September 22, 2014

Recovery policy: push up house prices

Posted in Irish Independent · 79 comments ·
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A few weeks ago this column stated that the economy was growing at 4 per cent plus and would grow much faster than most economists thought. The contention was partly based on the array of figures that were coming in more positive than before. However, the main factor was the “feel” that could be sensed out in the economy. When you are self-employed, this feel or what I termed a few weeks ago the “buzz” is perceptible. You know when it’s not there and, if the buzz returns, you can sense it too.

This isn’t the most scientific approach to the economy but economics isn’t too scientific. In fact, I’d go so far as saying that in economics what is important is rarely complicated and what is complicated is rarely important. We are irrepressible social animals, prone to bouts of optimism and pessimism. We are deeply irrational and emotional. We are the polar opposite of what economists contend we are, beings driven by rationality and calculation.

This “invented” rational human being was “made up” by mainstream economists because this rational character’s reactions could be measured and then these perfect numbers could be fed into an elegant mathematical model that delivered a definitive, quasi-scientific answer. But this search for measurement, science and accuracy falls foul of the trap that Einstein highlighted when he warned that “not everything that is important can be measured and not everything that can be measured is important”.

As a result many economists don’t get the “confidence” thing. The confidence thing is the collective feeling that only the deeply irrational get. And this giddiness is infectious on the up and the downside. It’s the same giddiness that prompts us to fall in love, follow ridiculous football teams and be enormously influenced by each other’s moods, attitudes and notions.

It is what Keynes referred to as the “animal spirits” which dictate the ebb and flow of the economy.

However, the fact that the confidence thing is nebulous doesn’t mean it can’t be influenced by policy. It can be, and in Ireland the primary influencer of confidence is the property market. This is because property prices are the means by which macro-economic policy works in Ireland.

At the moment with real wages static, bank lending negligible and income taxes extremely high, the only new money in the economy comes from savings that are now being drawn down after six years of zero consumption. Sure there are exports, but as they are primarily multinational-driven, the extra income coming into the economy is from wages in the multinational sector and that is only 6 per cent of the workforce.

So why are savings being drawn down? What is the trigger?

House price increases are the trigger.

This is because the recession in Ireland was a balance sheet recession. The balance sheet of the middle class was broken because on the asset side, property collapsed in value. But in contrast, on the liability side, the debts that were incurred to buy these assets didn’t fall but remained the same or rose because interest rates were positive. People with broken balance sheets don’t spend, they save what they can or pay back what they can.

In order for the balance sheet – on paper at least – to improve, the value of assets has to go up, or the debt has to be forgiven. Since debt forgiveness has not been contemplated, the only way the conditions for a take-off in local economic confidence can be engineered is for a rise in house prices to be encouraged. This changes the “paper” value of assets in the economy and triggers confidence.

This process is highly controversial because higher house prices encourage banks to lend against property – which, added to the savings that are being drawn down, leads to house prices rising. The very increase in house prices coaxes the banks to lend yet more and we begin again. This is how the process of deleveraging leads to re-leveraging.

In short, the only way monetary policy can work in Ireland is through the medium of house prices. The only way near zero interest rates can affect the confidence thing is via rising house prices. This is the game, not just here but all over the world.

I am writing this article on the plane back from the US and the soundtrack is the same there. In fact we are copying it.

So where does this leave us?

Far from depending on monetary policy in Ireland to stop house price rises, as some people seem to believe, the opposite is the case. Successful monetary policy in Ireland (and by success, I mean generating the conditions for the “confidence thing” to take off) is dependent on monetary policy which will push house prices up, not down. I wish I could say it wasn’t, but it is the case.

The State – the Central Bank and the Department of Finance – in Ireland is implicitly targeting upward house price movements. This is the recovery policy.

Now long-term readers of this column will know that I believe this land obsession is a disaster for the country in social terms, in efficiency terms and in terms of our ability to compete with countries where accommodation isn’t used and abused to manipulate the economic cycle. But we are back to square one.

The “confidence thing” drives animal spirits and these spirits are infectious. One of the most crucial conditions for confidence is repairing the middle classes’ balance sheet so that deleveraging can lead to re-leveraging.

As a result the success of monetary policy and the ability of monetary policy to work and support the broad economy means that it works through the property market.

Over the course of the next few weeks, the column will look at other ways to run an economy and look around the world at places that do it differently, but for now it is important to acknowledge that seven years after the peak of the bubble, we are back to square one.

Growth will continue apace for a while, maybe a few years, and it will feel better. But a sugar rush is a sugar rush.


  1. SMOKEY

    Those who don’t know their history are doomed to repeat it, eaten bread is soon forgotten, etc etc. Oh and subscribe!

    • StephenKenny

      … and unfortunately, those who do know history are doomed to look on helplessly as those who don’t, repeat it.

