Reliance on housing could spell recession, north and south

The housing market in Northern Ireland is clearly extremely bouyant at the moment. Yet as Maria Farrell argues on Crooked Timber, housing markets can grow equity and to a degree private wealth, it cannot drive the economy in the longer term. She reckons that a narrow focus on keeping the housing market in play could make the Fianna Fail/PD government vulnerable in the upcoming election:

The whole country has lost sight of lost sight of the fact that house building and buying are not the keys to economic and financial success, but merely indicators of it. Our economy is distorted, and so are our politics. The establishment generation (those forty and fifty-somethings) have done very well and have the most to lose. Much of our political debate in the last few months has focused on whether and how to reduce stamp duty on house purchases, i.e. how to keep the property boom going by ensuring stamp duty reductions don’t form a simple transfer from buyers to sellers. The real question is; are we fighting an election on spending promises when there won’t be much money left to spend in a year or two? One commentator said recently that this is an election to lose. He may be right.

But as Ciaran (a self confessed Eyore on the issue of economic recessions) points out, this is not simply a matter for the south. Some of Northern Ireland’s boom is a result of a peace dividend in growing equity, but a fair chunk of it comes from investment from the Republic, moving ever northwards because of the competition for land in the Greater Dublin area:

The issue matters very much for Belfast partly because the latest Agreement is being bankrolled from Dublin but more because Belfast and Newry’s housing markets were driven by surplus equity from the south throughout last year. About a 3rd of demand came up the M1 I read somewhere (sorry: I’ve forgotten the source). Hence the doubling of property prices.

My guess is that that ain’t going to continue: there is very little in the way of surplus equity in the south and NI doesn’t have immigration and other drivers for property in the way that Dublin does. Nevertheless, one thing is certain. All those people who think that property is a sure-fired short term bet for profits are in for a difficult period.

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