June 2, 2008

Financial fear replaces greed

Posted in Irish Economy · 46 comments ·

When financial booms are followed by busts, there are usually distinct developments.

The other day, a stockbroker told me that, in the last month, it is as if ‘‘someone has pushed the accelerator button on the downturn’’. He was trying to sum up the feeling in the financial community as the economic data – which the ‘‘economic fundamentalists’’ who cheerleaded the boom were telling us was robust – turned out to be marshmallow soft.

Across the board, from tax revenue to unemployment and company insolvencies, the evidence of an accelerated slump is everywhere. Bank lending has dried up and house prices are in freefall, as confirmed by figures last Friday showing a sharp 1.1 per cent monthly drop in April.

There are no buyers. This negativity has been accompanied by the rumour mill of imminent bankruptcies. The same lad was at the Heineken Cup final in Cardiff last weekend and told me that the conversations among the attendant brokers and bankers centred on speculation about who was next.

The gossip, innuendo and tittle-tattle about which ‘big player’ is about to go under is only human nature. It is the mirror image of what was happening in the boom, when the gossip centred on who was making what, how ‘mega-deals’ were being put together and how such and such was ‘worth’ this or that amount.

Put simply, mass greed has been replaced by mass fear. Everyone is terrified of the financial equivalent of the KGB knocking on their door in the middle of the night. Meeting your bank, which only last year was an exercise in ego-massage and financial back-slapping, is now about as enticing as a chat with Josef Stalin.

Given the rapid change in sentiment, it is probably worth looking at other financial rollercoasters to assess what we are likely to face for the next few years. Looking at a number of experiences in other countries, we find financial booms that are followed by busts always lead to three distinct developments.

The first is financial scandals, where sharp practice in the boom gets exposed. Whether it is a couple’s life savings expropriated by some snake oil salesman or the high-level malfeasance of Enron, the details are usually the same. JP Morgan himself described the herd mania with the brilliant observation that ‘‘nothing undermines your financial judgment like your neighbour getting rich’’.

Typically, the blindness of the frenzy leads people to believe almost anything, so long as it promises to make them rich. Therefore we can expect a deluge of financial scandals to be exposed in Ireland over the coming years. If the people you gave your money to over the past few years are now refusing to return your calls, get on to your solicitor.

The only problem is that it is quite likely that your solicitor got you into the deal in the first place. Therefore, expect a number of high-profile – as well as numerous low-profile – cases of financial skulduggery, where cash has gone missing, investments have gone pear-shaped and promises have been broken. This is guaranteed.

As well as affecting the individuals involved, theses episodes will further undermine the credibility and integrity of the financial system.

The second development is that house and land prices will fall way below where they should. Asset prices have a tendency to both overshoot and undershoot. In good times, prices go way out of whack with any economic rationale, because the herd makes the fatal mistake of thinking that this time it’s different. People just get carried away on the promise of quick riches.

This occurred in Ireland in the past seven years, when house prices reached silly levels. Similarly, now that prices are falling, they will drop way below the level that is justified by economic logic or what is termed fair value. We have a long way to go.

A simple way of calculating the value of a house is to examine rent. The value of a house as an investment should be some multiple of the annual profit or rent you can generate from that asset. In the US, for example, the long-term value of the house has been 12 to 14 times rent. So if the rent were $10,000 per year, the house would be worth between $120,000 and $140,000.

At the peak of the housing boom, this multiple had risen to 22 times in certain expensive areas, so the house generating $10,000 rent was selling for $220,000. Let’s call this valuation method the rental value of a house, or RVH for short.

Granted, the Irish RVH could be higher than the American for historical reasons, so let’s call it 18 times – although this is more to make us feel better about our financial situation than any hard analysis.

To get a handle on how far Irish house price might fall, I asked the very helpful people at daft.ie to assemble a similar valuation for Ireland, taking in Dublin, the major cities and the countryside where thousands of people have bought holiday homes – many now trying to sell them.

The table gives the price of a house, the rent it is fetching at the moment and the multiple of that rent to the price of the house. So what is the Irish RVH telling us?

As you can see, even today after a 25 per cent fall in house prices, Irish property is madly overvalued and is likely to fall dramatically over the next few years.

For example, your average three-bedroom house in Donegal is trading on an RVH of 48 times. This implies that even if this property fell by 50 per cent from here, you’d still be better off renting. A three-bedroom house in Kildare trading at an RVH of 23 times is a much safer bet, albeit still significantly overvalued. Clearly houses in Connemara and west Cork make no sense at all.

As for Dublin, large houses are the most overvalued and, while apartment prices have fallen dramatically, the overall picture is that prices would have to fall by at least another 40 per cent to be fair value.

The problem in downturns is that prices undershoot fair value and will have to become very cheap before people realise there is a bargain and begin to snap up properties. Taking the experience of other countries and the RVH index into account, we are in for major downward movements in house prices for some time.

As a result, the third observed development of boom-bust cycle is ongoing banking problems, where the banks begin the downturn by hiding bad debts and only eventually confess – when they have to. This takes time and explains why Japan only had its first real banking crisis six years after the property market began to turn down.

The lessons from the rest of the world and from our own RVH is that, without a massive increase in rents, which are determined by wages – or immigration, which is determined by job opportunities – Ireland is in for a long, difficult transition.

  1. sarah chalke

    How is going Ireland going to cope with a labor force increasing by 50,000 p.a and an economy in freefall?.Time to shut the door on Eastern Europeans and the Chinese.

  2. Johnny Dunne

    David, unfortuately there is a long way to go down in property prices as your analysis highlights very well. 18 months ago at the top of the market, some considered selling their homes, ‘bagging’ some cash and renting. Since there seems to be a long way to go, this still sounds like a sensible option from a monetary point of view. But I suppose ‘greed’ stopped people before and fear will stop them now, The consequences unfortunately are many more will slip into negative equity or see the ‘theoritical’ gains over the past number of years disappear. Why is no politicians highlighting the probablity of this scenario and proposing solutions or options for young people ?