      • Aidan Keogh

        And those of us who have yet to purchase anything must either continue saving and renting, or join the merry dance, hopefully at the slow point of the jig.

        • GF

          I am trying to stop myself getting angry each time I comment on property in Ireland, so I am going to restrict myself from being annoyed this time around.

          If you make a rental sector:
          1. So that the Renter never feels secure.
          2. Continue to provide (in about 65% of rental property being let) sub-standard accommodation – I include no sound proofing, no adequate storage, no utility rooms, no fire escapes, etc. as sub-standard: a shiny new kitchen does not make a property “standard”. And have no official relevant body in place to ensure standards.
          3. Allow landlords to retain deposits with impunity.
          4. Allow landlords to take three months to fix windows/cookers – with impunity.
          5. Allow landlords to kick people out under false pretences so rental income can be increased – with impunity
          6. When the Government puts in place bodies such as the PRTB, who do NOTHING, and have NO POWERS, but governments use their SPIN to make it sound like those renters are a lucky bunch.

          If you can maintain a rental sector this scary then of course you will retain a desire in every citizen to own their own property. You push them there; they eventually have no choice due an eventual clear need to give their children more protection, or to protect themselves in old age.

          So by keeping the rental sector abused, you continue to push up house prices, and you continue to get your broken banks to pass stress tests.

          I understand from a political, and I suppose a moral standpoint, why a government would protect principle private residences being reprocessed. It makes sense in many ways.

          But why would you not reprocess every single Buy-To-Let property over 90 days in arrears on the spot? Unless you had a clear strategy, which is to NOT flood the market with properties which would dampen prices…

          House Prices MUST go up, it is the only economic strategy they have, and this government and every other one that will follow will do nothing but ensure those prices keep going up.

          Not be mention how NAMA remit is to also ensure house prices rise…

          • mcsean2163

            I had the misery of being a landlord in Ireland whilst renting. If your tenant decides not to pay, there is very little you can do , it takes a long time to legally get rid of a non paying tenant. As well as tenant protection there should also be landlord protection!

    • THIS TIME IT’S DIFFERENT SMOKEY!

      We’ll have a soft landing.

      subscribe.

      • SMOKEY

        David did a good bit on that a few years ago, something like this,… you imagine the pilot gently pulling the levers, the plane easing down towards the runway in perfect conditions, first the back wheels then the nose tips gently forward and you feel the runway lightly rumble under your seat….something to that effect. Instead we ended up with a crash landing, and were told it was our fault, not the pilots!

  2. ps200306

    The State is not, of course, pushing higher house prices so that the middle class punter in the street can feel good about his balance sheet. It is because five years ago we bet the farm on house prices going back up from where they were then. It’s as simple as that. Brian Lenihan’s educated take on the matter was: “Shur we only need prices to increase by 10% in ten years to break even”. Since prices fell about 30% between then and 2012, to where they were “merely” outrageously overpriced compared to comparable economies, there is an awful lot of shameless property hyping to be done now.

    The depressing question now — although the “recovery” depends on it not being seen this way — is who’s going to be left holding the booby trapped asset as property gets lobbed around between NAMA, international investment vultures, and the Irish Joe Soap who will always be the last to realise what’s going on. It’s like the Inspector Clouseau “beumb” scene from a Peter Sellers movie.

    • Ps

      Thanks for the comment. The question you pose at the end is the real one. However, the point of the article is to explain “how” monetary policyu works rather than “why” this is the case.

      Best
      David

      • StephenKenny

        although it might be more accurate to say:

        “However, the point of the article is to explain “how” monetary policyu operates rather than “why” this is the case.”

        Given the scale of harm that it is destined to do, even implying that it “works” is slightly inappropriate.

        • Yep, the monetary policy is structured to fail. It is a Ponzi scheme. Please address that issue David.

          An ever expanding money supply 100% loaned into existence at interest. A debt trap to impoverish the people and transfer the capital and wealth to the elites.
          Implying that it works is a crime against humanity.

  3. Pat Flannery

    The European banks, including the Irish banks, are correcting their balance sheets by taking advantage of zero % loans from the ECB to refinance their borrowings from the ECB instead of lending to businesses as the ECB intended. Why can’t ordinary mortgage holders do the same?

  4. Eireannach

    If Irish people continue to buy property ‘when it’s low’, in order to become notionally richer ‘when it’s high’, and to call this lazy behaviour ‘investment’, then those of us on this blog who have been saying for years and years, on and on, in the teeth of opposition by most of the other posters on this blog, that the crash in Ireland was half regulation and banking behaviour, and half the disgracefully lazy get-rich-quick behaviour of the public, or equally disgracefully cowardly get-on-d’ladder-now lemming/sheep/madness of crowds behaviour, will have been proven right by subsequent history.

