A property bubble, affordable housing and the wealth gap

IF there is an executive, the issue of affordable housing will be a significant issue in any in-tray. The local market continues to buck national trends and first time buyers are now virtually forced out of the market or taking on a higher degree of risk through increased income multiples of mortgages. Capital inflows in particular from the Republic of Ireland appear to be skewing the local market with possibly as many as 50% of all new purchases by investors. However, the construction sector claims that government is adding to woes through slowness to release land pushing up land values, delays in planning preventing new homes getting on to the market quickly and service hook-up costs. Despite economic growth, the wealth gap has widened largely fed by asset growth, in particular property.It is hard to see how such a boom is sustainable, how bad a hit will there be if the bubble bursts? Little can be done about capital inflows. The industry may have a point on land and planning but the hook-up charges argument seems to be an attempt at cutting its costs at the expense of the public purse. Also what guarantees would the sector give that in such a buoyant market that they would pass on savings rather than pocket the increased profits? What is the scope for devolved government action when faced with a distorted market?

  • the other one

    These are the same developers who no longer release houses at a fixed price but release a few houses at a time allowing the market to set the price.
    The entire housing system especially the social housing sector requires a complete overhaul.

  • Ulick

    “The local market continues to buck national trends”

    I suppose that depends on to which nation you subscribe. The local market has been following my national trends for some time, which could be an indicator of where our natural hinterland is actually located.

  • carlos blancos

    Hmm, the Belfast market may only be playing catch up with elsewhere. Inflow of capital is definetely pushing prices up, but the plethora of ‘To Let’ signs up and about may slow that down.

  • boomandbust

    Bring on the bubble bursting!

  • Too many people are chasing quick returns through capital gains rather than looking at the yield an asset might bring; this mentality is not limited to the housing market either, it’s what the dotcom boom was all about as well.

    Now, the people who are investing their own money might be making a less than wise decision, and might be better off having their money in bonds. But they’re ultimately not a problem. It’s the know alls who know nothing who are going to bring the whole thing to its knees; you know, the people who are borrowing to invest and then can’t let the property at a level that pays off the mortgage; there are a lot of those about all over Britain and Ireland at the moment. My landlady is one. She got a nasty shock about her legal rights and responsibilities when she tried to sell the house over our heads as well.

    When interest rate rises force the ones borrowing to let out of the market, prices fall; then the smarter people looking for a quick capital gain get frit and pull out; and prices fall further. Then panic sets in and the arse falls out of the market.

    It’s not like this hasn’t happened before.

  • George

    Welcome to my world. It certainly seems to have stalled south of the border which is no bad thing.

    The conspiracy theorists are out in force, saying that there is already a major correction underway but that the newspapers aren’t giving it the coverage its due because they make so much money from the real estate business.

    As for affordable housing, if you can’t afford it you don’t count in this “modern” world in which we live.

    But I’m sure a couple of hundred units will be thrown in the direction of the non-voting poor as a sort of welfare sop so the middle classes can sleep peacefully at night.

  • mnob

    Agree with Sammy wholeheartedly.

    We need to be careful about the term ‘affordable housing’ – actually housing has never been more affordable (wrt average mortgage payments vs average wages) due to consistently low interest rates – this is why the prices are rising. However those with less access to credit (i.e. people working for a living) are being pushed out of the market. This is due in part to the Bank of England setting interest rates based on an inflation rate WHICH DOES NOT INCLUDE HOUSING COSTS.

    The interest rates are starting to notch up – it will be interesting to see how the market reacts.

    Its not a shortage of supply thats the issue – its a demand (fed by speculators – some of whom are not concerned when their properties lie empty) which would never be met even if we built on every scrap of land.

    Ulick – your national trends based on having even less localised control of interest rates would make the situation even worse.

  • mnob

    George – under the current system there is no means of selling ‘affordable’ houses to those who ‘deserve’it. All that does is increase demand and raise prices further i.e. it has the opposite effect.

    Also those who want social housing at a discount usually end up doing nothing less than selling at a profit and pocketing the discount that the rest of us taxpayers gave them.

    Therefore its a double dunt to the rest of the population – increasing demand pushes prices up *and* we are paying for it.

  • Yer Woman

    A quick question for you knowledgeable types:

    I’ve just come into a sum of money via inheritance (£60,000).
    I’m a graduate with the normal debts and letting a flat out in Belfast. I’m also on a £12,000 a year in the Silly Service.
    Riddle me this folks – what should I do to get on the housing Market? From my research, I still couldn’t afford a mortgage on a half decent house.

  • actually housing has never been more affordable (wrt average mortgage payments vs average wages)

    Yes, but no. For the average mortgage borrower, they may well be. However, this includes an enormous stock of people who bought their homes in periods like the mid-80s and early-90s when homes were very cheap compared with today.

    First-time buyers, on the other hands are paying crippling amounts and unlike their predecessors in previous eras, high inflation is not eroding the real value of their debt. Add into the mix that a lot of people seem to have forgotten that interest rates can rise (5.25% in the UK, let alone the Eurozone rate, is tremendously low in historic terms), the number of people holding interest-only mortgages, buy to let mortgages, high-multiple mortgages, extra-long period mortgages, super-jumbo-interest-only-buy-to-let mortgages etc., etc., and you have a recipe for disaster.

    I vote we tar and feather charlatans like Kirstie Allsopp of Location, Location, Location when this folly finally ends.

  • mnob

    Yer Woman – I wouldnt be so bold as to advise but there are several people out there whose advice would be to :

    – rent for the minute – which should be much cheaper than buying due to the surplus of buy to let investments and save (if you can) the difference between your rent and the mortgage payments you would be making
    – then when the market ‘cools down’ (code for melting) buy cheap.

