Jump to content
House Price Crash Forum
oilman

Property Buzz May Yet Have Nasty Sting In Tail (irish Independent)

Recommended Posts

Property buzz may yet have nasty sting in tail

Irish Independent. Wednesday February 22nd 2006

PROPERTY booms do not so much create wealth as redistribute it.

In the past few years, the great Irish housing frenzy has done more to reallocate wealth in this country than any government initiative on tax and social welfare since the foundation of the State.

The transfer has been monumental. Arguably, we have to go back to Lenin's persecution of the Kulaks to see one section of the population forced into giving so much of its wealth to another.

The major difference in Ireland is that the redistribution of wealth via property has made the old richer and, more depressingly, the young poorer.

It has created a drone class of the over-45s - Ireland's accidental millionaires - who have seen their wealth increase enormously as their houses have soared in value. These drones are financed and indulged by a worker-bee class of the under-35s who are first-time buyers and renters.

Bullied

For every four first-time buyers who are fretting in the traffic, working long hours, pinned to their collars by mortgage payments and creche fees and being bullied to part with money they don't have by the threat of "mandatory" pensions, there is a healthy 50-something couple drinking vino verde on the Algarve, sun at their back and not a care in the world.

In financial terms, Ireland is now sitting on a demographic faultline. Bubbling away underneath the tectonic surface is the overheated property market, stoked up by cheap credit, irrational expectations and the corrosive psychology of the property-ladder tyranny.

As the property mania reaches fever pitch, this rumbling instability - like its geological equivalent - naturally leads to political, financial and social tremors.

Tremors

Like the citizens of San Francisco, we know our economic San Andreas fault-line is vulnerable, but all of us ignore the possibility that the next one could be the "Big One".

At the moment, there is an uneasy truce between the competing demographic of haves and have-nots but the problem for society is that, while an unforgiving meritocracy governs the lives of the worker-bee generation, the drones live in a pampered world based on equity releases and rental income.

This is not sustainable.

Take, for example, a not-untypical middle-of-the-road office worker of the 1970s and 1980s. Although he now plays golf off seven, like the Monty Python sketch of old he reminds his office juniors how hard times were in the 1970s, how people had little money and few expectations.

He probably bought his house in 1975 for £10,000; it is now worth €1.3m . He has no debts, a well-financed pension, annual clean bills of health, a subsidised VHI Plan A scheme and an early retirement scheme that is just about to kick in.

With his enormous pile of equity, he took advice from an accountant mate and bought a couple of places off plans in the late 1990s. The (only recently declared) rental income nets him €3,000 a month, which more than covers his mortgage on the golf resort town house in Quinta da something. He is one of Ireland's accidental millionaires and he is not alone.

According to the census in 1990, there were just over one million private households in the country. For these people, as prices have risen, the most telling indicator of wealth is not brains, hard work or entrepreneurial ability but the year they were born. Those 1990s households born in the late 1940s, 1950s and early 1960s are on the right side of the demographic faultline and are likely to be sitting on enormous property wealth.

Those worker bees, born in the late 1970s and 1980s - the productive core of the economy - are now the ones paying exorbitant house prices via 35-year 100pc mortgages or they are renting. A major determinant of whether you are a drone or a worker-bee is the date you were born.

Lottery

So the main redistributive mechanism in our economy works like a demographic lottery which is heavily weighted against the young.

It is, of course, natural that the 50s generation will be the ones in power, but because of our population structure, they are much less representative of the general population than they would be, for instance, in Britain, where they constitute 27pc of the population, or in France and Germany, where they're over 30pc.

Here, those in their 50s only represent 11pc of the population and yet they are being enriched constantly every time house prices rise.

Each notch upwards in house prices adds to the wealth of the drone class and the worker bees' debts. We live in a society where the young work to excess to make the middle-aged rich via house prices.

The big banks tell me that house prices are going to rise by 10pc this year. Quite apart from being a grotesque scam which lines the Government's pockets, enriches developers and drives up the share price of our money-lending banks, it is sowing the seeds of a demographic civil war.