    When this second (mini?)boom builds in Ireland, or in parts of Ireland such as Dublin, and people ‘feel richer’ and more confident and the (sort of) good times are back, and it goes wrong again, there will be no banker to blame this time.

    Suckers under water will be on their own, again.

    Your marriage can break up, you can emigrate, your children can hate you for your stupidity, etc. but you’ll get no sympathy of any kind from the more enlightened half of the population this time around.

  5. ASark

    As a regular reader of this column, I am always trying to read between the lines and see what your message is. I am still on the fence for buying a “HOME”. I resisted my animal instincts in the first boom/bust and I am still trying to comprehend what is happening right now with house prices. Will the “the economy” of this country ever get fixed – housing, education, healthcare.
    It’s beyond obvious that the two main political parties are two cheeks of the same ar*e and there is only one thing is ever destined to come out of them. There doesn’t seem to be any political figure or a group on the horizon to have the courage and intellectual know-how to lead the way.

    What to do?

    • Eireannach

      ASark, whatever you do, know this – you are on your own. Nobody will help you if you f**k up. Nobody will have sympathy for you. You are not a member of a compassionate herd, you are a single human being who stands or falls based on his/her own choices. You are responsible for your successes and your failures.

      With that in mind, research deeply, and make the best choice you can.

      • ASark

        Dear Eireannach, thank you very much for the insightful advice on the nature of a human being. Yes, I take responsibility for my actions and I don’t look for hand outs. I have never been in depth, or taken out a loan that I could not repay. It is because of my research and analysis that I still haven’t taken the plunge/commitment into the “property” ownership. I can’t bring myself to pay for something which is so extortionately blatantly manipulated and unreasonably overpriced. Unfortunately some people have to choice and have to bite the bullet and live with consequences of hardship for years to come.

        My question “What to do?” was rhetorical and was addressed to US as a “heard” (apparently we are social creatures after all). What can WE do? How can WE make this country to be governed better?

        • ASark

          correction – never been in debt,

          • Eireannach

            Asark, I’m 41, I live in Dublin but I still rent. Fortunately for me, I have a partner who is very rational and doesn’t want to buy an apt/house either if the dent-load is too great to carry. I own a booming business and powerful brand, http://www.gameofthronestours.com. The bank wants to give me money. But the key point I want to make is, forget the ‘we’. 100 years ago us and them was easy to define – Catholic Irish and Protestant British, capitalists and workers, etc. Now, a taxi driver might be a landlord in Spain, but a CEO in Dublin. Let’s say she’s from Holland and rents an apt in the IFSC area, is a tenant. There is no ‘we’. Thus is why people wear their GAA county colours. It returns us to a simpler time when, on match day, we know who ‘we’ are and we can feel that warm, fuzzy feeling of group bonding. The future is not taking us toward a renewal of those warm feelings of group identity Asark. It is taking us toward a much more subtle situation where us and them often cuts across community bonds (a Kerry landlord and a kerry tenant have shared interests on GAA final day, but opposite interests in other matters).

            People who messed up during the Celtic Tiger erase always appealed to the group to selfishly save themselves. Politicians asked everyone to put on the green jersey. This is very manipulative, pernicious corruption of the concept of ‘us’.

    • ASark, like you I didn’t buy in the boom time but I had no choice as I couldn’t afford it. I considered buying a house when prices dropped as finally I getting close to being in a position where I could get a mortgage but didn’t have enough for a deposit. Now buying a house remains elusive to me again despite being gainfully employed. I could have achieved it if I had zero life and just went to work, saved and did nothing else. I have decided now that I am approaching mid 40s screw buying a house. It is not worth it.

      As an aside David another way to tell when things are picking up is the rising costs of hotels and eating out. I do a lot of events in my role and prices in the hotel and catering sector are going through the roof again.

      Sigh we are back to the madness again.

      • EugeneN

        miec

        You should be a lot angrier about that. Your prudence was penalised. The landlord class and people who over-paid were protected. You are being taxed to keep yourself in the rental sector.

    • mikecork

      ASark,
      I too am on the fence as regards buying a property. I live in Cork City where thankfully the market is not exploding like it is in Dublin (yet).However I am worried if we are doomed to repeat nationally the boom burst cycle and what impact this will have long-term on the economy/standard of living in this country.
      Is it unwise to purchase property at this time?

      • cyberjohn

        This is very simple. Mortgages and houses are really important for families. So everyday is a great day for family to buy a home. A sensible home with a smaller mortgage is best. If you are a singleton sort that issue out first. Do you want to remain alone? If so, one bedroom is alm you need so rent it in a shared house. If not then meet your life partner before considering to buy as the location and property size will depend on the circumstance. For a family a home is a must so if mortgage approved buy. Investors. That another story.

        • mikecork

          Hi Cyberjohn,
          I am currently 26 and working in the I.T. sector. I understand your point, but my fear is if I leave off buying property now (while I can afford it) I am going to end up priced out of the market if another boom starts (which it looks like is happening).