    Sammy – I wouldnt single out one person for punishment – there are an awful lot of people who gain from house price rises – number 1 of which is the government but includes banks, solicitors, estate agents, brokers …. pretty much everyone except you and I who will only ever sell houses to :

    a) buy a larger equally (or more so) inflated price house
    b) take a trip to Roselawn or the nearest burial ground

  • George

    mnob,
    are you referring to north of the border or south of it?

    Anyway, really should have said “social housing” rather than “affordable housing” when I was talking about the welfare sop the the poor.

    I agree. Most people applying in Dublin for affordable housing are actually too poor to qualify.

    However, there were 5,000 less on the local authority waiting lists in 2005 than in 2002 – a mere 43,684 are now waiting. The authorities are putting this improvement down to affordable housing.

    From Today’s Irish Times about over 1,100 “affordable homes” to be provided in Dublin under the State-sponsored Affordable Homes Partnership.

    “Estimated prices for affordable homes in the Lucan development vary from EUR 260,000 for a two-bedroom house or apartment to EUR 315,000 for a three-bedroom property. The market value for a two-bedroom property is EUR 380,000 and EUR 500,000 for a three-bedroom property. The estimated price for a two-bedroom apartment in the Killiney scheme is EUR 300,000, compared with the market price of EUR 550,000 – EUR 600,000…

    “The affordable housing scheme is aimed at first-time buyers earning less than about EUR 55,000 annually as a single person, or a combined salary less than EUR 75,000 for couples.

    Purchasers can live in the house for as long as they want, but they have to pay back a percentage of the sale price to the local authority if they sell it within 20 years.”

    260k is hardly affordable if you are on the minimum wage.

  • George/mnob – I think we’re largely singing from the same hymn-sheet here. I didn’t realise until George pointed it out that the Republic had an ‘affordable homes’ scheme as idiotic as the one we have here in London.

    The best was the Imperial Wharf development, a luxury flat complex right on the Thames in South Fulham. Suuuuuper expensive. Like every other new London development, thanks to our Mayor, 25% of the homes had to be ‘affordable’. But even the ‘affordable’ homes have a market-linked price, so in this case the cheapest ‘affordable’ home, only open to ‘key’ public sector workers was a clump of lower-floor one-bedroom flats at around £350,000. Actually, there is a potential market here (GPs earning £100k plus), but many of us would kind of blanche at the idea of GPs on a six-figure salary being in need of state aid.

    Yet another sign that the end of the boom is at had (God, I sound like one of those nutty sandwich-board preachers in Cornmarket).

  • CGT

    An Earlier poster said
    “Too many people are chasing quick returns through capital gains rather than looking at the yield an asset might bring;”

    However I agree but disagree: Capital Gains tax is another major problem… these people want the captial gain but I believe they never materialise that gain…

    Assume an investor bought a house 1.5 yrs ago (i.e. second house) before the surge @ approx 100k House this is now valued at approx 200k..
    chances are that after their CGT threshold is taken into consideration (approx 8.5k p.a.) they will be paying 40% tax on the gain…
    So they cannot stomach selling and loosing approx 30-40k to Inland Revenue.. Its cheaper to borrow against this equity on this asset
    Therfore – that house is permanently off limits to any potential first time buyers…

    There’s so many factors to the current situation interest rates, lending etc all affecting affordability…
    but to me its simple SUPPLY & DEMAND…
    If a house was like any other factory product, firms would be meeting that demand with increased supply..
    BLAME THE PLANNERS

  • BLAME THE PLANNERS

    I’m not a fan of the planners, but this certainly isn’t the case in the Republic, where more than 100k dwellings are lying vacant while people can’t afford anywhere to live.

    Blame the speculators, methinks.

  • Bemused

    “‘The local market continues to buck national trends’

    I suppose that depends on to which nation you subscribe. The local market has been following my national trends for some time, which could be an indicator of where our natural hinterland is actually located.”

    Couldn’t have put it better myself Ulick.

  • DK

    “I’ve just come into a sum of money via inheritance (£60,000).
    I’m a graduate with the normal debts and letting a flat out in Belfast. I’m also on a £12,000 a year in the Silly Service.
    Riddle me this folks – what should I do to get on the housing Market? From my research, I still couldn’t afford a mortgage on a half decent house.”

    Working on 3 times value mortgage, you should be able to get a house for £96K. There are a lot of these still about. If you are either Catholic or Protestant then you should be OK. If you are in a mixed relationship then you may be in trouble as the safe areas for mixed relation couples are also the most expensive. If this is the case, I’d suggest co-ownership, where someone else (usually a financial organisation) pays half of the mortgage – this means you could afford a house worth £192K – a very good prospect.

    It sounds like your job security is good, so you should be able to get a mortgage (esp. with the £60K). If you expect your salary to rise significantly in the coming years then a discounted mortgage may be for you (i.e. first few years are cheaper). In any case, do your research in the papers/internet before chosing a provider – it is likely that the best will be a building society, since unlike banks they are not as driven by profit.

    Now is a good time, before the prices ramp up when spring arrives. Good Luck, and don’t forget to factor in the fees!

  • Henry94

    Sammy,

    It’s hard to blame speculators when they are behaving rationally. Anyone who invested in property over the last 20 years has made money.

    Maybe that won’t be true over the next 20 years. Or maybe it will.

  • It’s hard to blame speculators when they are behaving rationally. Anyone who invested in property over the last 20 years has made money.

    Depends where and when. Anyone who bought property in the South East of England in 1990 was in negative equity until 2001 or 2002. The imbalances in the housing market in both the UK and Ireland, and in many other countries, are significantly worse than was true in the South East of England in 1990.

    There are well in excess of 100,000 vacant properties in the Republic, without even taking ‘holiday homes’ into account. Even if these have no outstanding mortgage, they have an associated maintenance cost. If the capital gains dry up, what’s the logic in holding the asset?

