But the problem with a speculative bubble, which is certainly what the Irish property market is, is that normal rules don’t hold. We know the property market is a bubble because rents don’t pay for mortgages. The only reason people are investing in property (apart from quaint reasons like ‘to live in them’) is because they expect a return on their investment when they sell. Same goes for builders. As such, you can easily get a situation where, while in terms of perceptions construction is based on expectations about future economic behaviour, it is actually driving current economic behaviour.

I still the rest of my argument stands up, essentially that construction cannot be seen as a driver for the economy. Construction is driven by the economy, not the other way around. Ireland’s ability to make stuff we and the world wants to buy won’t be affected by a house price crash. At worst, those that gambled on house prices will be less inclined or able to buy tat like big cars and shoes. So all in all, I really won’t mind

IJP, that’s most likely true. Moreover, construction isn’t like mining in the North of England. So, I’m not suggesting the Republic will return to the situation we were in during the 80s. But if a major component in growth falters, things will not be at all rosy for a while.

Oh, and it strikes me while I’m typing: I wonder? Is it more difficult for countries like Ireland to recover from recessions because lots of consumption heads on the boat to England the second there’s a recession? I wonder.

So I think my claim stands.

Where my (not entirely expert) reading differs from that of Goodbody’s, is on prospects for the industry. Goodbody predicted (in October last anyway) that the sector would see growth elsewhere as growth derived from house building falls. I think that both consumer confidence is enmeshed with the housing bubble in a dangerous way. Second, I think that the construction industry is also exposed because the builders very often own the houses that either they won’t be able to sell or that they will only sell at a much lower margin than was predicted when they invested in the project.

I hope I’m wrong on this, but I think that skating on high speed doesn’t mean you’re not on thin ice…

The rest of the economy will do just fine, they’ll just have decided the don’t want to spend as much money on construction as before. Many of those construction workers who can’t find a new job will move to another country. So we’re left with some people, immigrants perhaps, who’ll take a job elsewhere in the economy. But an economically productive adult actually creates more jobs than he/she takes, simply by buying stuff him/herself. It’d make more sense to deport our own kids and pensioners than it would to deport these immigrants.

It’s potentially worse than that, because you would likely have immigrants left in Ireland seeking employment from a decreasing employment pool – when people talk of “them coming over here and taking all their jobs” they know it’s not true, yet…

However, actually I think the problem applies much more in the North than in the Republic. The North has nothing else beyond high house prices and construction. The Republic now has, broadly, the culture of entrepreneurship, attracting investment, recognizing the value of the private sector etc etc. If one industry (construction) goes, the Republic can probably replace it. Can the North?

Moreover, construction is one of the primary industries employing Ireland’s immigrants. If it suffers a slowdown, your sensible potential immigrant will go to Germany or elsewhere instead. And a fall-off in immigrant numbers as footloose Poles head home will itself feed back into demand for housing, especially in the rental sector, further depressing the market.

As Mick pointed out, I’m the paragon of cheery optimism.

The reverse follows too. If house prices go down a lot, it’ll just mean house prices go down a lot. Some individuals gamblers might not do so well, but that’s their own fault. The economy will be fundamentally fine. It’s funny how people forget that the ideal economy is where all prices are low (relative to earnings).