Every 10pc rise in the price of houses is equivalent to a 10pc tax hike for the young who are trying to get into the housing market.

Another way to look at it is that every 10pc increase in the price of houses adds an extra 10 miles of commuting on to the day of the next batch of the dormitory-town-dwelling tribe.

In contrast, the same 10pc price hike adds 10pc to the wealth of the drone generation and 10 more days in the Algarve.

What does this mean for politics? Well, if the outcome of government policy has been to enrich one section of the population at the expense of another, it isn't surprising that the hardest working sector of society opts out politically.

By stoking up the property market at the behest of its paymaster - the construction sector - this government has engineered the progressive indebtedness of our under 30s and the relentless enrichment of our over 50s.

In the last election, the worker bees did not turn up. They see what is happening and are profoundly cynical about national politics.

They couldn't be bothered.

So a bachelor farmer from Achill or a 50-something from Sandycove, Foxrock, Terenure or Clontarf is twice as likely to vote as a suburban, double-income worker-bee family with kids.

In fact, the two areas of Ireland where the under-35 worker bees are present - the new suburbs and the inner cities - vote least. This opting-out trend contrasts with the rest of Europe where voting patterns follow education.

In Ireland, it's when you were born, rather than letters after your name, that's much more likely to determine whether you vote or not.

This is because the older you are the larger your stake in society and the more the present status quo suits you.

So the worker bees who toil hardest, commute longest, pay most taxes, have the biggest mortgages, have children, pay exorbitant creche fees and keep the profits of multinationals operating in Ireland sky-high, participate least in politics. But they won't remain docile forever.

This vacuum is potentially explosive because, when you live on a faultline, the potential for eruption is never far below the surface.

Share this post


Link to post
Share on other sites

Property buzz may yet have nasty sting in tail

Irish Independent. Wednesday February 22nd 2006

PROPERTY booms do not so much create wealth as redistribute it.

In the past few years, the great Irish housing frenzy has done more to reallocate wealth in this country than any government initiative on tax and social welfare since the foundation of the State.

The transfer has been monumental. Arguably, we have to go back to Lenin's persecution of the Kulaks to see one section of the population forced into giving so much of its wealth to another.

The major difference in Ireland is that the redistribution of wealth via property has made the old richer and, more depressingly, the young poorer.

It has created a drone class of the over-45s - Ireland's accidental millionaires - who have seen their wealth increase enormously as their houses have soared in value. These drones are financed and indulged by a worker-bee class of the under-35s who are first-time buyers and renters.

Bullied

For every four first-time buyers who are fretting in the traffic, working long hours, pinned to their collars by mortgage payments and creche fees and being bullied to part with money they don't have by the threat of "mandatory" pensions, there is a healthy 50-something couple drinking vino verde on the Algarve, sun at their back and not a care in the world.

In financial terms, Ireland is now sitting on a demographic faultline. Bubbling away underneath the tectonic surface is the overheated property market, stoked up by cheap credit, irrational expectations and the corrosive psychology of the property-ladder tyranny.

As the property mania reaches fever pitch, this rumbling instability - like its geological equivalent - naturally leads to political, financial and social tremors.

Tremors

Like the citizens of San Francisco, we know our economic San Andreas fault-line is vulnerable, but all of us ignore the possibility that the next one could be the "Big One".

At the moment, there is an uneasy truce between the competing demographic of haves and have-nots but the problem for society is that, while an unforgiving meritocracy governs the lives of the worker-bee generation, the drones live in a pampered world based on equity releases and rental income.

This is not sustainable.

Take, for example, a not-untypical middle-of-the-road office worker of the 1970s and 1980s. Although he now plays golf off seven, like the Monty Python sketch of old he reminds his office juniors how hard times were in the 1970s, how people had little money and few expectations.

He probably bought his house in 1975 for £10,000; it is now worth €1.3m . He has no debts, a well-financed pension, annual clean bills of health, a subsidised VHI Plan A scheme and an early retirement scheme that is just about to kick in.

