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Archive for June 9th, 2011

I’m quite sure there was a commitment just over 100 days ago during the general election campaign to reduce the number of quangos, merge some together, extract efficiencies and overall to reduce the cost of running the hundreds of quasi government organisations, many of which mushroomed under the hallucination of the construction bubble phase of the Celtic Tiger. But as far as I can see, one of the first priorities for this new Government appears to have been to create new quangos, and the Government is fooling no-one by calling them “committees” or Special Delivery Units.

Today the new Minister for Housing and Planning, Willie Penrose announced the setting up of a new “national co-ordination committee” in the next two weeks to deal with legacy issues in the 2,800-odd Ghost Estates scattered throughout the country. You might recall that there was an audit of the numbers and conditions of these estates which was published last October 2010. That gave rise to an “advisory group”, a Guidance Manual, an interim report published in February 2011 and today the Advisory Group published a report on the way forward with dealing with these Ghost Estates. It seems to me that there continues to be a lot of talking but very little action in dealing with the legacy of over-building and developers that are in financial difficulty in a market where demand has dried up. When today’s report uses expressions like “utilizing housing stock for low-cost sale” to presumably mean “sell the houses for what you can get for them”, your heart begins to sink at the thought that these people are not getting the scale of the over-supply versus the absence of demand and credit.

In terms of the what seem like emergency issues (dealt with here), €5m has been made available to local authorities to deal with public safety issues (by the way that’s roughly the interest that we need pay for the next 36 hours to the IMF/EU on loans which we have drawn down but not yet used and which is sitting in accounts in state-guaranteed banks earning an unknown rate of interest but it’s unlikely to be much). Of the €5m made available, the Minister today announced that the first allocation of €1.5m was forthcoming.

It is recommended that 102 people be recruited or reassigned to deal exclusively with Ghost Estate issues across the country’s 34 local authorities (3 per authority) for a period of 2-3 years. The report doesn’t cost this extra manpower but at say an average staff cost of (conservatively) €50,000 a head, that’s €5m a year for 2-3 years. The report doesn’t appear to say who will pay for all these staff.

Nor is it clear who will pay for the new “national co-ordination committee”. And at this stage there must be a fear that this new committee is going to distort the market further, by frustrating the natural functioning of the market which should see liquidated stock sold on the open market for whatever price is available.

What the report does do is state the obvious, that problems are with partly completed estates where the developer or receiver is not acting to complete construction or where the developer has disappeared. The report helpfully categorises these estates but doesn’t quantify them. The report alludes to potential problems with enforcing bonds or seeking to use bonds to finish off construction, but it seems very light.

From the perspective on here, today’s report marks little progress in practically dealing with our Ghost Estate legacy. Remember also that there are some 350,000 vacant properties in the State (that will be updated when the results of the recent Census 2011 are published next year). Of the 350,000 it is estimated that more than 100,000 represent an “overhang”, that is a level of vacancy above the long term average. It is indicative of the oversupply problem, of which vacant homes on Ghost Estates are but a part.

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This morning, the Central Statistics Office (CSO) released its inflation figures for Ireland for May 2011. The headline rate is up by 2.7% year-on-year and 0.1% month-on-month. The latest estimate of inflation for 2011 from the Department of Finance, published in April 2011, for HICP inflation is 1%.

Private residential rents continue to stabilise, and indeed edge up with an increase of 0.1% between April 2011 and May 2011 even though levels are 1% down from a year ago. Indeed housing related costs generally are strongly increasing, with mortgage costs up 20% year-on-year and heating oil up 17% year-on-year.

In the past 12 months, private rents (which are a subset of all residential rents, along with public authority rents) are also up 0.1% month-on-month but down 0.5% year-on-year. In seven of the past 12 months, private rents have increased, in five it has decreased. This is how the private rents index has performed in the past year:

This graph of private rents for the past six years also emphasises the illustration of the flattening of rent levels, really since the start of 2010.

The CSO’s private rent statistics are based on a survey conducted amongst a panel of property letting and estate agents throughout the country and measures the actual average rents achieved in the previous month for a range of properties. From November 2010, the private rents index is updated monthly, prior to that it was updated quarterly.

UPDATE: 3rd June, 2011. It is worth reproducing the note that the CSO attaches to its releases in respect of mortgage interest (page 18 of the May 2011 release) which says “In line with normal practice for a fixed base price index, the current approach to measuring mortgage interest in the CPI reflects the situation in the base reference period December 2006
when the standard variable rate was dominant. Subsequently, tracker mortgages have become more popular. This did not give rise to any difficulties while the standard variable and tracker mortgage interest rates moved broadly in line with one another, which would be the normal expectation. However, the decoupling that has taken place since August 2009 has resulted in dramatically different trends emerging. For example, between September 2009 and September 2010 the standard variable rate increased from 2.93% to 3.66% whereas the tracker rate did not change. The Mortgage Interest component of the CPI, which is largely determined by the trend in the standard variable rate, increased by 25.1% as a result and contributed +1.25% to the overall change in the All Items index. It is crudely estimated that the latter impact would have been reduced by between 0.2% and 0.5% had the Mortgage Interest component been calculated on a
current weighting basis. Users should take this “weighting effect” into account in interpreting the mortgage interest related movements in the index.”

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