independent data until now on the number of new unoccupied homes”) and there were indeed hints at shortages (“the total number of vacant units either completed or nearly completed is roughly equal to 18 months’ construction output of new housing at 2009 levels”). The announcement made available a summary report which analysed some estates by local authority. A detailed report was originally advertised on the environ.ie website yesterday but when asked, the Department of the Environment, Housing and Local Government press office said “it is our intention to upload to the Department’s website early next week a further breakdown of the figures by city/county area early next week and also maps for these areas”.
One of the key problems confronting NAMA in respect of residential property is true price discovery – how much is a property worth, and for long term economic value purposes how much property have we & how many people have we, so that we can establish the demand:supply position today as a basis for projecting future values based on future construction estimates, obsolescence and population change. Those foundations do not exist. And they should.