  3. John Q. Public

    David, this analysis does not take on board the fact that certain houses in certain parts of the country are rented as holiday homes for part of the year only, they are not full time ‘homes’. sarah chalke, I agree. This also affects rents which in turn has an effect on the price of property. We have hundreds of thousands of immigrants here fueling demand. To hell with holiday homes, a lot lie empty most of the year anyway, we should be thinking about the masses of apartment blocks we build that are filled with foreigners paying this rent. Maybe when the construction boom ends and all the poles go home (if they go home, they may stay here and get the dole) there will be better value as rents decrease. A lot of buy to let investors don’t worry so much about their repayments anyway as they are taxed differently and get the vat back on new houses and so on. The real losers from now on will be the people with 40 year/100% mortgages that commute daily.

  4. Sarah: No need to shut any door. When the jobs dry up then economic migrants move.
    This makes fascinating reading. Another way of looking at it is multiples of the average industrial wage to determine what’s the right price for the average house. Why a bank would think an 8 times multiple is sensible is beyond me but I’ve seen examples. Another question is how much of the celtic tiger wealth is liquid and how much is invested in property schemes of one form or another? That will have a big impact on the economy’s ability to recover from the current slump. If we could determine an “average investment portfolio” for the top 10% in the economy what would it look like in terms of diversity and risk profile? Funnily enough I’m in the market for a new house and auctioneers keep telling me a “recovery is just around the corner”
    Will cheaper house prices affect socioeconomic change in the way that the boom necessitated both parents being in employment for many families?

  5. B

    I disagree entirely that immigration should stop because we were stupid.

    Blaming the East Europeans and Chinese for our own greed is nonsense.

    It is obvious now that the Government couldn’t find their arse with both hands and a map and had as much ‘influence’ on the boom as they are having on the bust.

    We relied on selling houses to each other and on working for multinationals who were governed by and looked at other tea leaves and not operating in the best interests of Ireland.

    We need to snap out of this savious mentality. We need to stand up on our own feet, build our OWN country and our OWN jobs.

    Sitting on our hands and letting other people cash in on our ‘success’ is ludicrous and crying in the dark in an overpriced shoebox in a field is also ludicrous. Yet we let both things happen. By not voting or voting for the same party your folks vote for. By not making up your won mind. For following the herd and listening to crazy ass mofos who said to buy buy buy because tomorrow it will go up.

    I have said it before and I will say it again. We get the politicians we deserve. We keep returning the same losers to do the same old tripe over and over and over again.

    Is it any surprise? I for one am not surprised. The only thing I am surprised at is the level of denial and the eventual horror of people ‘just finding out’ what has been on the cards as far back as 1999.

    The quickest way to go bust is to follow a trend.

  6. Cathal Melinn

    David – This is a very interesting article, although I think the last sentence could do with further explanation. It is the by far most attention-grabbing line in the piece and it leaves me wanting to know more..maybe you could thrash it out a little further in your next post?

  7. Bobby boy

    Shane Dempsey,

    Do you live in Dublin? are you in PR?

  8. John Q. Public

    Shane Dempsey, 86% or thereabouts of all Irish investment money over the past few years was ‘invested’ in property at home and abroad. Not exactly diverse is it? Also very risky as loans are leveraged against equity in half-payed off semi d’s in Dublin(devaluing now it seems) to buy apartments in Bulgaria etc.(devaluing now also it seems) where the natives are not part of the market and the average industrial wage is peanuts. If half of these stupid robo-paddies stayed at home and invested in businesses, the country might be better off. We need venture capital after all to create more employment rather than just relying on the public sector all the time. In a slump, these ‘investors’ will find themselves in a quagmire that turns rapidly into quicksand and that benefits nobody.

  9. eugene

    “Blaming the East Europeans and Chinese for our own greed is nonsense. ”

    I am a bit dubious about this “our” business. The capitalist class, and the hegemonic ideological new left were in one voice on immigration, not powerless little “us”. We werent really asked. Nobody is blaming immigrants, just the level of immigration and in fact many immigrants think themselves that the problems in Dublin are lifestyle problems caused by over-population, lack of services. It is not in the interests of workers – including past imigrants- that there be mass immigration in any one year. I say “mass” advisedly – immigration is like inflation ( which has a bad rep). Inflation, measured and controlled, is a good thing. So is immigration. The ECB’s target for inflation is less than, but *close to* 2%. Note the close to bit, the ECB allows inflation at that level because to bring it lower would be to curtail economic growth. The same could be said of immigration – mass immigration is like 15% inflation – not good. Smaller sustainable levels are good. And like deflation, net migration out is bad.

    Sensible policies like this would control borders, even within Europe ( as most Europeans have, in fact controlled migration from the accession States, notably the very best Europeans of them all – France and Germany). We could, say, allow in a certain fraction of the total population per year. Say less than 1% which would be 600K in the UK ( too much?) and 40K in Ireland ( too little?). it should be up to sovereign nations to determine the exact amoung without the PC peanut galley shouting racism from the millionaire suburbs ( a clue there as to their support of immigration).

    Who we elected had nothing to do with this. Did Fine Gael oppose the opening of borders to the Accession States, did Labour? Did either oppose the ridiculous Euro and it’s pro-cyclical money policy which is the other cause of the unsustainable boom? Neither. We had no choice.

    In the bust, opinions will harden. There is no reason for migrants not to not come here for lower and lower wages even as unemployment rises, provided said wages are higher than at home. In fact PPS numbers have not declined – and we saw some indication of the future in the picture outside Londis last weekend. 100 applicants for 1 job in a deli, clearly a lot of them immigrants.

    “for multinationals who were governed by and looked at other tea leaves and not operating in the best interests of Ireland.”

    Very little exodus of multi-nationals yet. The real problem is elsewhere.

  10. joe

    Can someone tell me what happens to all houses when a lot of immigrants leave?

  11. Here-In-NYC

    Emigration will be far more likely than immigration, during this long difficult transition, if only for ‘historical reasons’.

  12. John Q. Public: That’s an interesting figure. Which institution or organisation produced it? I’m particularly interested in the profile of the top 10%, those with the most notional wealth as their future investment in companies, if possible could help avert a meltdown. It’s possible there’s little or no cash, with almost every spare cent associated with property debt. This would be uncomfortable to say the least.
    Bob: Lived in Dublin for a short time. Been in Manchester and Cork also but spent most of my life in Waterford. Never been in PR. Why do you ask?
    Eugene: They’ll come here but not in the same numbers. Who could blame Eastern Europeans for coming to a country where the minimum wage is the 2nd hightest in Europe (after Luxembourg) and where the locals consider many jobs beneath them. Now, however, many immigrants can’t find jobs and they’re going home with the numbers coming here halved. At least according to Conor Lenihan (http://www.independent.ie/opinion/analysis/tide-turns-as-migrants-seek-work-elsewhere-1386370.html)
    Some eastern european economies like Poland are growing rapidly and they’ll have opportunities back home.

