Fresh from covering itself in poop last week when it took the “unprecedented” step of removing from its website, a working paper which showed that a significant number of Irish households would be better off on benefits, Frances Ruane’s government-funded ESRI this morning published its quarterly economic forecast. Often an outlier when it comes to projections, this mornings publication is very much in line with recent government forecasts with GDP forecast at (with last February’s forecast in brackets) 0.6% in 2012 (0.9%) and 2.2% in 2013 (2.3%) and GNP forecast at 0% for 2012 (0.1%) and 0.5% for 2013 (1.0%). Of course, none of us has a crystal ball but it is difficult to see, with ongoing difficulty in the UK, the rest of Europe and the US, how we will have GDP growth this year, and I would not be surprised if the Central Bank of Ireland quarterly outlook report due in July 2012 reflected that.
On Friday last, we had a bit of a laugh at Mark Fitzgerald of Sherry Fitzgerald’s musings on the recent Moody’s assessment of Irish property. Who knows if the Fitzgeralds enjoy a Sunday dinner together, but today, Mark’s brother John Fitzgerald and another ESRI researcher, David Duffy published a special report on the Irish housing market, in particular supply and demand, which makes the simple points that the over-construction in the last decade was more pronounced in some areas than others, and that in Dublin today, although the vacancy level is still above that in 2002, there is closer matching between supply and demand.
There is little reference to the availability of credit or construction costs or indeed very little on emigration, which almost criminally for a country historically scourged by emigration, is not routinely accurately monitored by either the CSO or the ESRI. However the conclusion is that we will need about 20,000 dwellings per annum to cope with household formation until 2015 even after “assuming significant emigration”, though there is little information given on what assumptions were made. Somewhere in Sussex, an hirsute Dutchman is choking on his chips with mayonnaise!
Somehow – and perhaps this is hypersensitivity – I get the impression the report wants to suggest an imminent flattening and rebound in prices. Its conclusion that the large numbers who have started renting since the 2006 Census may switch to buying seems to ignore what might perhaps be a just-as-likely possibility of renting numbers growing as existing households escape from under-water mortgages and contemplate an economy where it is expected we will still have 12%-plus unemployment in 2015. And the wording used in the conclusion – “when expectations change it is likely that the recent sharp fall in house prices will be halted” – is odd, given the recent two-month-running increase in prices in Dublin, does the ESRI that expectations have now changed because the “recent sharp fall” has “halted”, at least for two months running? Would have been great to be a fly on the wall during the dessert course at the Fitzgeraldses yesterday.
And lastly, for all the flak that was directed, by the ESRI and others, at the trio who produced the working paper “the cost of working” which was removed by the ESRI last week, today’s publication tells us that in 2001 Ireland had “total dwellings per thousand adult population” of 467 and “occupied dwellings per thousand adult population” of 467 also. Elsewhere the report says that there was an Irish vacancy rate of 9.8% in 2002 which seems reasonable. Never mind “peer review” just a common-sense second pair of eyes might have picked up on that clanger.
One thing there seems to be very little written on is ‘fear of borrowing’. Those first time buyers out there now, have friends, older brothers/sisters, parents and relatives who have seen their quality of life and freedom of movement savaged by getting a mortgage.
They also live in a time where there’s a cloud of uncertainty over the solvency of the country and consequently the future quality of life on the island.
These are compelling reasons not to buy and that’s before you consider direct taxes coming the way of property owners, removable of mortgage interest (among others) relief, likelihood of higher interests rates in the medium term, disgusting levels of unemployment, emigration, likelihood of ghetto-ization of some areas, low investment in local amenities and infrastructure, strong potential for future foreclosures, over supply, some banks unwillingness to lend more than 80% for some classes of property (eg 1 bed apartments Dublin City centre).
And that’s before you consider we have the highest child care costs in Europe, high energy costs, below average public transport facilities, though above average roads, high taxes on cars (direct and indirect), soon to be above average 3rd level education costs, above average medical and food costs.
And don’t get me started on the weather!
In terms of first time buyer profile (the supposed engine of any property market), you’re basically left with young couples in the higher paid NMCs, semi-state and state permenant jobs, who haven’t already bought. Which cant be a huge number of people considering there’s a recruitment ban in place in the latter.
@ NWL there is a very interesting piece by Dr. Peter Lunn entitled “The Impact of Recession on Migration: A Preliminary Analysis of Census 2011” on page 52, which raises quite a few issues, which may impact long-term on the housing market and well worth reading
In particular “Members of the long-term native Irish population in their twenties in 2011 were substantial net emigrants; especially (but far from exclusively) the men. Between 2006 and 2011, almost 40,000 more of them left the country than arrived, equivalent to 10 per cent of men and 5 per cent of women aged 20-29 years. Note that this does not equate to one-in-ten
men and one-in-twenty women in this group emigrating during the period,
because the figures correspond to net migration and are thus reduced by any immigration for this cohort. Thus, substantially more than one-in-ten and one-in twenty emigrated.” (pages 58-59)
@Niall
Well spotted. Page 22 of the below PDF has a graph on that.
http://www.esri.ie/UserFiles/publications/RN20120203.pdf
It looks like the establishments fu*k the young policy policy is succeeding.