With his enormous pile of equity, he took advice from an accountant mate and bought a couple of places off plans in the late 1990s. The (only recently declared) rental income nets him €3,000 a month, which more than covers his mortgage on the golf resort town house in Quinta da something. He is one of Ireland's accidental millionaires and he is not alone.

According to the census in 1990, there were just over one million private households in the country. For these people, as prices have risen, the most telling indicator of wealth is not brains, hard work or entrepreneurial ability but the year they were born. Those 1990s households born in the late 1940s, 1950s and early 1960s are on the right side of the demographic faultline and are likely to be sitting on enormous property wealth.

Those worker bees, born in the late 1970s and 1980s - the productive core of the economy - are now the ones paying exorbitant house prices via 35-year 100pc mortgages or they are renting. A major determinant of whether you are a drone or a worker-bee is the date you were born.

Lottery

So the main redistributive mechanism in our economy works like a demographic lottery which is heavily weighted against the young.

It is, of course, natural that the 50s generation will be the ones in power, but because of our population structure, they are much less representative of the general population than they would be, for instance, in Britain, where they constitute 27pc of the population, or in France and Germany, where they're over 30pc.

Here, those in their 50s only represent 11pc of the population and yet they are being enriched constantly every time house prices rise.

Each notch upwards in house prices adds to the wealth of the drone class and the worker bees' debts. We live in a society where the young work to excess to make the middle-aged rich via house prices.

The big banks tell me that house prices are going to rise by 10pc this year. Quite apart from being a grotesque scam which lines the Government's pockets, enriches developers and drives up the share price of our money-lending banks, it is sowing the seeds of a demographic civil war.

Every 10pc rise in the price of houses is equivalent to a 10pc tax hike for the young who are trying to get into the housing market.

Another way to look at it is that every 10pc increase in the price of houses adds an extra 10 miles of commuting on to the day of the next batch of the dormitory-town-dwelling tribe.

In contrast, the same 10pc price hike adds 10pc to the wealth of the drone generation and 10 more days in the Algarve.

What does this mean for politics? Well, if the outcome of government policy has been to enrich one section of the population at the expense of another, it isn't surprising that the hardest working sector of society opts out politically.

By stoking up the property market at the behest of its paymaster - the construction sector - this government has engineered the progressive indebtedness of our under 30s and the relentless enrichment of our over 50s.

In the last election, the worker bees did not turn up. They see what is happening and are profoundly cynical about national politics.

They couldn't be bothered.

So a bachelor farmer from Achill or a 50-something from Sandycove, Foxrock, Terenure or Clontarf is twice as likely to vote as a suburban, double-income worker-bee family with kids.

In fact, the two areas of Ireland where the under-35 worker bees are present - the new suburbs and the inner cities - vote least. This opting-out trend contrasts with the rest of Europe where voting patterns follow education.

In Ireland, it's when you were born, rather than letters after your name, that's much more likely to determine whether you vote or not.

This is because the older you are the larger your stake in society and the more the present status quo suits you.

So the worker bees who toil hardest, commute longest, pay most taxes, have the biggest mortgages, have children, pay exorbitant creche fees and keep the profits of multinationals operating in Ireland sky-high, participate least in politics. But they won't remain docile forever.

This vacuum is potentially explosive because, when you live on a faultline, the potential for eruption is never far below the surface.

The property bubble in Ireland is even worse than the UK. It is quite scary only the ECB keeping interest rates low is stopping the bubble from bursting.

Share this post


Link to post
Share on other sites

A great article. The most interesting bit for me is the link between the demographics and politics, because it is something I have often thought about.

As I have said before, there is a burgeoning underclass of young people in Ireland, becoming increasingly disillusioned with the whole 'Celtic Tiger' story and the unearned wealth it has created for their elders. The only hope for the young is to take on a mountain of debt, work themselves to the bone, and cling to the hope that the party continues for long enough, so that in decades to come they can emulate the lifestyles of their fathers – it’s a very tall order.