  13. Stephen Kenny

    One interesting thought is that the higher the minimum wage, the less advantage ‘low cost immigrant labour’ has, so, one has to assume, the less there’d be.
    Of course, it’d make things less competitive compared to those countries that have a lower minimum wage – looks like a political decision to me.

  14. John Q. Public

    Shane Dempsey: I think David himself produced this figure recently(help us out there if you can David). I can quote from ‘the generation game’ that a ludicrous 59% of all residential building in Ireland today has been bought either for speculation or a holiday home with equity released from a first home. In the book David points out that these ‘investments’ are the ‘Achilles heel of the market’. Also 1 in 6 houses in Ireland are now empty.
    Our top 10% wealthiest people will not save the day as they do not employ enough people in the first place. They have their money sewn up in bricks and mortar in fancy recession proof areas here and abroad.

  15. laura

    B – a moment of common sense in a sea of spectacular ignorance about the Irish “immigration” “system.” The Irish work visa system exists only for the benefit of Irish employers who wish to bring workers here. If you are from outside of Europe you cannot simply arrive here on your own bat and take up any job, you can only come here with a job offer for a particular job and right now your visa and work permit covers that job ONLY. If you don’t like it, tough. If your employer cheated you, tough. If the job is something other than what you were promised, tough. Too many people are looking at the Irish system through the cloud cuckoo land of highly flexible visa programmes such as the Canadian or Australian skilled migrant programme: no such programme exists in Ireland.

    This means 3 things:
    1. If a migrant from outside Europe loses their job and cannot get another one within a fixed time period, they lose their rights to live here and must leave
    2. Migrants who are here who are unhappy in jobs (for whatever reason) or let go are far more likely to go home as the red tape discourages long term residency (I think its 5 years before workers can apply for permanent residency or am I incorrect?)
    3. Criteria for allowing employers to take a worker from outside Europe were severely restricted over the last couple of years and are now even more likely to be refused, which will further reduce the numbers arriving here.

    So the bigots who don’t want anybody not Irish living here will be very happy to know that not only will it be quite difficult for a lot of migrants to stay here, it will be much harder to come here in the first place. I hardly see the political will for an Australian/Canadian style programme given the hard core perjudice that is held by a minority here against migrant workers. So there will be both a drop in numbers coming, and a significant drop in those staying.

    One of the reasons why such a large number of Eastern Europeans came to Ireland in the first place was because most of the rest of Europe wouldn’t let them in at that time. This is something we shouldn’t let happen again: we need more coherent pan European policies to prevent huge migrations from and to one or two countries. This needs to be planned at European level.

    That said, if anything migrants have probably kept the cost of living down a little, except for in the rented sector, where they have helped the rent subsidised tenancy sector in maintaining inflated rents.

    The real problem is not migrants coming here, but employers trying to make massive profits while denying it to workers, those who jumped on the property bandwagon and tried to make a quick buck by either hiking up costs (contractors) or prices (property developers and landlords), the lending industry who has happily funded it all, and worst of all, a head-in-the-sands government who not only allowed all of this to take place, but gave massive tax breaks to those who created the worst excesses.

  16. laura

    Stephen Kenny – good point but part of our problem in Ireland is that the minimum wage needs to come to significantly above the basic rate of social welfare, which in Ireland right now, it does not. For anybody working on the minimum wage who is living in the private rented sector, even a 40 hour week is likely (even for single, childless adults) to come in only a few euros above what they will get in welfare and rent subsidies. Families are likely already to be significantly better off on welfare than in a low paid or even moderately paid job – thus we will see a huge move to social welfare as the low paid sector fails to provide for these folks.

  17. Laura: I thought there was a 2005 statistic that said that only around 3.5% of workers were actually on the minimum wage. I agree with what you say about negative and ill-informed attitudes to immigrants. It’s 5 years before a third-country national can apply for residency here, unless they’re married to a European. There are a few other exceptions I think. The ironic thing is that if the statistics being discussed here are correct then the employers who have exploited some of these 3rd country nationals on working visas have piled their money into a shaky property market. A situation where everybody loses.
    John Q. Public: I’m suggesting that while it would be a good idea for the government to try to encourage job creation by further incenvitising entrepreneurialism it won’t be terribly successful if the notionally richest people in the country have no money to invest in new companies. I’d be hopeful they’ve invested in “recession proof areas” . It seems just as likely that many of them have invested in recession susceptible property like the rest of us.

  18. Philip

    This is not an Irish problem. The economy is in meltdown everywhere. US is in tatters, France is a basket case, Iceland and NZ are going down the tubes, Japan has been in deep doo doo for a decade and so on. UK is also having its meltdown. Germany, the picture is mixed 2% growth to flat depending on who you talk to and maybe heading south as well.

    Granted, the Irish bit might be the over-investment in property – but I still think this is more ubitquitous.

    We are being treated to a triple whammy. Oil, Dodgy Financials and Environment (food etc.) on a global scale. David is just showing an Irish cross section of the problem. The Government could only nudge things – we got a boom and we are getting a bust simply because we are very open. Open economies have this doubled edged aspect.

    I disagree completely with any assertion that somehow we could have done something else as implied in the article. We are too culturally aligned with the US and the UK and will always mimic them unless we all undergo mass brain surgery. Experienced management is needed more than ever before.

    Irish are good (probably geniuses) as individuals -and useless at forming focused teams – 30 years of experience working with them says so. I would like us to seriously look at hiring external & foreign best in class managers for running this place. We are still a generation or two from growing our own. Boom and busts come and go. Its how we manage is key…we cannot do it as individuals.

  19. B

    Why oh why do people connect immigration with low paid work? Immigrants do all kinds of jobs here. Some even have businesses. While we were off buying tacky cars and buying holiday homes in the Costas the real work was being done at home. By immigrants. I know because most of them are the only people worth hiring.

