Another Irish Property Bubble In The Making, Another Irish Property Crash In The Waiting

There seems to be little doubt that Ireland is in the early stages of yet another property-related bubble, reminiscent of the disastrous Celtic Tiger era of the late 1990s and early 2000s. Except this time the expansion is driven by a lack of housing stock, taking home prices to exorbitant levels, placing purchased or rented accommodation beyond the reach of many ordinary people. While an unsustainable 75,000 housing units a year were being constructed during the old boom, this latest cycle is witnessing the release of comparatively little new housing stock (less than 9000 units were added in the five years leading up to 2017). Instead the focus is on pushing prices ever higher for existing locations, with claims of land banks and property hoarding by both domestic and overseas investors artificially distorting the market.

This growing crisis is reflected in the record levels of homelessness currently shaming the country (if not the “political centre”), which would be far worse if not for the number of adults relying on their parents and other relatives for a roof over their heads. And this is before we even factor in the potentially disastrous effect of Brexit on the inflated market in the Dublin region as international corporations in London move some of their European Union operations across the Irish Sea, complete with affluent white collar staff. A phenomenon made more likely if those seeking to remove the safeguarding regulations placed on the financial sector in the wake of the criminal Celtic Tiger decade get their way.

All of which makes this news from the Sunday Independent somewhat troubling:

The biggest mortgage lender in Germany says there is political resistance to it entering the home loan lending market in Ireland because the Government wants to protect AIB and Bank of Ireland, the Sunday Independent can reveal.

Public savings bank Sparkasse, which writes 50pc of all German mortgages, says its lending model would help end the housing crisis in Ireland.

The bank, which is also noted for its support of local small and medium enterprises in Germany, operates in a similar fashion to credit unions and is, in effect, a public banking system. Sparkasse offers a significantly lower interest rate on mortgages in Germany compared with current rates here. A mortgage rate reduction of 1pc here would mean a saving of about €120 per month based on a €300,000 mortgage with a loan term of 30 years.

Now Sparkasse has linked political resistance to its entry to the mortgage market here to sensitivities surrounding the flotation of the Government’s stake in AIB and, possibly, Bank of Ireland.

The revelation comes as the housing crisis remains the key national issue amid huge concerns last week about rapidly increasing rents, homelessness and the inability of young people to get a mortgage.

While the minority Fine Gael-led government is supposedly working on a housing management plan of its own, there is precious little sign of any radical or innovative thinking about to emerge from it. With new homes in short supply, landlords are making a killing as prices approach previous record-setting levels in parts of Dublin and Cork. Locally, where I live, the average rent for a modest two bedroom apartment is now 61% higher than it was in 2014, pricing out all but the top wage-earners. This yawning void between demand and supply cannot go on without all of us going off the economic cliff once again.

 

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9 comments

  1. Thank you Seamus for opening a thread on this – yes, we are heading for the cliffs – again, not even a decade after going straight over the same cliff.

    We need to take a look at more progressive social housing models, in Finland, for example – we do not have to re-invent the wheel but simply copy & paste existing models and Finland is one of our similar-size (small) EU partner states who we already enjoy excellent relations with.
    Of course, Finland is also suffering the same issue as here – increasing housing prices in the large cities and decreasing prices in the rural and isolated urban areas in the regions.

    In addition rampant property speculation has to be curbed – the crazy stuff with cowboys buying up dozens of apartments/houses on mad-cap borrowed money has to be stopped forever.

    We need to implement a sold, long-term housing policy that works – for all of our people.

    This cannot be simply a party-political thingy – it has to be already imbedded as a part of a National Plan.

    1. Thanks. I agree. The Finns have a better handle on this than us. Of course, their version of the “Galway Tent” is not so pernicious as ours. And that tent seems to be on its way back judging by the recent pronouncements from Fianna Fáil.

      (Fine Gael, the party for the landlords. Fianna Fáil, the party for the people who build the houses for the landlords).

  2. A national plan would have to tackle the drift of population to the cities, particularly the greater Dublin area. That’s where the major problem lies – our baby boom young population + the hundreds of thousands of immigrants want to live in biggish units in our cities. Our usual safety valve of shipping our youth off to Britain or America isn’t part of the game anymore.
    Our cities are where the land is scarce/stockpiled. Mansions can be bought for smallish money if you go twenty minutes outside the commuter belt so it’s not the like the cost of housing in itself is high. The problem is the value we place on living in certain areas. It was derided and eventually sidelined but Eamonn O Cuiv’s decentralisation scheme had the seed of a good idea. Our county and regional towns need to become viable and attractive again.

  3. Working remotely is not a magic bullet however. My sister and bro in law moved from London to rural Devon on that false assumption. They lost lots of clients. You do need to relocate a critical mass of human beings for it to succeed.

    1. Agreed. Tried it myself over the last two years and found it a nightmare. Admittedly, from business hotels in Poland and the Czech Republic, but even with a six or seven week stay it was just head-wrecking.

  4. Great article Seamus (haven’t posted for a very long time).

    The returns for a property in Dublin appear to be about 4-5% and going lower. I was looking at a simple 2 bed in Dublin and it is nuts. Currently, I am living in Germany, have recently bought a place too and my mortgage (not with sparkasse though) is about 1.75% pa for a fixed period of 10 years. 10 YEARS.

    sparkasse’s investment arm, DEKA, are already in the Irish market in relation to Irish real estate, so whilst a different subsidiary would need to come over and provide retail lending, there is at least a footprint at home already.

    The sale of government stakes in BOI and AIB has a ring of truth to it, especially as IPOs have been pretty miserable of late and the govt wants to get these yokes off their necks, however, I think you are closer to the money on the lack of actual building that took place and the cost of commercial loans to local builders and developers (yes, I know, not exactly a bunch of lad worth much sympathy).

    1. Yeah, my sister and her partner have saved a substantial mortgage deposit over the last few years, and even with that and their combined wages they are being priced out of the local neighbourhood. €390,000 for a good three-bed semi-detached which was selling at €295,000 five years ago is crazy. And depressing.

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