As David McWilliams alludes, there is political capital to be gained here. The main parties had better get on the case or else prepare to share power with Sinn Fein.

Share this post


Link to post
Share on other sites

I'm 25 and I live in Dublin, so I'm at the point now where a lot of my friends are buying or looking at buying houses. The situation out there is unbeliavable. Eur317.5K is effectively the floor for any house in Dublin now, unless it's more or less falling down. This is 8-10 times the salary of most of my cohort (and we're mostly well-paid for or age), completely nuts.

Unfortunately people are so unaware of the facts that they're just diving in, without any consideration of the fact that we could be at the top of the market and that interest rates are on the rise. A friend has just bought a house in Galway for approx 10 times his salary, he will be relying on having two tenants to pay the mortgage, even at current interest rates. He feels that if he doesn't get in now he never will. Another couple are approved for a mortgage for Eur320K or so and have some SSIA money coming - they're finding it impossible to find something livable in their price range within the borders of Dublin and are being outbid on everywhere they put in an offer on.

Go back 7 years and any of us could have bought pretty comfortably if we'd been working in the jobs we're doing now. House prices have more than doubled since.

Result: I've got a first class degree in a professional subject, and I've worked away ever since getting it paying between 1/3 (2002, just post graduation and doing a temp job) to 1/5 (now, decreased proportion due to larger salary, not moving into a crack den, thankfully) of every after-tax cent I've earned to rent a room in a shared house from some disinterested absentee landlord who just happened to buy at the right time.

Meanwhile older members of my family lounge around in their nice roomy unshared pre-1995 purchased houses living quite nicely off the dole, paying their negligible mortgages out of savings and occasionally doing a nixer if they need a bit of extra cash.

It does occasionally strike me as a leeetle bit unfair, to say the least.

Thank god for these occasional voices of reason I'm starting to hear now (and HPC). Those ECB rumblings have made a few people think. Hopefully it's the beginning of the end :)

Share this post


Link to post
Share on other sites

The good news is that the situation is unsustainable. Prices can't stay at this level and have got to return to normality.

The bad news is that a lot of innocent bystanders are going to get slaughtered in the crash.

Share this post


Link to post
Share on other sites

The good news is that the situation is unsustainable. Prices can't stay at this level and have got to return to normality.

The bad news is that a lot of innocent bystanders are going to get slaughtered in the crash.

Oh yeah. CF above my friend in Galway with his 30Kish salary and 300K house. He could be a goner soon even at current interest rates and no crash if he doesn't get good tenants consistently.

The crash will disproportionately affect normal 25-35ish people who've been silly enough to overextend themselves for a house at the top of the cycle - Paddy Last. Sure they're doing very unwise things but in the current environment unwise things have become the norm. They don't deserve what's coming, it's not of their making and they didn't profit from it. It's more fear (of never owning) than greed for profit motivating them. Then again, life is not fair.

Mind you there's also the johnny-come-lately amateur BTL landlords. God I'll be glad to see some of them go under. Bloodsuckers. (Mind you my current one is lovely, great response time on the couple of occasions we've needed anything).

Share this post


Link to post
Share on other sites

Mind you there's also the johnny-come-lately amateur BTL landlords. God I'll be glad to see some of them go under. Bloodsuckers. (Mind you my current one is lovely, great response time on the couple of occasions we've needed anything).

There are some really good deals around for tenants in Dublin. Yields are less than 2% in many areas. A short gander at www.daft.ie reveals that so much of the city and suburbs is up for rent, it is like everyone wants to be an owner/landlord, and they are all chasing tenants that don't exist. When my lease is up, I will select a half-dozen possibles, put in silly offers and see if a desperate landlord takes the bait. ;)

Oh, and welcome to HPC Captain Clamp!

Share this post


Link to post
Share on other sites

As David McWilliams alludes, there is political capital to be gained here. The main parties had better get on the case or else prepare to share power with Sinn Fein.

DMcW has been consistently bearish about property since 2001.

I posted a very similar article of his from the Sunday Business Post recently.