    If we let the illigitimate Spaniard DeValera be Taoiseach and President we must redefine what being Irish really is. If he can get it anyone can.

    I am well aquainted with the immigration “system” here. It is based on fresh air and has practically no control or logic to it. I have hired people in Ireland and would hire the same people again even if I had to crawl over glass to do it. I don’t care where they are from. I don’t treat them like shit I treat them EXACTLY the same as an Irish employee.

    That said Irish people could not give a flying shite about hard work and just want mo’ money. They don’t want to work and they are obsessed with either going to or coming from holidays. I am not saying immigrants are better but they are more determined having left their comfort zone and decided to make a go of it.

    Credit has been far too easy. Anyone with a pulse bought a house or five and now has a “portfolio”. Employment too has been too easy and any halfwit now has a job that whence the wind changes will be out the door. Big fancy mortgage, Hyundai Jeep half paid for and reduced prospects because they went to work straight out of skewl. Leveraged all the wrong directions.

    I had the “opportunity” to buy in 1999. It kept me awake for a fortnight. I couldn’t predict what I would earn next week never mind 30 years time. I passed. People told me, buy now, they will only go up. You will be sorry. All that embarrasing crap that relatives try to shove onto you at a wedding. I resisted. I put the time and effort into the business. I resisted all through the boom and covered my ears. If my cousin jumped off a cliff would I follow him?

    I was repeatedly told I was mad and to cop on and buy a house. I never did and I probably never will. The market was rising to stupid levels in stupid places at a ferocious pace. How much is a 1999 built uninsulated cardboard box going to cost to insulate to bring it up to the coming environmental standards. How hard are they going to be to heat when oil hits 200 or 300 bucks a bucket? No public transport, no schools? What were people thinking?

    And as for the Government. They don’t encourage entrepreneurship nor do they help small business. They help the Americans with their call centres but as for real people in small companies they look at you as if you were a bank robber. Ministers prefer big announcements of large job creations. If you employ five people they couldn’t care less.

    To finish I would like immigrants to stay in general because unlike the natives they have a thing that we never learned. Manners.

  20. bryan

    “negative and ill-informed attitudes to immigrants”

    Hmm. These are just pc buzz words. I could write an essay here about the liabilities of mass unskilled immigration, produce copious economic arguments against it from a workers point of view ( ignoring cultural aspects) and yet it would be deemed “ill-informed” no matter how informed.

    Non-Eu immigrants need a working visa? A lot of the 100 looking for that londis job seemed to be non-European. How honest do we think Irish employers are – or, to put it another way – most immigration to Ireland EU and non-EU has taken place rapidly, in 5 years. Now why would any employer need, in that time, any non-EU immigrant? Eastern Europe has a per-capita income close to Mexico’s, and the entire population there 25 times ours? Why was any non-EU visa issued given this huge relative pool of cheap labour? Were they issued, or did most hostelries not obey the law. I think, the latter. ( Any attempt to police would have the millionaire suburbs and their pet media up in arms about racism)

    And if the Eastern-European pool dries up – which would be a tragedy in some respects – wont our boss class cry poor once again, and these restrictions lifted on non-Europeans? Do bears.. etc.

    Minimum wages are a nonsense, anyway, the Swedish case has seen to that. The minimum wage in this country is that wage a cheap worker will choose to contract his service for, or it is the lowest minimum wage in any european country.

  21. Nick

    As an Irish national living abroad it seems that everyone in Ireland wants to lay the blame on the “immigrants”. Plus ca change. Irish people never take any responsibility for their own mistakes. For the last 10 years all I have heard is bar room economists and 25 year old ‘property developers’ “explaining” to me the rationale behind their investments. What a load of crap. It was cobblers then and it’s cobblers now. Not only that but it was the blind leading the blind – everyone was an expert but in reality hardly any of them knew sh*t from shinola. Either way a dose of macro economic financial gravity will teach us a few lessons on bubbles and elemental financial management.

    On another note, instead of reading these blogs and playing fiddle while Rome burns why not ALL OF US ON HERE decide to DO something TODAY and fix both an injustice (and act of bureaucratic lunacy, in my opinion) going on in our very midst. Yes it is a small step but the journey of a thousand miles starts which such an act…

    Look at this guy below as an example of EXACTLY the type of guy that WE NEED in Ireland – quick, pro-active, gets involved, thinks big (and bigger then just himself), works hard and asks for nothing more then an education and a chance. I’d rather have guys like this in our country (i.e future LEADERS) then some Irish scrounger who does, says and contributes nothing.
    Who cares what colour, creed or language you speak. Ireland should be open to all talents and to those who want to contribute. Ironic, is it not, that emmigration/immigration has acted as the safety valve for Ireland for 200 years…

    Want to make a small impact on bettering the country TODAY?? Then, why not send an email or call whatever bean counter in the “Refugee Appeals Tribunal” that has decided, (in their infinite wisdom and compassion (remember that word folks??)) to tell this guy he has to leave and go back home only a few days before his Leaving Cert starts. It truly beggars belief…

    And btw, I don’t care what his past circs are…the fact is that this guy is here now and is doing something worthwhile. Let’s judge him on that – his last match.

    This from today’s Irish Times…

    ” A TOGOLESE Leaving Certificate student, who arrived as an unaccompanied minor two years ago and who has played a senior role as an elected member of the Irish youth parliament, has had his application for asylum refused.

    Thomas Atcha (19) received notification of his refusal just days before he is due to start his Leaving Certificate examinations, which commence tomorrow.

    Despite reference letters from the Office of the Minister for Children, his school, his social care worker and others involved with Dáil na nÓg, of which he was a council member, he now fears that he could face deportation in the coming days or weeks.

    “I just can’t study, because I don’t know what the future holds for me,” he told The Irish Times. “It’s really stressful for me. I think I’m part of society, I’m not going to sit in the country without benefiting the country.”

    Friends and Dáil na nÓg colleagues are hoping to launch a campaign with a view to reversing the decision.

    During his time with Dáil na nÓg, Mr Atcha helped spearhead a successful campaign to assess the media’s portrayal of young people, and met with an Oireachtas committee, members of the media and a number of Government Ministers including two previous ministers for children, Brian Lenihan and Brendan Smith.