    Assuming that the trend of the past 20 years will continue unabated is not rational behaviour. It’s wishful thinking. Rational investors will recognise that asset prices are inherently volatile and take at least much cognisance of the income which can be generated from holding that asset. Lots of these wannabe tycoons mortgage themselves to the hilt and then spin themselves yarns about the sort of yields their property will net. When they can’t afford to pay the mortgage, and rising interest rates will put more of them in that boat, their lender is pretty much forced to foreclose unless they want to throw bad money after good.

    The house I live in is currently in the process of being sold and I therefore know categorically that the gross yield is only 2.8%. But that doesn’t even take into account void periods, the costs of furnishing and maintaining the house, etc., etc. The real net yield is probably closer to 2%, and as property prices outside the luxury market have been essentially stable in London for about five years you have to ask yourself why anyone would hold on to the asset rather than just putting their money in bonds or nice secure stocks… utilities or something.

    OK, that is London you say, but Belfast is only a little better and parts of the Republic, notably South Dublin are even worse, with net yields below zero in the luxury apartment market.

    Rational behaviour is different from herd mentality, Henry. That’s like saying it’s rational to jump out of a 20 storey building and when you pass the fifth floor – say, “I’m alright – I’ve fallen fifteen floors and nothing has happened.”

  • silly servant

    Yer Woman

    I see you are a fat cat civil servant living in the lap of luxury sponging of those that etc etc

    Its good to see someone coming out and demonstrating how outrageously low Civil Service pay is. But hey we better not increase it in case it further fuels the property boom and rips the arse out of the speculators.

    Someone who isn’t doing so bad though is Sir John Semple from the Housing Affordability Review who gets paid an outrageous amount of money for endorsing reports written by civil servants and turning up occasionally to atend review meetings. Not bad work if you can get it and the poor man also had to take to the road for a couple of consultations (diddums)during the consultation period. At least he got to claim his travel expenses as the auld pension wouldn’t be great would it and you have to supplement your income somehow. No doubt affordability wouldn’t be an issue as far is his own house.

    Refering to another point as regards discount paid out to Social Housing tenants to help buy their houses. This is an obscenity as it is the ultimate double whammy. It gives the tenant something for nothing paid for by the taxpayer as regards being allowed to buy the house below market rate and without competition and then the opportunity to sell it on a huge profit a few years down the line. Secondly it reduces the social housing stock at a time when it is increasingly difficult to meet provision in general never mind having to factor in all those social houses lost from stock. One step forwards two steps backwards.

  • jamestwo

    you all seem to forget that the population of ni is increasing rapidly. twice as fast as the experts predicted in 2001. these folk must live somewhere. supply and demand. pop. increae down south becoming rather worrying. ni pop growth 15,000 a year=double estimates, ROI pop. growth last year 108,000. this cant go on.

  • smcgiff

    Lots of doom and gloom on this thread so far.

    I doubt house prices in NI will stabilise for some years yet.

    Even in the ROI it looks as if a soft landing is on the way in the property market, with little sign of anything but a soft landing in the economy in the future.

    If anything the reduction in gains in the ROI is the reason why investors are heading into NI.

  • mickhall

    “It’s hard to blame speculators when they are behaving rationally’

    There is nothing rational about greed, not in a decent society any way, for if people cannot control their greed and it mitigates against the best interest of others, it is up to the government to put the block on it. Make no mistake in housing one mans profit is another persons misery.

    As to freeing up the planning laws etc, great if you want the whole country to look like the inner M25 area in the south of England, but if not I would give the matter a little thought, as Parkinson’s law will soon get to work.

    We can only live in one home at a time, if people want more for reasons of grandeur or profit then the government should tax them for the privilege, dare I say until the pips squeak.

    As to holiday homes around the med, they are a curse for the locals, same down in Cork. The Irish are coming a close second behind the English as hate figures around the med, due to their second homes etc. It is becoming a major issue in Spain, where in many areas youngsters can not get upon the housing ladder, Turkey in the south west will soon follow suit.

    Few in Europe bar the English and now the Irish view a house as an investment and when the bubble bursts, as it always does in time, it will take the economies with it, whilst the Germans etc will look on, nodding their heads at just how stupid we all are.

  • aquifer

    There could be some very funny money in a market rising by 30% a year. Interest rates in the far east were next to nothing for a while, and speculators can multiply up their stake by getting bank mortgages. On a risk adjusted basis, their bank leveraged returns are high enough to justify the risk of the market going bad and having to walk away from the property, or having to hold it empty for a few years until the (favourable) demographics catch up.

    A big part of the problem is the land banks already with residential planning permission that are held by developers. They have no incentive to build when most of the increased value is in the land.

    The DSDNI.gov.uk have an affordability review which floats the idea of action on vacant homes.

    http://www.dsdni.gov.uk/index/hsdiv-housing/hsdiv-housing-affordability.htm

  • smcgiff

    ‘There is nothing rational about greed, not in a decent society any way, for if people cannot control their greed and it mitigates against the best interest of others, it is up to the government to put the block on it. Make no mistake in housing one mans profit is another persons misery.’

    Any profit is the “misery” of others. But there is no such thing as a “decent society”, and that’s why communism will never work, although ideally it would be the most utopian of societies.

    The best society, in reality, humans can thrive in is capitalism, and that means people are motivated by profit. Curtail this and you damage the economy and subsequently society, because no economy is isolated from the rest of the world.

  • jone

    The claims from the construction sector are utterly risible. They’re making out like bandits, they work in a sector rife with tax dodges and now they’re looking for what amounts to a government subsidy. Does anyone really believe they would use such a subsidy to lower prices as opposed to putting it straight on the bottom line?