          • cyberjohn

            If you are 26 and working in the it sector, my guess is you will absolutely not get mortgage approval. Please explain? It would take two to get a mortgage on it sector salaries.

          • EugeneN

            Presumably he is in Cork. And IT salaries can be as high as 80k-100K, although Cork is cheaper. He could probably buy in Cork.

          • mikecork

            Yes I’m based in Cork and I have already been approved for a mortgage by the bank.
            My query:
            Is now a good time to buy or is the talk of an upcoming rise in property prices merely being drummed up?

          • cyberjohn

            Quite frankly, i do not believe that a singleton aged 26 working in IT is earning enough to obtain mortgage approval without getting a parents guarantee whereby the parents offer something other than their primary home as security. If i am wrong then Ireland is gone into a new lending frenzy which it is not. Thus, you must be relying on parents. So if that is your case and you are an only child, go for it. As i said a 26 year old would not earn in excess of 50k.

      • 892896

        Hi Mike,

        I am from Cork City and work in It too. I would buy now. The earlier you start, the earlier you’ll have your mortgage paid off. I dont know if Cork will take off like Dublin but I would buy as best you can now, perhaps the home you would intend to trade up to in a few years ? Good areas like Douglas/FrankField/Carrigaline/Blackrock/Bishopstown would be ideal for renting out a room or two. Bear in mind too that new banking entrants may exploit the market in a few years and drive the interest margin downwards. You might be too young to remember but Bank of Scotland drove down margins big time in 2000. IT is a good sector to be in. The compelling reason I encourage disciplined individuals to borrow is that it makes you manage your money. Best of luck.

        • mikecork

          Thank you-Some great words of wisdom!

          • cyberjohn

            You sound like 2 Estate Agents from Cork with nothing better to do given the decline in housing volumes than to talk up the housing market in Cork. IT Workers in Cork should leave Cork and emigrate where the salaries and opportunities are better. What do you think of that advise?

          • Colin

            cyberjohn,

            Mammy has a great influence down in cork on her boy’s dreams of owning property. The boys would love to buy a house near her.

            Remember this joke?

            And then there was the joke about the frantic Cork mother on Patrick’s bridge pointing to the river below and shouting: (remember the Cork accent now)

            “Help! Help! My son, the engineer, is drowning!”

          • cyberjohn

            Colin, Why are you trying to downplay what i am saying. I have no idea what kind of point you are making. I was asking the auctioneers who are pretending to be it workers what they thought of my advice? Suddendly a Colin appears from nowhere making silly comments…? Very odd. My comments above are the only credible ones on this thread…

          • Colin

            That’s the way we roll here cyberjohn. all of a sudden, there’s a new comment on the thread from someone who has something to say. Happens all the time, no invites are sent out.

            To clarify, I agree with you. My point is that someone who is 26 years old and single and feels the urge to ‘get on the property ladder before it becomes too expensive’ has probably been indoctrinated with this insane ideology by their parents, usually the mammy.

            The ‘engineer drowning’ joke highlights how social standing is very important in the eyes of Cork mammies.

            Now, is there anything else you feel odd about?

            hope that lessens the silly factor for you.

          • cyberjohn

            Thanks for expanding on your view. In almost all cases a 26 year old IT Sector worker will and should not get a mortgage. They should have an active pension, should try to get 6 months salary in savings, should rent cheaply in a good area sharing a house, should not have a credit card, should avoid expensive purchases and luxury items, should avoid trying to appear like they are doing well which results in blowing of money on ridiculous items such as flights to barbados if you understand me (sorry for exagerating there), should concern themselves with finding an intelligent life partner, should go to a church, should involve themselves in a fitness programme such as walking to work, should remain positive, should not purchase a home until they want to and are ready to put down sticks and settle down.

    • For those of you on the fence, this property price increase is due to a supply side issue compared to the credit fueled madness in the previous boom. It’s worth noting that around 25% of new mortgages in 2006 were BTL mortgages whereas in 2013 it was just 4% (excluding top-ups and re-mortgages). Eugene below said there are 33,000 BTL landlords in arrears. Also, NAMA has around 14,000 homes, around 10% of all property in the country is vacant, home building is up a third this year, home sales should be up around 40% this year to around 42,000, cash buyers are up 28% the first 6 months of 2014 compared to same period last year and new mortgages drawn down are up 60% in the same period. – These are the main factors that will influence prices. If the construction industry had their way, there would be 25,000 home builds this year compared to 11,000. It really depends on how quick the homes that should be on the market are put up for sale (i.e sellers of vacant property and home repossessions) and if the demand exceeds this level of the inevitable future supply increase.
      On a separate note David I’m sure many people will look forward to your new TV3 series (which to quote IT), ‘with some of the most influential figures in Ireland and worldwide for in-depth interviews with one person per episode’ – I’m guessing Michael O’Leary!.