    Mr Atcha, who lives at a direct provision centre in Sligo, says he and his mother were arrested for alleged political activity in February 2006, and he was held for a week at a police station, where he claims he was raped by a fellow detainee, before friends of his family successfully managed to secure his release. He sought medical treatment in Ireland for the injuries he received.

    Mr Atcha, who was 17 at the time, travelled to Ghana before travelling to Ireland in March where he sought asylum as an unaccompanied minor a month later.

    However, his application was subsequently refused by the Refugee Applications Commissioner, a decision which he appealed. He says he was informed on Wednesday of last week that the Refugee Appeals Tribunal had also rejected this appeal.

    Among the issues it highlighted in this decision were his failure to disclose his sexual assault at an early stage — although Mr Atcha says he found it difficult to talk about — and the fact that his siblings appeared to be living in safety in Togo.

    It also noted that it was difficult to verify his story or his documents and said several aspects of his case were not credible.

    A decision on his case, signed by Ben Garvey BL, a member of the tribunal, is dated February of this year.

    A fellow former council member of Dáil na nÓg, Maria Kelly, noted that Mr Atcha was elected by his peers in Sligo to represent them at a national level.

    “He did a great job, we couldn’t have done it without him,” she said. “If he goes back to his country, more than likely he’s going to be killed. He has done something for Irish youth.””

  22. David,

    I like your idea of using rent as a means of valuation but you are using the US ratio (from last weeks NY Times?) and transferring it to Ireland. You are not allowing for high US property taxes and community charges which run into thousands of dollars a year. I think Ireland should have a somewhat higher ratio to reflect our lower cost of ownership. Granted houses are still way overvalued and have a long way to go before there is any kind of yield.

  23. Fred M

    I like the comparaison between inflation and immigration. It gives a bit of perspective to better understand the potential of a trend that has kept Ireland running for the last couple of years.

    Another important question for the future of this country is: what kind of jobs will be created next? Low skills/low pay jobs which are often associated with immigration will not save Ireland from an economic “hard landing”. You can’t keep running with only the Tesco’s and the Abrakebabra. Where are those ultimate “high skill/high pay” jobs the government is dreaming about every night? And who’s gonna have the skills to take them? Planning for an education system that will prepare people for the jobs of the future would be a great thing (assuming you can anticipate what those jobs will be, and assuming politicians can stick to a good plan more than 6 months).

    My wife and I both have very well paid jobs in the IT sector. I am french, she is irish. So here you go for the immigrant that got a job in Dublin (I was head hunted abroad at the time). We live in Dublin, and there is no way we can buy anything at the moment. My parents were thinking 2 years ago, and still think that the property market in Dublin is completely mad. Just talking to them of 30-35 years mortgages would nearly make them faint. Of course we could live outside Dublin, but then we wouldn’t have a job.

    So how do we move from this situation to a day where value for money is back in the property market? As expressed before on this site, the government seems completely ignorant of the issue. One of the OECD conclusion on the property market in Ireland is that tax incentives are targeted too much towards ownership, for cultural reasons. Interest relieve should be reduced. This is a bit scary to hear for me, when the only thing I would like is buy a place to live in, where I don’t depend on a landlord if I want to put a nail in a wall. First Time buyers, and legitimate second time buyers should get some sort of support (unless the market is “fairly” priced).

    There are talks now about controlling the role of investment groups in oil futures, to avoid prices hikes directly linked to speculation. Certainly, the group of genuine property buyers (couples, families, single people) who want a place to live shouldn’t have to suffer from the unfair competition from investors. Making the property market less attractive for speculators would free money that could be wisely invested in business. If as it seems, money in the property market is rotten, it may be time to take it out and move it where investment are good for everyone. Certainly, it looks like no one is ready to take responsibility for the current mess, and to clean it.

  24. paddy cullen

    your RVH calculations are based on the assumption that all rent prices and house prices posted on daft are accurate/realistic !! I think both landlords and sellers currently need to reavluate what they are asking for ……..

  25. MK

    Hi David,

    Yes, the price of a home in relation to its rentability has always to be conisdered as its true underlying commercial value. Especially when unwarranted hotair doesnt value propertioes any longer. Of course, rents can and do go down in relation to supply and demand issues, and properties that were at one stage very rentable may find themselves less so in future circumstances, eg: in long distance commute ‘burbs. One measurement is the oft-quoted ‘Yield’, which is akin to your RVH, although in many cases the Yield values are not always calculated openly nor correctly.

    > your average three-bedroom house in Donegal is trading on an RVH of 48 times

    Donegal and other seaboard counties have a disproportionately high level of properties which were built as holiday homes but funded under Section 23 tax shelter schemes. This effectively gave small businesses and sole-traders the opportunity to purchase property and save 42% of its cost (by avoiding income tax). One reason why there are so many holiday homes idle.

    The average 3-bed in Donegal is being sold/valued at 120-150k or so. An RVH of 48 as you imply suggests a rent as low as 2.5k per annum, which is clearly not the case. If lived-in areas are considered, a 3-bed would get approx rent of 600-800 per month, thats 8400 and an RVH value of 14! This is an acceptable long-term market-demand level in any economists book. This is equivalent to a Yield of 7% (ie: 8400/120k), which in current ‘low’ interest-rate climes of the ECB, is more than an acceptable return. ie: a buy-to-let property investor can still make reasonable money on a property IF the value of the property is at least stable AND there is rental demand for their property.

    So overall, when we talk about property bubbles and their bursting in markets such as Ireland, on average, it wont be the case of a ghost-town remnant where the market will go to zero and all properties are worthless. Indeed value will be retained at sensible levels and the under-shoot may not be that deep given that Ireland’s pre-occupation with property in the mindset is engrained and will take a generation or two to dissappear, if ever!.


  26. sarah chalke

    I work in the recruitment business and receive 500 unsolicited cvs’ each week equally divided between Irish and non Irish people.At best we receive 50 new job vacancies each week hence the imbalance between the supply of and demand for labour.My firm refuses to deal with school leavers’ or graduates’ which shows how out of kilter immigration policy is with reality.Working in the bottom quartile of jobs (in terms of pay) is a nightmare but people who work in the public sector and earn an average of 1,250 p.week and set immigration policy do not have to compete in the real world, hence their smugness.Employers’ are laughing all the way to the bank (especially those in the retail and restaurant sectors’).