  • Sammy Morse

    Seamus

    I doubt house prices in NI will stabilise for some years yet.

    On what basis? That investors from the Republic are going to continue to pour in? Because there isn’t much in the Northern Ireland economy propelling prices up at 40% per annum.

    Even in the ROI it looks as if a soft landing is on the way in the property market,

    The Republic has the highest per capita consumer debt in the world, Eurozone interest rates are going to rise if the German economy continues to rebound, yields on residential property are lower than keeping your money in post office account, there are over 100,000 vacant properties in the state, high wages fuelled by the apalling cost of property are eroding the Republic’s international competitveness, as is the falling dollar, the economy is desperately dependent on the building boom and the infrastructure is still a pathetic joke with the golden decades largely squandered as an opportunity for serious investment.

    But hey, everything’s rosy South of the border. The boom times will continue to roll, because we’re Irish and therefore we’re special.

    mickhall

    From a non-socialist perspective, I agree with you to an extent Mick. If people have money to spare, they want to invest it, and happy capitalist that I am I see nothing wrong with that. The problem is that housing speculation is a hideously inefficient way of allocating capital; it sucks money away from the sort of things that money might otherwise be invested in, like businesses that create real jobs or roads and factories and railways and telecommunications networks that help people create real jobs.

    I don’t know that I go in for the punitive wealth tax side of your argument – wealth is good and I’m in favour of generating more of it for more people. But there’s nothing wrong from jigging the tax system to favour economically useful forms of investment; actually if people would figure out the costs of being a property owner instead they might be a bit more sensible with where they put their money. But as long as vested interests continue to peddle the lie that everyone can be a property millionaire, people will continue to believe them. It’s hysterically funny to see Irish investors seriously talking about going into Albania in a big way now they’ve been priced out of Bulgaria and Montenegro.

    I don’t think government intervention is the solution to all our problems – planned economies have always had even greater stupidity and corruption than capitalist ones. But then, I’m not a socialist and you are.

    aquifer

    On a risk adjusted basis, their bank leveraged returns are high enough to justify the risk of the market going bad and having to walk away from the property, or having to hold it empty for a few years until the (favourable) demographics catch up.

    If your debt profile allows you to do so in the context of rising interest rates and you don’t go insolvent – buying assets on margin is a risky business. Remember what happened at the end of Trading Places!!!

    Even if you don’t have debt to worry about, although pretty much any investment pays off in the long term, in the real world, few of us have enough spare capital to keep it tied down forever. There are real things we need to spend money on in the real world – i.e. your non-profit making investment property has to be let go when your first home needs new plumbing. Or you just t need the money for something else, or if you reckon you’ve had enough of losing money on an empty house and stick your money into bonds or shares or gold.

  • silly servant

    aquifer

    I already referred to the affordability review but thought it unnecessary to provide a link. Its a sop and a paper exercise and a means by which an ex HOCS can feather his nest and a couple of other silly servants can make them selves look good before their next pre-ordained promotion.

    Its a pile of cack which will not change a thing and is a kneejerk by DSD to show they are DOING SOMETHING. I am long enough in the tooth to know that yes as has been mentioned the South is affecting the market in the North but at the end of the day interest rates, inflation and overall rates of taxation will check the market..and then that bubble and the knitting needle are looking decidedly cosy……….

  • Mick Fealty

    This is a fascinating subject. The FT did a major feature on it over Christmas, and which I wanted to blog but… it got pushed off the slate…

    I don’t think there is a real prospect of melt down. I am no expert on the property market, but my guess is that if you want to buy and you can, you should probably do it now. The gap is only going grow, if not at current rates, then above the rate of inflation (and certainly above the rise in your public sector wage). I know people who have been dreaming of melt downs for six or seven years now. But both the British and Irish economies have been rock steady for about 12-13 years.

    Where I am, home ownership is no longer a realistic expectation for young people/mature first timers – without some considerable help from parents/legacies/frenetic saving. People who bought in the eighties and early nineties (esp. in NI) have grown enormous amounts of surplus equity and are clearly in a position to buy to let, which in turn grows the private rental sector and shrinks the supply of houses available to buy.

    With less houses on the market, prices are only going to get further beyond the reach of the un-propertied classes.

    But, from a housing policy point of view, does this actually matter?

  • silly servant

    mick

    Housing policy is a joke in NI on more than one level. Well there has recently been a change at the top but the new man/woman has not been appointed because who would take the job. Vacuum once again.

    1 the personnel are not equipped with the training to develop the requisite housing policy and given the fluidity of the market then maybe this does not matter as nothing can be changed regardless of the affordability review.

    2 its nice to own (mortgage company may query that) a house and thank God i have the Saddammite noose around my neck of a mortgage that I will pay off one day but regardless of that.first time buyers..the fat lady has sung her heart out and has pissed off to the loo!

  • Crataegus

    CGT

    Good point about capital gains. Borrowing against equity is a trend that we should be concerned about.

    I am with you regarding the Planning Service. Been warnings about this for years, totally ignored.

    Two things cause property to rise in value, over demand and affordability. Demand is the prime reason and can be real or inflated due to investment opportunity, but investment only inflates the market if there already is a shortage of supply or very limited supply.

    The planning policy is to build 60% of new houses on brown field sites, but the sites are not available, they just are not there. Many suitable sites are owned by some government agency as is a lot of the under developed land (as seen from a developers eyes).

    We also had that daft policy of Rooker’s of treating all of rural NI as a virtual green belt and that just added to the problem. Planning delays are another major problem as is planning inconsistency and the uncertainty they create. Also the multiplicity of agencies involved because of our bloated civil service is just grossly inefficient is much of it needed?