  6. Nice to be in Toulon ignoring the economic farce of the real cause of the boom and bust. That is the central bank policy of continual money expansion. The policy of, the ruin,of eternal inflation of the money supply.

  7. EugeneN

    If anybody doubts that there is a government campaign to keep housing high consider this:

    1) there are 33,000 BTL landlords in arrears.
    2) NAMA is sitting, and to an extent advertising property, which is not available to punters. You can look at their website. Then try and call the receivers. They are selling to large investors only, but at a discount. A discount not included in the property increases. Were this stuff on the market it would show price falls. I mean there are only 3,000 properties on DAFT.

    Take point 1). Daft shows 3,000 properties available in Dublin. If you were to add the 15-20,000 ( assuming 50% or so are in Dublin) of BTL properties in arrears in Dublin to that we would get a large housing price fall. Furthermore if any landlord is in arrears in Dublin it’s deliberate. There is plenty of rent coming in. Most are on trackers.

    Therefore we have economic actors who are investors and able to pay mortgages not paying mortgages, at the expense of the renting class who is taxed to subsidised the banks and to stop repossessions, while families can be kicked out of their homes in the rental sector for one mispayment, by the non-

    This is kind of like gangsterism, except the protection offered by gangsters tend to go to those who pay the payment. In Ireland the gangsterism takes from one definite taxpayer – the renter – and protects another, the landlord. Who often, anecdotally, is in fact be less likely to be a taxpayer.

  8. DarraghD

    This time around though, it is different I think, and when I say “different”, I mean in the sense that there are so many people in this country, particularly in the capital, who are just about hanging onto a housing solution by their bare fingernails. We are already seeing reports of what would have traditionally been middle class people and families, now ending up in hotels, hostels and B & B’s as a council led housing solution, after their landlord claimed to need the property back “for his son”, only for the same property to end up on daft.ie a fortnight later for 300 Euro a month more.

    An increase in asset prices might look good for most people who have mortgages, but we now have a huge housing crisis in this country, we haven’t been building housing units in this country since 2007, I can see consumer confidence growing on the back of rising property prices, but it will also be falling when we are seeing more and more articulated parents of families ending up on the 9 O’ clock news, when RTE are reporting from pre-fabs and trailer park type solutions, which I reckon we will be witnessing the introduction of very soon in Ireland.

    If you think about it, such a plan (trailer parks and pre-fabs), feeds straight into the government led strategy of driving up property asset prices in the short term, as it maintains a shortage of property, and those who can’t afford the bloated market rent, or those who cannot get a mortgage (most of us outside the public sector or multinational sector), can now just go live in a trailer park or a pre-fab.

    • Dublin city council are considering this as an option: http://www.irishtimes.com/news/social-affairs/prefabs-may-be-used-to-tackle-housing-crisis-in-dublin-1.1928859 so it is not light years away. What I cannot understand is that a couple of years ago there were a plethora of ghost estates – now there is a shortage, as Eugene points out, NAMA are holding back a number of properties which should be released as a priority.

      • DarraghD

        Not just that, but the assets that NAMA are selling, are being sold to huge investment firms, the latest being in Sandyford Industrial Estate, 800 units were sold in one transaction to an investment group.

        We are hardly even out of recession and here we are back to using what is a fundamental human need, just like water or food, for greed, speculation, and short term profit. Would we ever tolerate a situation whereby we could not access food or water because we had allowed these human essentials to become the subject of rampant market speculation?

      • EugeneN

        Prefabs – excellent..

        Here is what the Wiki articles on Ghost Estates (anywhere, not just in Ireland) says in it’s first paragraph.

        “A ghost estate is an unoccupied housing estate, particularly one built in the Republic of Ireland during the period of economic growth when the Irish economy was known as the Celtic tiger. A massive surplus of housing, combined with the late-2000s recession, resulted in a large number of estates being abandoned, unoccupied or uncompleted. In 2010 there were more than 600 ghost estates in Ireland, and a government agency report estimated the number of empty homes in Ireland at greater than 300,000.[1][2] The National Institute for Regional and Spatial Analysis defines a ghost estate as developments of “ten or more houses where 50% of the properties are either vacant or under-construction”, which therefore does not fully cover the total number of unfinished estates. [3]The 2011 Census lists the number of empty homes to be around 230,000 (excluding the 60,000 holiday homes), around 26% of which are apartments, despite the fact that only 11% of the occupied homes are apartments.[4] Of the 230,000 empty homes in the 2011 census, around 10% of these were in ghost estates. As of November 2013, the number of vacant units in unfinished estates is 6,350.[5][6] Vacant homes do not include derelict houses and homes under construction.[7]”

        Now can someone explain what has happened. The “historic” need for 25,000 houses is clearly only true of boom times, but we had negative immigration from 2007-2012/13/

        http://en.wikipedia.org/wiki/Ghost_estate

  9. Mike Lucey

    Yes, I see even here in the West that the merry-go-round is starting again particularly with 4 bedroom detached town houses. There is quite a shortage of this category of houses in many towns. I imagine the empty nesters are sitting tight until they can get a half decent price before down-sizing.