  27. B

    Recruitment busines. hahahahahahahhahahahahahahahahahahaha. That “industry” is a total joke.

    The fact that most companies hand off their recruitment to the leeches in the agencies means that they couldn’t care less who they get.

  28. Alex

    I am not fully agreed with David.

    Approach only with price-to-rent is describing market only from point of view of investors.

    First, in Ireland, I think, that prices are mostly based on supply-demand model. Number of houses, demographical situation and number of immigrants are well known and it is easy to see that first oversupply crisis happen in 2001, when supply exceeded demand from Irish people. In order to prevent falling of prices, government allowed to property speculants to buy excess of supply in hope that demand due immigration will be higher and they can sell houses/apartments for bigger prices later. Two hundreds thousands EU newcomers helped them to do it, but this source for demand is now finished and there is good chance that this year demand will be negative (40 thousands reached the age when they must look for houses, 70 thousands immigrants possibly will leave Ireland). From my basic calculations looks that oversupply is about one year demand without immigrants (40,000) and it mean that speculants are wiped from this market, because they can survive only when supply is less or close to supply. For investors price-to-rent is very important and possibly RHV around 20-25 will provide a strong support level, but it will work only for apartments. Land value for many houses is close to the full house price, plus many families don’t want to live in apartments. It mean that dynamic for apartments and houses very soon will be different and families, which realize that it their last chance to buy a house in Co. Dublin because supply of houses is falling, can provide a strong support. Another important factor in supply-demand model is how much people can afford to pay. If economic conditions will become worse, then rent value will go down as well, because nobody can afford accommodation, which they are not able to pay.

    Second, cost of building in US and Ireland is different, and even without strong completion between builders, there is one fundamental reason why house price in Ireland will be bigger — house structure has to be made from stones and bricks to survive strong winds. In states many houses in suburbs made from wood or something else, which is more technological, but less strong.

    Third — there is big difference between US and Ireland is road networks and petrol prices. In states commuting for 60 miles is not a challenge — in Ireland to get onto opposite side of Dublin or drive from Naas through Red Cow will exhaust you in few weeks. It mean that difference in land prices will increase dramatically in future.

    Fourths, if RHV is used, then inflation must be taken into account. Inflation in US was only half of Irish inflation. Bigger inflation mean that real value house in future will be more that amount unpaid mortgage. It mean that RHV around 20 in Ireland can be justified. In good location, such as D18 it even can be around 25. Plus interest rates are important for investors — and ECB is not going to reduce them, it will wipe out from the market fake investors, which don’t have own money and simply reinvesting ECB money in order to get profit from nothing.

    So, now if we take typical rent for two bedroom apartment as 1200 per month or 14,400 per year and multiple it by 20 we can get 288,000 as reasonable price. And we will look on myhome.ie and daft.ie — we will see that prices now are close to this limit.

    My conclusion — if builders will lover supply and everything will be as before — we are closer to bottom of house price fall and it have a good chances to stabilize at the middle of next year and then start to grow closely with inflation.

    Sorry for not perfect English,


  29. Philip

    I think the issue of immigration is not that relevant. – I only worry we might loose talent to manage this place. Immigrants = new ideas and attitudes we desperately need. I am happy about the fact that competition for 3rd level may be hotter than expected this year. That means better people going into 3rd level. I am of course making some big assumptions on a stable arrangement for accomodating new cultures etc.

    The views on RVHs show that we are in for a major mega credit crunch – In a few years banks will want your soul as security for buying a bicycle, let alone a property. This is a serious issue for business who need cash to keep rolling. In addition, whatever is happening globally seems to be hitting Ireland in a disproportionate manner. We are worst performers now – versus best performers in the boom times. This make planning and management very difficult and I expect a few more U turns from the government on a range of things. If certain infrastructure projects do not finish this year, you can forget about it for another 5-10 years. Public service payroll takes priority.

    Leadership is key here. A leadership that knows that we have run out of options on a softly softly approach with Public and Semi-State. If ever there was a time to start mass deportations – this is it…and the immigrants would be the last choice. Get the talent in those expensive public service offices to work and dramatically reduce the overhead on businesses large and small who have auditable R&D and Engineers and Scientists. No breaks for brokers or investment flippers. We HAVE to retain talent and build a pride in what this country can make.

  30. Maxdiver

    Whether Rental Yield is a useful tool or not is open for debate.
    What I can saw is that it is something that I use myself – and to me Ireland appears to be overpriced.

    I am also doubtful of the prospect of rents rising – for any number of reasons.
    Fewer immigrants – over supply (both inner-city lux exec. apartments and suburban semi-Ds) – high numbers of empty houses – demographic changes slowing down (people not marrying as young as predicted…

    I think what David was talking about was how the media has changed.
    From once ignoring the signs of trouble and lauding property pundits – we are now in a situation where the grim reality is being stared at in the face.
    Sentiment is changing – and changing fast.

    For example in the UK last night at 20.30 the Panorama program showed people who weren’t profiting from HPI. While on UTV a program entitled “The Truth about Property” ran right after Corrie. So people are being made aware of (part of) the problem.

    We still have some people like Helen Carson from the Belfast Telegraph who use estate agents and other “experts” to tell everyone that things are ok and buying now is a smart thing to do.

    I don’t take the opinion of people who failed to see the crash coming; that this blip will be over soon – we have a long way to fall before property is affordable.

  31. “My conclusion — if builders will lover supply and everything will be as before — we are closer to bottom of house price fall and it have a good chances to stabilize at the middle of next year and then start to grow closely with inflation.”

    Sorry Alex. That won’t work. For builders to lower supply means cutting their workforce. Construction counts for a huge of GDP/GNP. It employed over quarter of a million people. Cutting activity means losing a lot of jobs and this will be the death blow to the housing bubble.

  32. Alex

    Gaius, I am understand your point, but I am not fully agree with you.