    If you have high demand the only way out is build and you need to make land available to do that or enable very high density developments or a combination of both. Currently we have neither. Further some of what is being permitted is a disgrace, 400 sq ft apartments are tomorrow’s slums. They are today’s equivalent of back to back housing.

    Just to add to the misery Housing Branch continue to vest perfectly good high density housing in places like the village so that the Housing Executive can build low density social housing. This is insanity.

    There are numerous reasons why people invest in property but the main reason is a perception of it being safe coupled with a lack of alternatives. We have lost our industrial base, so local opportunity to invest there are limited, keeping money in the bank with low interest rates is singularly unattractive, stock markets are regarded as risky though they are on the up. So what do you do buy a house and let it. Capital gain plus rental income. Some are hording land in the hope it will rise in price. Some of it is the economics of the mad house.

    Also there is too much money available. Buy a house with a garden turn it into 20 apartments value £3000000 construction cost say £1500000 plus purchase cost of say £500,000 with figures like that an ordinary person wanting to live in a house can’t compete, but it only works if you can sell the apartments at £150,000 so back to housing shortage.

    Due to planning policy what is happening is people are increasingly building in gardens and any piece of open space available. The leafy Victorian suburbs, the architectural jewel of Belfast, are being systematically destroyed. Any use that is not residential is now uneconomic in most parts of Belfast. Do your sums if you doubt me. To me this is not planning it is utter chaos.

    It is a dangerous market and it wouldn’t take a lot to cause a dip. In fact some people (amateur investors) need to get their fingers burnt. They are paying crazy money for land and property leaving themselves utterly exposed. Buy to let cannot be justified by rental return and relies on ever increasing prices if you are thinking of investing think it over you may get a better and safer return abroad or in other fields. The trick in investing is not to invest near the peak especially with property because unlike shares it takes time to off load.

  • Crataegus

    Sammy

    Blame the speculators, methinks.

    What about the banks that enable them to borrow money on mad schemes?

    Aquifer

    We rate empty commercial buildings but not empty domestic property. I agree we need to a system that penalises those sitting on empty houses and unused development land but it will be difficult to be totally effective. What is unused land?

    The Const Employers Fed is completely off the rails, who do they thing should build the roads in say a housing development? Lads go for a better target and stop being an embarrassment.

    Another factor that will substantially increase the cost of building is the changes to the Building Regulations at the end of last year. It is good to see progress on the issue of energy efficiency but I disagree with the thrust of much of the current methodology. Some of the calculation for Co2 emissions seem pointless to me on many buildings and really if you have suitable construction merely confirm the obvious, but perhaps I am missing a vital point and doubtless some consultant employed to do them will defend them. Another industry created!

    Also someone needs to have a serious look at disabled access and the associated costs, it is getting silly. Yes we all get old, yes everyone should have access, but the earth isn’t flat and someone has to pay for the wider corridors, the lifts, the ramps etc. In big developments it is not a problem but on small restricted sites it can be a major cost and can look hideous.

    Many of these things are good ideas, but we have to remember that someone pays. Some of this is building regulations by lobby groups and I have as many doubts about that as I have about Planning by lobby groups. Silvia and Denise on their drive to Fermanagh won’t have to worry about all those unsightly new homes any more, but if it keeps on the way it is they may be confronted with mobile homes at every lay-by. Rising population means more houses needed so planning service has to enable that to happen.

  • Yer Woman

    Thanks for the advice folks. I’m still thoroughly confused about the whole thing of course. Maybe packing in my desk job and travelling around the world is the thing to do, who knows – I might spot some property bargains along the way.

  • Crataegus

    Yer Woman

    The advice DK gave was sound but you would end up with a house in the likes of York Road or Ballysillan. You could of course consider a few lodgers. With a couple of Polish Policemen as lodgers would be as safe as houses in most loyalists strongholds. Quite seriously the bargains are in loyalist areas and they will change, pick one that is starting to rise, increased numbers of new private houses etc.

    If its abroad £60,000 would go a long way in some countries. Fancy Morocco?

  • fair_deal

    A thanks to all in this thread. Everyone has been getting very snarky with one another lately. I find it refreshing to see a good genuine debate on a policy issue.

  • Yer Woman

    The thing about buying in Loyalist areas is that even though the houses might be cheaper, being a catholic from Derry with an Irish christian name I wouldn’t feel comfortable living there – not for a few years anyway!
    Why can’t we be more like the French? They’re happy to just rent, freeing up more income for personal luxuries and a better quality of life without the stress of meeting mortgage repayment. Good food, good wine, and yet they’re still half the size of the average Irish person.
    I think I’ve convinced myself here…..

  • smcgiff

    Sammy,

    ‘That investors from the Republic are going to continue to pour in?’

    In short yes – the gains are slowing in the ROI, and it was obvious that houses in NI were relatively undervalued. This trend will continue even if it’s at a slower rate. Plus, NI’s economy, especially its private sector is picking up – guess what this means.

    ‘Eurozone interest rates are going to rise if the German economy continues to rebound,’

    Consensus is that rates may rise by a ¼ point over the next year but should remain stable in the short term.

    ‘the falling dollar,’

    The falling dollar is good for US based companies in Ireland. Profits in € means larger transfers in $. A greater threat to the Irish economy was when the dollar was stronger than the euro a few years back.

    ‘the economy is desperately dependent on the building boom and the infrastructure is still a pathetic joke with the golden decades largely squandered as an opportunity for serious investment.’

    Do you see the problem with your above argument? The building boom will continue as there’s a serious amount of work to be done to the infrastructure. The Irish government have laid out plans that will see the building industry (in one form or another) very busy for years to come.

    ‘The boom times will continue to roll, because we’re Irish and therefore we’re special.’

    So, were you one of those predicting the downfall in the Irish economy for several years or are you a new acolyte to this theory? You can go back to every year for the last 17 years and you’ll find people saying the end is nigh.