    I did an exercise some years ago, What is a House Worth and came up with the following.

    a. The actual house is easy enough to value. It’s simply a matter totting up the price of materials and construction labour, then adjusting for condition / age .

    b. The second part was more tricky. How to put a value on the actual site. In order to pin this down I took a standard town site for a 4 bedroom detached house. This type of site would typically have a front and rear garden and either an attached or detached garage also room for parking a couple of cars in front.

    I realised that I was placing a lot of emphasis on ‘car accommodation’ in order to reach a site value. Well the car is now an essential part of most folks life. I then simply asked myself, ‘What type of typical car(s) would one expect to see parked outside this type of house?’ Most folks drive a car that indicates their income / wealth.

    I then used the new car(s) price as a basis for site valuation. I multiplied by a factor of 2 and came up with a possible site value. Why a factor of ’2′? Well I imagine most folk would consider that a house site that suits them must be worth twice as much as the car(s) that they drive.

    It seemed as good as any yard stick I could come up with.

    • McGoo

      >Most folks drive a car that indicates their income / wealth.
      Nonsense. People drive cars that indicate how shallow and insecure they are. In many cases an expensive car indicates debt, not wealth.

      • Mike Lucey

        To drive an expensive car one needs either cash or good credit. Both indicate financial wealth.

        I think you are mixing financial wealth with self esteem etc etc. Two totally different things.

        • McGoo

          My point is that having financial wealth does not force people to buy an expensive car. In my own life I know :
          1. A multimillionaire couple whose only vehicle is a battered ford transit.
          2. 2 separate millionaires who use bicycles and don’t own cars.
          3. A lady, worth about 0.5 million, who drives a 1991 car.

          These people see cars for what they are – an appliance, just like a washing machine.

          • Colin

            About 6 years ago, there was a poster here called B who lived in the South East and worked in the Ports/Logistics/Transportation industry. He spoke so much sense. I remember he advised against buying new or newish cars. His solution to impressing customers/people was to hire one for a few days and keep your vintage motor on the road for all other occasions.

          • Mike Lucey

            @McGoo

            I have no doubt that there are lots of very well off people in Ireland that don’t have expensive cars or in some cases no car at all. These however are few and far between.

            I regularly see cars outside people’s doors that reflect their income / wealth.

          • Mike Lucey

            @Colin

            Poster B is playing a risky game. I imagine his customers / clients won’t be that impressed if they every find out that he thinks they are fools that are easily impressed. We live in a small community!

            He should consider taking a taxi to meet customers / clients. He could alway say that his car broke down which might well be the case.

    • McGoo

      Also, what possible relationship could there be between the cost of mass-produced imported consumer machinery and residential land in Ireland?

    • DB4545

      Mike I think you’re looking at life from the business end of a toll-booth.

      1. My dentist cycles from his practice to his home in leafy south Dublin.
      2. I remember someone pointing out the car of a solicitor who made millions from the beef tribunal. The Car? A battered old volvo estate. The real status symbol was the beef tribunal sticker which gave him free access to the car park in the four courts.
      3. A major landowner who owns some key pieces of the monopoly board in D4 drives an old VW.
      4. People living in the nicer suburbs along the Dart don’t use or need expensive cars. They buy a travel card for 20 Euros a week and get tax relief on that so their net transport costs are a tenner a week. Think about it. If you drive around some of the really expensive suburbs along the Dart line you’ll see a ten year old car in the driveway for the school run or weekly shop.
      5.The rich aren’t stupid or socially insecure. A new car every three years will cost you a minimum of 7500 Euros a year when capital cost,depreciation,car tax,insurance,maintenance,tolls etc. are factored in. That’s 15000 Euros you have to earn BEFORE tax to fund it. A travel card costs 1000 Euros a year. The money saved goes a long way towards a mortgage in these nice suburbs.Flash cars and toll charges are for worker bees and wannabees.

  10. cyberjohn

    David, Were you drinking wine when you got that buzz. On an airplane from the states most would sense a buzz. Not buying this recovery idea. More money out, less money in equals negative spending.

  11. It was what ?

    The Buzz , the animal instinct , the blood flow , the sex , the wow factor …….in Limerick we until recently never understood what those words really meant because we have no investors , no new jobs , no new industries, no GAA final replays , just no no no nothings . So all these words of expressions of embracing emotions familiar in The Pale are just and void empty in the Mid West .