    First, I don’t think house building is very useful for GDP — for me it is actually borrowing of money from future incomes to create something now. The same result for GDP will be if government will borrow money to build an infrastructure. Only difference will be that in this case debt will be concentrated in one place, rather then spreaded over hundreds of thousands house owners.
    Second, losing a lot of jobs is not so dramatic for Ireland, because a lot of positions are occupied by non-nationals. I don’t know exact number of non-nationals, but I know that house output has been doubled between 2001 and 2007 (2001 — 46,657, 2006 — 88.211). It means that nearly half of builders are not Irish. Don’t forget that France will open door for new EU countries at 1 of July – one year ahead schedule. So, 100,000 builder can leave Ireland and it will be no disaster here. Of coarse, they will live some apartments free, but most of them were rented on “share” basis, so it will be actually around 30,000 apartments, which is not great, but not so bad.
    Third, government can start to invest into infrastructure, possibly through PPP. Of coarse, building of houses and making of road has a big difference, but for some low qualified workers it will be not big problem. Plus government can start to pay for social housing — it is not nice, but it might be cheaper then to pay unemployment allowances to construction workers.
    My point is next — situation is not so bad, as it looks for many people. If government will want to do something — it can always find what to do in current circumstances.


  33. Observer

    B said,

    on June 2nd, 2008 at 10:53 pm

    Why oh why do people connect immigration with low paid work? Immigrants do all kinds of jobs here. Some even have businesses. While we were off buying tacky cars and buying holiday homes in the Costas the real work was being done at home. By immigrants. I know because most of them are the only people worth hiring.

    “If we let the illigitimate Spaniard DeValera be Taoiseach and President we must redefine what being Irish really is. If he can get it anyone can.”

    “To finish I would like immigrants to stay in general because unlike the natives they have a thing that we never learned. Manners.”

    Not you again B,

    The reason why people here link Immigrants to cheap labour is quite simple….. the migrants allow themselves to be exploited and also because there are certain segments of Irish Society (If you recognise such a thing with what appear to be a West-Brit Attitude towards your own kind; believing we are somehow of lower intelligence and others are superior) who promote such exploitation and you disguise this activity as “tolerance towards the new Irish”. These are people who are paid lower because they are mostly illegal migrants than anything anyone else.

    Second of All don’t bring Eamon De Valera into this topic, he was legitimate and born in America to a Spanish-Cuban Father and Irish Mother whom were married…… there is a birth certificate but his surname is spelt differently.

    I do agree that there were alot of chancers (Countrymen and Dubliners) who earned money on the chance of owning a house in Dublin and then lived the jet setting lifestyle because they bought up half the Balkans and Spanish Coast…… they’ll be burned and rightfully so for being arrogant and stupid.

    However, there were a majority of honest decent hard-working Irish who’ve been the victims all along of “The Best we’ve ever had”. They’ve more expense, longer hours, less or no job security and competition to deal with from outsiders who’d work longer and willing to earn less than them.

    I hope at least 90% of the 700,000 Immigrants who’ve arrived in this country leave for their own sake. They are being branded as the scapegoat….. due to appalling planning from the government who relied too much on them to make us prosperous.

    There was breeding resent towards them from the beggining in Society; that is now growing sporadically due to them over the last 15 years, taking our jobs indirectly. The less jobs that are going to be available now will result in more attacks against them: verbally and Physically.

    I knew this would happen, the warnings were there but no-one listened.

  34. B

    So Obvserver. You are saying leave or we will kill you. Thats a bit like Poland in the thirties isn’t it? Imiigration is here to stay and I hope it does because before immigration we were in the shit house. I agree that the natural reaction here will be to attack the outsider rather than fixing our own problems. Much easier to blame the bogey man.

    West Brit my arse. I am as Irish as they come.

    I do have a problem with people of any nationality trying to reinvent the wheel or continue on with the attitude that what happens in other places can’t and won’t happen here.

    I legitimatelly employ people from outside the EEA and wiull continue to do so because they have the right attitude. Irish people are in general lazy and want to see the reddies before they make a half arsed commitment. There are exceptions but the norm seems to be going to and from holidays and eating all around you. And the overt and/or snide racisim that we get on a daily basis from supposed liberal Green party voters is incredible.

    I may be different. I don’t own a house. I do have a business and I don’t expect others to clean after me or do work I won’t do. I treat people the same. Even the obnoxious ones.

    As for adding Dev to the conversation he is the reason we got into this tripe in the first place. His petty small minded Fascism and his idiosyncratic notions about the economy delayed the boom that was there for the taking post World War 2. We should have been having this debate in the early 70s not now.

  35. B

    If you want to see exploitation look a the rich people and the Filipino slaves they have pushing their kids in prams. These are gentle sociable people for whom I have a lot of time for and have eaten in their homes, met their parents and their kids. Their only problem is they are too nice and employers take advantage of this.

    In Ireland it is perfectly acceptable to have slaves working in the home. the work permit is with the employer and the girl is their slave. I have first hand experience of seeing this happen over an over and over again. The agency system here is a joke and set up for the ruling partys friends.

    Some country.

  36. bryan

    “Irish people are in general lazy and want to see the reddies before they make a half arsed commitment. There are exceptions but the norm seems to be going to and from holidays and eating all around you. And the overt and/or snide racisim that we get on a daily basis from supposed liberal Green party voters is incredible.”

    clearly the only racist here is you. albeit an anti-Irish one. You hire non-Irish because you want cheap labour. We cant base a society on your ideology.

  37. bryan

    “In Ireland it is perfectly acceptable to have slaves working in the home. the work permit is with the employer and the girl is their slave. I have first hand experience of seeing this happen over an over and over again.”

    that’s correct. There are working hour directives for all workers. The employees work 8 hours, in lieu of a creche, and then can go out for the night. restriction is actually slavery, or a form of illegal constraint.

  38. b

    Do you think in all fairness that an immigrant from a third world world country with her whole reason for being here tied to her employer going to say anything that in doing so will have her on the first flight home?

    The immigrant I hired is an accountant. She previously worked long hours serving drunk people chips. She averaged 90% in college and we gave her a shot. I do not regret the hire for a second. She gets paid well and gets paid study leave.

    I don’t see the point of low skilled immigration nor do I see the point of mindless speculation on at best average properties. What I was saying before being accused of racism against myself is that as a nation we are addictedqo to the soft option and the easy way out. Not all Irish are lazy but the lazy way is seen as the norm.

    Threatening immigrants is a knee jerk reaction to a problem that we were all in denial about and are still unwilling to face up to.