    ‘The problem is that housing speculation is a hideously inefficient way of allocating capital; it sucks money away from the sort of things that money might otherwise be invested in, like businesses that create real jobs or roads and factories and railways and telecommunications networks that help people create real jobs.’

    Eh? It’s the released equity due to rising house prices that has allowed the Irish people (thanks to very low mortgage rates – And how more efficiently can you raise capital?) to get the capital to invest and purchase that’s gone along way to driving the economy. The government has raised huge amounts of tax on the activities of its citizens because of this activity. Contrast Germany, which has saved and saved and saved to the point where their economy has stagnated.

    No increased equity, means no increased economic activity, means no increased tax take, and no government ability to invest in infrastructure/social welfare etc.

    You’re right that the ROI has lost competitiveness, but we’re not trying to attract the large multinational companies with our current competitiveness because they are already here!
    Of course, they may choose to go elsewhere, but where is elsewhere – India/Eastern Europe? So far something as simple as Call Centres has had mixed success, with companies with local call centres claiming a not too insignificant competitive advantage.

    The amount of increased investment by multinationals will slow down, but I don’t see a melt down. Also, there’s significant amount of slack built into the Irish economy – if there was a downturn it’s the migrant workforce that would leave first. There’s little prospect of unemployment heading beyond “full-employment” any time soon.

  • Mick

    Crat,

    But where is the peak? The Chancellor is getting a lot of brickbats, but he (and to be fair, his predecessor) have stablised inflation in everything but housing. Whatever can be said about the buy to let (and I don’t think that that is the motivation for everyone – asset building makes sense, even with moderate growth) situation, the housing market appears to be canibalising itself.

    Having said that the pattern of gentrifying property in formerly poor areas of London, is an opportunity to work the margins. And it might have some beneficial social effects in the longer term. Mixing has proved difficult to engineer in the public rental sector (10% is integrated).

  • kensei

    “Consensus is that rates may rise by a ¼ point over the next year but should remain stable in the short term.”

    I’d also guess the Irish Government would welcome higher interest rates with 5.6% inflation.

  • mickhall

    There are a number of issues here we have not touched on so I thought I might throw them into the pot.

    1/ Governments being what they are, there must be a real likelihood that the increased value of one’s home will have to be used in old age as a form of private social welfare. Those who own property will be expected to re-mortgage/whatever their homes to fund their care in old age, which will leave little to pass on.

    2/ The type of houses and flats that are being built are much of a muchness and are of a low standard imo, especially compared to other parts of north west Europe. I had a ride around a new development the other day to take a look, window frames were of the cheapest spec, despite having a river frontage many apartments had no balconies, cost again, and the over all design was pathetic, nothing innovative. I also have noticed of late apartment blocs appear to be getting taller and simply do not fit there surroundings.

    It is as if the architects having been bitten in the 1970s, have put there creative thoughts away for good. In the last two years I have only seen two developments that have knocked me back and made me stop and marvel. Yet both were simple, practical and had drawn from the past or otherseas, but one could see a lot of thought etc had gone into them.

    It is the same with using the environment etc, I have yet to come across a development of any size that has solar panels built in to provide hot water etc, which with our warmer weather etc is unbelievable. Again it is all down to build them fast and cheap and sell high.

    3/ If the state is unable or unwilling to provided homes for rent, then it has a responsibility to draw up legislation that protects and gives solid rights and security to private tenants, this alone would make buying second homes far less attractive. As things stand many people are forced to move after their rental agreement runs out, one year in most cases. Now imagine having to worry that you might be homeless every year. I believe in Germany fair rents are set by the State or local administration and this seems to work well.

    Finally whilst wealth may be good for any society, inequality is very bad, not least for social cohesion, thus great disparities in wealth can only lead to disaster etc.

  • smcgiff

    Kensie,

    Just released…

    Inlfation rate jumps again in December

    January 18, 2007 11:24

    The annual rate of inflation jumped again in December to 4.9%, according to the Central Statistics Office. This was the highest rate since March 2003 and compared with 4.4% in November.

    Prices rose by 0.3% compared with November, mainly because of higher average mortgage repayments and price increases for cigarettes and other tobacco products following excise duty increases in the Budget.

    The CSO figures show that the annual rate of inflation in the services sector is now 8%, compared with 1.2% for goods. Under the EU’s Harmonised Index of Consumer Prices measure, annual inflation was 3%, compared with 2.4% in November.
    Meanwhile, the average inflation rate for 2006 was 4%, compared with 2.5% in 2005 and the highest since 2002. Inflation began the year at 3%.

    A breakdown for the year showed that mortgage interest jumped by 31.5% because of higher interest rates, while energy products were up 8.2%. The housing, water, electricity, gas and other fuels category recorded a 33% surge in prices last year.

    The CSO said that items previously covered by the Groceries Order, which was removed in March, rose by 0.1% in price last year. Items which had never been covered saw prices increase by 2.4%.

  • George

    Kensei,
    the HICP index of EU inflation puts the Irish Republic at 3.0% in December 2006 and the UK at 3.5%, its highest in 11 years.

    I suppose the difference is that the interest rates are much higher already in the UK but that doesn’t seem to have stalled house prices in Northern Ireland.

  • George

    Those figures were annual for 2006,not just for December.

  • smcgiff

    George, differences are down to what is included in each “basket” of “goods” that makes up the index.

    Some indexes include mortgage costs. Others don’t.

  • kensei

    Ah. I had read it was 5.6% somewhere recently, must have been a different measure used.

  • George

    smcgiff,
    true, the HCIP inflation data doesn’t include housing costs but it is the one the EU and ECB look at.

    House price increases in 2006:

    Northern Ireland + 53%
    Republic + 11.7% (to November)

  • Seamus,

    I’m sorry, but your post is full of the sort of wishful thinking economics that Bertie-boosters in the Southern media trot out all the time.