    Recently we employed a 25 foot old Granny to walk around the city for a whole week end and paid her €1m .She was nearly 90 years old and everyone wanted to believe she was their Granny .She spat , she laughed , she slept and she spoke to everyone .

    She was a very old Granny …but she gave that whoop and romp and every granny in a wheel chair came to see her together with all the kids and grand kids .

    LIMERICK will miss her and will learn to Stand Alone and regain Independence from the vultures in Dublin .

  12. DarraghD

    David is bang on the money as usual though, because there is nothing else going on in this country, not right now and not within the last few years, that is causing growth, apart from another property bubble being inflated, caused by nothing other than a real fear of homelessness or living with your parents into your 30′s.

    In fact, while wages have remained flat at best for most people, more and more of take home pay has been ransacked to pay for overpaid, underworked and unaccountable public servants, either in local authorities (income raided via property tax and water changes to pay for these plebs), or in state departments, where the untouchables still have their snouts in the trough and anyone earning less than 60K can’t be touched!). We are still borrowing 800 million Euro A MONTH, to run the show here, as a country, we are still hugely inefficient.

    The reason why we have a government that is manipulating growth through artificial house price inflation in the capital, based on nothing other than a housing shortage and the inherently human desire to not want to end up homeless, is because the place is being run by a schoolteacher and a union official. I don’t think you could find two people who would know less about job creation in a real economy if you tried.

    • EugeneN

      Daily Mail 31st Demember 2013. That is ten months ago.

      http://www.dailymail.co.uk/news/article-2531852/Exorcising-Irelands-ghost-estates-Demolition-begins-housing-projects-built-economic-boom-left-country-300-000-homes.html

      Demolition *begins* on housing estates. There are estates in Dublin in there. See below to how the normal market is being bypassed.

      This is deliberate policy.

      • dochasach

        There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificate—died of malnutrition—because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed.
        And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quick-lime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage. — John Steinbeck –Grapes of Wrath (1939)

        Move along, nothing to see here. Nothing new.

  13. EugeneN

    More obvious collusion to keep prices higher:

    http://www.independent.ie/irish-news/leading-banks-prepare-to-sell-off-1600-houses-30604015.html

    Those 1,600 properties are not for sale to Irish potential owner occupiers, and they would probably make a significant addition to the Dublin property market. Nor, I imagine, are these sales at 50c on the euro getting into the official prices, even though that would be a significant sale. So prices are rising, if you ignore the housing taken out of the market.

    Utterly corrupt.

    • McGoo

      From that article: “In a relatively unusual move, the two banks will sell of the houses and apartments themselves, rather than the loans.”
      It looks like David was right a few weeks ago about Irish property being sold off for a song to vulture funds, who will then sell it back to the Irish at a huge profit.

      • Colin

        Utterly corrupt, yes it is.

        should you be surprised? no.

        What’s the bottom line? The Irish government and insiders hold the Irish public in contempt.

        What can you do about it? Emigrate or filter out the propaganda.

        But who’s gonna look after me when I’m old and don’t own a house? Don’t worry about that. You may end up in a nursing home being spoonfed for 5 years before the lights go out, at which stage they will charge your estate for the ‘care’ given to you, so only a few crumbs will be left for your loved ones.

        Won’t my loved ones be depending on me for an inheritance? No, they should not be. No one is entitled to something for nothing, unless you have been cared for by them for 5 years, getting your arse wiped, getting showered and dressed and getting spoonfed and kept warm.

  14. Something Else is Pushed

    House Prices are NOT being pushed .This is an illusion .What you see is not what is there .What the banks want you to see is what you can only see . There is a trick . The eye is a simple sense that is our weakest and the art of banking abuses it more that you can care. Light plays on the eye and any wily fox knows how to disappear .Looking at the same place at different times of the day you should see changes but you don’t because our eyes become weak .

    SECURITY ….is being PUSHED by Banks to offload dead loans to comply with ECB demands .Savings are being reduced to fool the savers to increase the liquidity flow by purchasing property at faked inflated prices so to reduce / eliminate the bad bank loans of some unfortunate borrower elsewhere.

  15. The Dork of Cork

    People get that “buzz” from money in circulation (not savings)
    It does not start with Psychology.

    Look David (internal credit creation here remains negative)
    That means we have structured our economy to look for outside credit with cathastrophic impacts on our real purchasing power.

    If you were in Sneem (south Kerry) this year you would have noticed a increase in bus trade.
    The current stats indicate more tourists coming into this place then going out.
    What is happening goes something like this.
    Some Yank flies into Dublin (burning a vast amount of capital called kerosene)
    He rents a 14D car or if cheap a bus and goes down to SW Ireland.
    By the time he gets to Sneem the corporate sector has extracted most of his ability to buy a good time.
    He has enough money for a Ice cream in Sneem , then he flies home.