  39. bryan

    “What I was saying before being accused of racism against myself”

    ok, i take that back. i think you should be more moderate in use of language to describe Irish attributes. it bugs me a bit.

  40. Ger Kennedy

    Getting back to the subject in hand… Davids article was not about immigration… I know that immigration is a component but…

    Anyway, I am an Irish Property Bear and have been for some time. I dont think it will be as bad as David is making it out to be. The example about rents and yields in Donegal is a good example, assuming you can get tenants I guess.

    My opinion is that propery prices will fall by another 20-30% and then stall. The stall may be a long one because as David says we need to get prices back in kilter with rents which ultimately need to be in kilter with incomes. You can’t get blood from a stone. (Particulary if the same stone is getting a had time getting credit at the blood bank.) This propery implosion will frighten the bejaysus out of everyone in the country and propery will become a dirty word. Many of the trades guys will get out and go to Oz or Canada. It will be a bit like the 1970′s but with some motorways and maybe a bit of an Underground railway so that we can feel sorta like a big country.

    I suppose getting off the property drug will be a bit like giving up cigarettes really. I did it cold turkey and it s__ked. This will s__k too. But everyone will survive and life will go on after we wean ourselves off property “coke”. What doesn’t kill you will make you stronger. I look forward to Ireland post property binge when people actually have to use their brains and ingenuity again to make a living.


  41. sarah chalke

    Seeing as there are 500 million people in the eea any employer who is recruiting from outside of this pool of labour is a cowboy and deserves to have his application for a work permit binned.The U S A does not even have an open labour market with Canada and makes do with 1 million legal migrants’ per annum.Australia accepts 200,000 migrants per annum as does Canada implying a figure of 35,ooo for Ireland as perfectly adequate.

  42. Observer

    B, I suggested that Migrants who apparently fuelled this so called “boom” we had. Actually jumped onto a miraged bandwagon which had the wrong wheels and was only 5/10 of gas full.

    Don’t accuse me of National Socialism …….. that is slander and offensive. I am a Monoculturalist and firm believer in Irish Identity like every other National Culture/National Identity in the world deserves protection.

    It was Irish Enginnuity that attracted investment into this country; not all these foreigners who have contributed partly but only a minscule scale. Reports only within the last 3 months in the UK has proved Immigration to Britain on the highest in its history has been “Little or No economic benefit”.

    I think the same really applies to us aswell don’t you think?

    Take Korea for example as a nation with a past like ours…….. it was torn apart by war & partition but it became successful yet it is a very conservative society.

    Greed overtook the enginuity, it borrowed money from the EU and elsewhere we had no hope in hell of paying back. The result of this “false economy” we generated, has damaged our identity & values, increased the wealth gap between poor & rich, allowed an unsustainable influx of people we saw only as economic units arrive here….. they’ll now realise they were lied too and feel betrayed, including the Irish population whom the vast majority who thought their arrival would be a disaster and it would create social problems …… ask Dick Spring for he raised the issue last year.

    Finally we are supposed to Generate €125billion euro GDP ………. our total debt including external is €1.3 Trillion.

    So my question to you is this, how can we support Non-Nationals on our payroll when soon we won’t be able to even pay ourselves?

    David is probably the only person who can answer this

  43. B

    Korea doesn’t have a past like ours. They were invaded by the Japanese on multiple occasions over hundreds of years and were the pawns in a proxy war between China and the US. The 38th parallell is a line drawn because the Americans pushed too far and woke up the Chinese.

    I was in Korea and North Koreans and South Koreans and the Chosungok are the same people. There is no ethnic or religious boundary. They can drink though so we are like them in that respect at least.

    I don’t even know what National Socialism is so I am hardly going to accuse anyone of it. And if you are a monoocultralist I am out because I have French ancestors. My father went to school in Wales. My Irish friend has German daughter. My great grandfather was KICKED OUT OF IRELAND in and around 1922 for being in the army based in the Curragh in the early part of the last century. Sure if we deport our own why not deport everyone and then we will have nobody to blame. We even brought in a law to deport children born in Ireland. Knee jerk and totally unnecessicary.

    I don’t think the migrants had much to do with the propery porn industry and the get rich quick schemes. That was pretty much just us. And as soon as the music stopped we point the finger at the immigrant and say “he did it”. Classic Irish. Not taking responsibility for our own actions. We borrowed the money. We bought the houses. We GAVE AWAY any economic controls over how our economy runs. WE are responsible. Blaming the bogieman or immigrants is a waste of time and energy. And you know the biggist group of immigrants to Ireland is not Black or Chinese. The biggest group are whie BRITISH people.

    Immigrants in Ireland according to Village magazine are educated better with 47% with higher education compared to 32% of us. Lest throw them all out because they “bring nothing”. Why not. We have loads of brilliant economic ideas that worked. Loads. Like er. Immigration adds to the social capital and brings new ideas. So what if the British think immigration is a bad idea. They had their empire and the empire moved back in with them.

    Wake up people. Take responsibility for your own actions.

  44. Stephen Kenny

    Why does immigration unsettle people? I was sitting on the bus yesterday, listening to a couple of white South Africans complaining about what they clearly reckon is the start of an influx of Kosovans into little South Africa (the Southfields area of SW London). What’s wrong with that, after all, the South Africans have only been there a few years? But clearly something was wrong with that. They probably don’t even know any Kosovans. The phrase ‘common sense’ came to mind, and I had a thought.
    One reason people have a problem is because of ‘common sense’, or to be precise, the lack of commonality, or perceived commonality, in generally accepted, sense. Two culturally different groups e.g. The Irish and the English, don’t mean quite the same thing when they say ‘common sense’; it overlaps a lot, much in common, but it isn’t the same thing. Put together a white South African and a Kosovan, and there may be less overlap.
    If you don’t share a common sense with others it can be fun, exhilarating, which are both words that mean ‘pleasantly unsettling’. It can also be just plain unsettling, and many people’s lives are difficult enough without being further unsettled.
    It’s also verging on the impossible to describe, which is always frustrating, resulting in a lot of vague hand waving and seemingly irrelevant comments. Another problem is, of course, that for many, and especially those in the media, any slight indication that you might be considering having even a passing thought-ette, however tangential, on the subject, has them reaching for the stake and screaming “WITCH” a lot.

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