    Fact – a rising Euro versus the US Dollar makes products produced in Ireland more expensive in most of the world and makes Irish workers more even more expensive relative to American ones. Why is Magna International moving to Bowling Green.

    Fact – people are borrowing against their vastly overvalued properties in order to buy even more overvalued properties, often with their only significant asset being overvalued property. If you don’t understand why that’s a recipe for even a slight correction to turn into a crash, I suggest you don’t use the cash machine unless supervised by your Mammy.

    Fact – the Irish government has had grandiose infrastructure plans for the past 15 years; despite massive surpluses, infrastructure projects are still years late when they happen at all. Just try driving from Dublin to Cork, travelling from Dundrum to Swords by public transport or getting a high-speed broadband connection at a decent price anywhere in the South. Historians will look back at the nineties and noughties in Ireland and wonder how so many opportunities to invest were squandered, especially in comparison with much poorer countries such as Greece and Portugal.

    Fact – pretty much everywhere in Ireland and the UK, renters do not need to pay rents that cover the mortgages on buy-to-let properties, even to cover a long-term interest-only mortgage which has risks of its own. At some point the wannabe cute hoors aren’t able to keep up their repayments and as the only assets they have are their overinflated properties then banks will have to sell them to recoup their losses; which will be mounting as much of the positive side of their balance sheet is generated by secured lending. This is a recipe for a car-crash.

    You are also misunderstanding the difference between a consumer being able to raise secured lending at a favourable rate and efficient allocation of capital. Money tied up in housing does not do anyting useful for the wider economy. It doesn’t help someone expand their business, or build a new road that encourages business to move into a depressed area. It just sits there in bricks and mortar, generally making a poor return these days.

  • Crataegus

    Mick
    But where is the peak?

    If we all knew that! Generally previous peaks were preceded by buying madness as now, have to get on the ladder if you don’t jump it will cost more tomorrow mentality. This was fuelled by availability of money, banks would lend to you and in a month’s time lend a greater amount to someone else to buy the same property off you. That is also happening now. In new developments speculators buy, paint and resell. This can only be sustained if the people can afford it. We have extended the period of repayment, introduced interest free loans and I can’t see there being further room for stretching so unless wages rise this will steady and with increased rates bills and water charges there will be slightly less money to spend.

    When interest rates are low a small percentage increase in base is a large percentage increase in interest. Many ordinary people can no longer purchase a house. The affordability end is being driven by people paying through the nose for small apartments. £150,000 which once bought a good house now buys 1 of 3 flats in the same house. Whilst you can turn a property into multiple units and sell at that sort of figure there is still a profit so you can out bid the ordinary house holder. Ordinary people forced to downgrade expectations is one of the reasons the market is buoyant.

    The nub of the problem is there is a shortage of houses, in England it varies from region to region, but in the South East there is a dire shortage. Same problem in NI there is not the land to build on. In England it is lack of regional policy and overdevelopment in SE and neglect elsewhere. In NI it is stupidity. If you want 60% development on Brownfield sites you have to do more than sit back and wish.

    Base rate will probably peak at 5.5% it may go a bit higher as money supply is high. If it goes to 6% you will see the market stall I doubt if 5.5% will do anything more than slow it down. There is also ‘silly’ money from Dublin which is divorce from the local market.

    Local waged money is drying up, developers borrowed money is still there and that and southern money will keep prices solid through the first half of next year, but it will slow down. Prices can only be sustained if there is a lack of houses. If we start to turn round considerably more units in about 5 years you could start to see a better balance, but there is absolutely nothing to suggest that that is going to happen. So supply end remains atrocious. Levels of employment are also high and population is increasing as is the number of single occupancies. So demand remains even if its ability to pay increasing amounts diminishes.

    Globally the imbalance of trade in both China and USA are worth watching as would signs of inflation in China. The price of materials such as Aluminium are very high and whilst oil supply seems secure for the next 5-10 years it could easily cause grief.

    The market is stretched at the minute and it could easily flip, all it would take is problems with energy or a run on a currency. It is all about confidence. The problem is that banks act like manic depressives one minute nothing is a problem the next they are calling in all unsecured loans and reducing the money supply . I don’t see a crash but you could invest in other countries or regions with a better potential for growth. However you need to take great care if the property purchase is an investment and not a home, prices can go down in the short term.

  • smcgiff

    ‘You are also misunderstanding the difference between a consumer being able to raise secured lending at a favourable rate and efficient allocation of capital.’

    You misunderstood the point I was making, and as for the rest – I’ve lost the will to live.

  • and as for the rest – I’ve lost the will to live.

    Let me repeat, then – borrowing large amounts of money against an overvalued asset to buy even more of that overvalued asset is not a sign of a ‘buoyant’ market. It’s a sign of a bubble. And people can talk about immigration all they want – net immigration from the EU10 to the Republic was about 40,000 people, not households, last year. With well over 100,000 houses vacant, even discounting for holiday homes, and 100,000 new dwellings built last year, and rental yields varying from region to region between 4% and below zero, someone is going to end up disappointed.

    If you can’t see that, that’s your problem.

    And, no, I was an optimist on the Southern economy until relatively recently but the time where a ‘soft landing’ was possible has long since passed, thanks to short-sighted electoral avarice by the current government.

  • Crataegus

    Sammy

    Money tied up in housing does not do anything useful for the wider economy. It doesn’t help someone expand their business,

    Steady on helps developers! Other than that I think I agree with the general thrust.