    You are a Atlantist without apperently understanding the true costs to society of this very wasteful system of distributing tokens to pay off debt.
    The Americans simply don’t have the purchasing power as before.
    All they can give us is diesel fumes and some trade buying Ice cream.

    Its not the 1960s baby.

    http://www.youtube.com/watch?v=aKqOMSDNviA

  16. Wills

    We are into a very interesting area in respect to David’s article IMO.
    Anyone who has been following the thread over the years knows the property markets are rigged. Rigged by an embedded power which runs the show. We are now observing the outcome the blanket guarantee, NAMA, the bank bailout bonds and the levies and new income streams fixed up ALL of which coming into play.

    D’s article above shapes out of it a narrative the ordinary person can grasp.

    This is good.

    The more people are informed on the machinations of ‘the power’ the increased chance the stranglehold the insider class have on enterprise can be released. Indeed many more people than say 3/4 years ago are now aware, semi-aware or suspicious of the fact that the economy and how it is run is mot what they where educated about in school, reported on the MSM or generally understood amongst the masses.

    So, the pigs at the trough – the power – the land owning elites – the oligarchs and their bagmen ALL of them are slowly and in greater and greater numbers being found out for the thieving bastards that they are.

  17. Fat Tony

    Annual Property Tax will be some craic under this latest bubble…

  18. Wills

    …thank’s David – with my book project finally shaped into something presentable article above its energy demanded a comment IMO! :)

  19. Deco

    Quote from David
    [

    In order for the balance sheet – on paper at least – to improve, the value of assets has to go up, or the debt has to be forgiven. Since debt forgiveness has not been contemplated, the only way the conditions for a take-off in local economic confidence can be engineered is for a rise in house prices to be encouraged. This changes the “paper” value of assets in the economy and triggers confidence.

    This process is highly controversial because higher house prices encourage banks to lend against property – which, added to the savings that are being drawn down, leads to house prices rising. The very increase in house prices coaxes the banks to lend yet more and we begin again. This is how the process of deleveraging leads to re-leveraging.
    ]

    And there you have it. The Irish state has an woeful balance sheet. So the poloicy makers have devised a solution. A balance sheet recovery. And then use this to tell everybody that 2look, things are getting better”.

    The real driver is “bottlecking”.

    The housing supply has been bottlenecked.

    What was it that WB Yeats said about Ireland being a sow that eats her own farrow ? Well, that is exactly what you are seeing.

    And in order to divert any pressure that will result in the articulation of this point, the ILP have a grand strategy – “social housing”. Or call it houses for votes.

    So the state bottlenecks the construction of houses. and then the states takes over the supply of housing.

    The whole things is absolute madness.

  20. Deco

    Time was when the housing market was used and rigged to form the basis of massive profits in the banking and development sectors.

    Now it is being used to prop up an unaccountable, wasteful, and un-reformable institutional state.

    For most people the effects will remain the same. The people will get scelped in an extreme manner.

    The immorality that exists in the Irish housing market remains constant. The beneficiaries have changed. The EU is itself a beneficiary, as it is given powers.

  21. Deco

    Re-leveraging is just an illusion. It solves nothing.

    The EU does not want de-leveraging. The EU’s policy framework, and the policies of the ECB are now positively Thatcherite.

    The whole economy is to be pushed towards ponzi-fication.

  22. “the only new money in the economy comes from savings that are now being drawn down after six years of zero consumption. Sure there are exports, but as they are primarily multinational-driven, the extra income coming into the economy is from wages in the multinational sector and that is only 6 per cent of the workforce.” David McWilliams.

    “Ireland shows struggling Europe the way ahead. Strong growth demonstrates that tough choices do pay off”

    “The hangover from years of heedless expansion has left Ireland with no choice but to seek growth in other ways rather than starting the party all over again.”

    “Ireland has been fortunate” “decisive actions of Mario Draghi” “Others should learn from its example.”

    http://www.irishtimes.com/business/economy/ft-editorial-ireland-shows-struggling-europe-the-way-ahead-1.1937497

  23. Adelaide

    E.C. Riegel predicted this global fiasco 80 years ago, indeed it was inevitable, it all comes back to the money, the flawed monetary model of private money creators issuing private money for profit to the masses.

    Riegel saw that the increasing volume of unnecessary money issued will inevitably impoverish the masses through money debasement and its side effects of spectacular bubbles and busts. The money creators and their cronies will by the very method of their monetary model create a neo-feudal system of super-rich and universal poverty, and then finally the system will collapse under the weight of its own money saturation.

    The ideal solution is a public zero-sum monetary model issued by the people which Riegel formulated in the 40′s.

  24. “Riegel saw that the increasing volume of unnecessary money issued will inevitably impoverish the masses through money debasement and its side effects of spectacular bubbles and busts. ”

    There you go David.It is called the money system and it operates as a classic Ponzi scheme. We all would like this debated and exposed for what it is.

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