‘Recent years have seen marked differences too between people of different ethnicity. In the White-Irish category, those aged 20-29 were significant net emigrants over the five year intercensal period, in contrast to any other age group of any other ethnicity. Within this native ethnic group in their twenties, more than one-in-ten men and one-in-twenty women emigrated between 2006 and 2011’
@ John Rather many Irish people are unwilling to take up the employment that is available. Why else is there continued high levels of migration to the State? Someone arriving here has no entitlement to SW payments so must therefore work!
How it is possible?
More and more people are leaving (back home or emigrating) and rents are actually going up or are still the same?
Who is paying for that empties? They don’t want to cut rent by 200E/month, but in the same year apt is laying empty for month or two.. or more depending on district. Crazy economics. It is obvious that math wasn’t important on their economic studies.
Ahhhhhhhhh…. David “In many cases negative equity will not be an issue” Duffy.
http://www.thepropertypin.com/viewtopic.php?p=307474#p307474
Yet in the report we get:
So David… This one’s for free – Negative Equity matters!
Negative Equity is the amortization of the misappropriation of capital.
Print it out.
Put on your desk.
Smash head on desk repeatedly until memorised.
I read the Duffy-Fitzgerald paper quite carefully (I am working on some distantly related research) and although I personally am quite pessimistic about Irish property markets I do think you were a bit over-sensitive in your description of the claims in the paper. The paper seemed quite measured and balanced to me. I would not be surprised by continued big falls in Irish property prices (“big” from the perspective of the lower current base — e.g. an additional 20% fall from peak requires a 50% fall from current base if prices have already fallen perhaps 60%). Anyway the paper did not make any specific price change forecast or market timing call, it was very clear on that, and provided lots of useful info. Prices perhaps might wiggle a bit with a dead-cat-bounce increase and then later stagnate. They do not claim they can predict the timing or direction but give info on demographics and rental/owner cohorts.
@Gregory,
I respectfully disagree with you.
And here’s the evidence.
“Shortage of houses for under 35s in Irish cities to spark price surge”
http://www.independent.ie/business/personal-finance/property-mortgages/shortage-of-houses-for-under-35s-in-irish-cities-to-spark-price-surge-3143917.html
The ESRI took a partial position in deciding that the increase in renters post-2006 was a temporary blip and would reverse as soon as “expectations” change. An equally plausible hypothesis is that the renting cohort will grow with uncertainty and the legacy of burnt fingers on property and mortgages.
That is the problem with the Independent Newspaper more than specifically with the ESRI report. The Indo has a strong financial interest (and other newspapers) in pushing property since their advertising revenue is heavily dependent upon real estate agency good will toward them. That biases their reporting. So they take the ESRI and Central Bank reports (plus the real estate industries own “research” propaganda) and distort it toward their paymasters. The Irish Times and other papers have the same problem — I think that this bias is currently worst at the Indo, just my humble opinion from casual reading.
@Gregory, no disagreement there at all. Though let’s be honest, it is in the interest of the economy generally, not just newspapers, that we have competitively priced housing gently rising in price, which in turn promotes confidence and spending. Even potential buyers benefit because they will see their new purchases rising in price. So we can all get irritated by newspaper reporting which leaps on any sign at all that house prices are stable or rising, but in truth it benefits most of us as long as prices are rising from a competitive base, which arguably they are not presently because of the lack of equilibrium between supply and demand, the distorting behaviour of lenders/legal system and a lack of transparency in pricing.
The ESRI report however gave the greenlight to the type of article penned by Charlie in the Independent, because the adopted assumption was that the post-2006 doubling in the renting cohort was a blip.
And as noted above, the converse of “when expectations change it is likely that the recent sharp fall in house prices will be halted” is that “when the recent sharp fall in house prices is halted there will be a change in expectations” and given that Dublin prices have stopped dropping according to the two most recent CSO monthly index reports, it seems to me that the ESRI is saying “expectations will now change”.
Lastly, I am open to accusations of hypersensitivity with the above, but in themselves these points seem valid.
Thanks for the great blog @namawinelake though I agree with @Gregory on this one.
I read the Independent piece first and then the ESRI research. In my view, the cautious and relatively vague ESRI conclusions were completely distorted by Charlie Weston. Were the authors happy for them to be? Who knows. I doubt it. Should they have anticipated the front page? Based on that newspaper’s past and recent form, yes.
My problem with ESRI reports is that I tend to forget their detail before they are shown to be wrong.
I don’t remember John or the ESRI issue dire reports on the property bubble; so they perhaps should explain this before making further comment on the property market.
Sometimes google helps. And in this case I’ve found an Irish Indo article attack RTE’s Future shock Property Crash programme. It seems John Fitz was pretty clueless.
http://www.independent.ie/unsorted/property/future-shock-property-crash-the-reaction-44341.html
“However, the lack of balance used by the programme editors means that Alan Aherne, who was negative, was given a lot more airtime than say Pat McArdle or John FitzGerald. Was this because the views of the latter two authorities did not coincide with the main thrust of the programme’s title?
John FitzGerald (ESRI economist) stated that if he believed there was a crash coming that he would sell his house and rent it back. Tellingly he is not doing so because he believes, as I do, that if (and that is a big ‘if’) the market is going to crash it will do so in a patchy, selective way which will not impact to any great degree on many of the existing homes in Ireland.
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