    Mickhall

    Your point about design is a good one I employ architects and often what I do is have part of their fee as a percentage of the profit. Saves me initial outlay but gives them a real incentive. The problem is many of them just are not paid enough and they have that much nonsense to deal with, and far, far to many different agencies and statutory bodies. They don’t design anymore they fill in forms. Also often it is the developer that sets the standards not the Architect. Bog standard and how many can you fit in and what is the minimum you have to do! In the current market they get away with it. Don’t like them don’t buy them.

    With regards design standards, balconies and all that, agree a lot of it is bog standard. Rather than features I would be a lot more concerned on the size of spaces. There should be an insistence on minimum sizes to live in. There used to be a Parker Morris standard (I think) setting out sizes for bathrooms, bedrooms etc it or similar should be made mandatory. If there is a part of the building regulations that says the size of a landing for a disabled person or a disabled toilet why not a part that says that all of us have to have some minimum room sizes?

  • smcgiff

    ‘And, no, I was an optimist on the Southern economy’

    Ah, now I see where you’ve gone wrong – you were only considering Munster.

  • Steady on helps developers!

    Gizza job!

    There used to be a Parker Morris standard (I think) setting out sizes for bathrooms, bedrooms

    There still is in the South and it has been repeatedly tightened in recent years to something approaching sanity but enforcement seems patchy at best.

  • mickhall

    Crataegus

    You make a really good point about the size of rooms etc, I would add also the hight of ceilings. We had some friends from Germany staying a while back and they commented about both in comparison with back home. Does the local authority planning committees have real power on things like style and design. Can they reject planning permission because they feel a building is ugly and cheap. I suppose what I am asking is where does the buck stop as far responsibility for all these crap buildings blighting the place. After all if they were not built in the first place, people could not buy them etc.

    Looking back it struck me back in the 60-70s, where there where more thoughtful and independent minded politicians sitting on these planning committees, the less damage the bulldozers seem to have done to certain towns etc, or maybe that is just hindsight based on little reality.

  • mnob

    Crataegus – you keep saying there is a housing shortage.

    Where is your evidence for this ?

    I dont see thousands of people sleeping on the streets yet I do see hundreds if not thousands of properties lying empty. People are buying properties to allow them to lie empty. This is not a housing shortage but madness that cannot be corrected simply by building more.

    By building more you simply amplify the crash when it happens

  • Crataegus

    Mickhall

    Planners can deem that a building is inappropriate or not in keeping with the area, or visually obtrusive etc. If you visit their website there are all sorts of booklets and design guides on line such as Creating Spaces. You will also find a fair bit of waffle in the various area plans.

    The problem with planning documents is they are subjective and because they try to cover everything in abstract they end up meaning all things to all men. Much of it is pious platitudes and as they seldom have resources to initiate often a complete waste of paper. Much of what they approve is mediocre and some of it plain ugly . I don’t think they have right sort of training to judge. Basically many of them are geographers who went on to do planning so probably great on abstract settlement patterns or sociology, but crap on gauging what a building will look like in its context.

    Mnob

    Do we have to wait until there are cities of tents around the City Hall? People are living with parents or living in cramped conditions or sub standard bedsits etc.

    The target for new builds by 2015 was 160,000 units and has been increased to 200,000 units. From memory new builds last year amounted to 17,000, 16,000 the year previous and 14000 for several years before that. Production is rising but we are still underbuilding 3000 a year and I think the 200,000 does not adequately take into consideration the immigration or the trend towards single occupancy.

    A further problem; in some of the quarters of last year the number of units in for Planning were down year on year by I believe 25%. This will undoubtedly feed through into the new starts next year. In addition to this we have to look at the mix of accommodation types being applied for. An increasing number of the total are small apartments.

    If you look at the various planning documents they believe that they can micro control land supply and have identified land they deem suitable for building. They have created limited availability without any mechanism of ensuring release other than relying on the owner to pocket the massive increase in value. Also in our divided community you can have over supply in areas where many feel uncomfortable and is thus currently land unsuitable in the commercial sense.
    In addition in the calculations the Planners are looking at what they call windfall applications to factor into their decisions. Windfall is when someone buys the house next door or the corner shop and builds a 4 storey apartment block looking into the back of adjoining property. I believe a continuance of this is tearing the fabric of the city apart and many good family houses are disappearing of the market as a result. This is an increasing trend.

    If I had 5,000 houses to sell in the current NI market I could sell them by the end of the month without any problem, housing developments I have been associated with, or know of, have all sold of plan. Development land can now cost say 1.5m that’s around £150,000 per dwelling. To me this is crazy and all of it suggests undersupply.

    Planning policy is asinine. They have created a limited supply of development land and surprise surprise prices are rocketing.

    As on previous threads I am not a great one for uncontrolled urban sprawl but I think we need to do the following.
    1Increase the densities of developments in the inner city and along the arterial roads well above those currently recommended.
    2Employ Architects (not planners) to produce development plans for parts of the city setting heights, fenestration balconies etc so that some of it actually fits together when build.
    3Set minimum standards for design. I would suggest that units below 75 sq m should be frowned upon.
    4Develop a more flexible approach to zoning. Rather than picking someone’s field (like winning the lottery) to develop set the criteria, set you aims and be more flexible about the location.

    With regards 4 we could say we want a number of villages or hamlets in the countryside set your criteria and densities and allow people to put forward their proposals. Do it properly so that there is a retail unit, a village Square and the houses look like a modern equivalent of the planned village. Why should all villages be 200years old?

    Someone suggested a commuter loop based on the Crumlin line, great idea get new villages along it, build halts get the trains running, connect up Aldergrove etc. Be positive, be creative and get private investment into infa structure instead of the current system where the money goes into the pocket of a few land owners.

    Free up the market!

  • Crataegus

    As a matter of interest has anyone seen workable schemes to penalise land hoarders and those that sit on empty dwellings?

  • tent dweller

    Is there any self build schemes or cooperatives building houses in NI???