Yesterday there was the "bubble" chat in the indo.

Damien Mc Kibbard was slagging off property in the Sunday Times on feb 8th.

Its all going bearish in ireland with the meeghia.

March 2nd will be an interesting day as Jean Claude Van Damn wipes the smiles off Paddy Last and his Property Pension.

Share this post


Link to post
Share on other sites

great article but the inter-generational friction thing is over-hyped as most 50 something beneficiaries have children they care about who're victims of this whole scam

Edited by Michael

Share this post


Link to post
Share on other sites

great article but the inter-generational friction thing is over-hyped as most 50 something beneficiaries have children they care about who're victims of this whole scam

who they want to get "on the ladder" asap because property is a "great investment" :lol:

Share this post


Link to post
Share on other sites

There are some really good deals around for tenants in Dublin. Yields are less than 2% in many areas. A short gander at www.daft.ie reveals that so much of the city and suburbs is up for rent, it is like everyone wants to be an owner/landlord, and they are all chasing tenants that don't exist. When my lease is up, I will select a half-dozen possibles, put in silly offers and see if a desperate landlord takes the bait. ;)

Oh, and welcome to HPC Captain Clamp!

Hmm, there are good and bad deals available. Supply is deffo up lots in the last 3 years but also demand a bit(from immigrants and for demographic reasons I suppose). Reported rent levels (according to daft) went up a smidge last year for first time since 2002ish.

And you see a lot of silly asking prices (e.g. 800euro p/m for room in standard looking apt in Chapelizod) which i can only presume are skint new OOs trying to get some daft person to subsidise 50% of their mortgage. But shopping around should get a reasonable deal alright. Though I still can't quite countenance spending what it'd take to get a 1-bed to myself (800 plus p/m, probably).

Thank you for your kind welcome :)

great article but the inter-generational friction thing is over-hyped as most 50 something beneficiaries have children they care about who're victims of this whole scam

True although a lot of them just don't really understand the ramifications of the increase.

Just at Christmas my parents asked me in all innocence why didn't I consider getting a house :)

Share this post


Link to post
Share on other sites

I'm 25 and I live in Dublin, so I'm at the point now where a lot of my friends are buying or looking at buying houses. The situation out there is unbeliavable. Eur317.5K is effectively the floor for any house in Dublin now, unless it's more or less falling down. This is 8-10 times the salary of most of my cohort (and we're mostly well-paid for or age), completely nuts.

Unfortunately people are so unaware of the facts that they're just diving in, without any consideration of the fact that we could be at the top of the market and that interest rates are on the rise. A friend has just bought a house in Galway for approx 10 times his salary, he will be relying on having two tenants to pay the mortgage, even at current interest rates. He feels that if he doesn't get in now he never will. Another couple are approved for a mortgage for Eur320K or so and have some SSIA money coming - they're finding it impossible to find something livable in their price range within the borders of Dublin and are being outbid on everywhere they put in an offer on.

Go back 7 years and any of us could have bought pretty comfortably if we'd been working in the jobs we're doing now. House prices have more than doubled since.

Result: I've got a first class degree in a professional subject, and I've worked away ever since getting it paying between 1/3 (2002, just post graduation and doing a temp job) to 1/5 (now, decreased proportion due to larger salary, not moving into a crack den, thankfully) of every after-tax cent I've earned to rent a room in a shared house from some disinterested absentee landlord who just happened to buy at the right time.

Meanwhile older members of my family lounge around in their nice roomy unshared pre-1995 purchased houses living quite nicely off the dole, paying their negligible mortgages out of savings and occasionally doing a nixer if they need a bit of extra cash.

It does occasionally strike me as a leeetle bit unfair, to say the least.

Thank god for these occasional voices of reason I'm starting to hear now (and HPC). Those ECB rumblings have made a few people think. Hopefully it's the beginning of the end :)

Oh god, I know :( This is what my life is like! I could have written this! I spent all Christmas holiday with elderly relatives telling me that I "hadn't done as well as they had expected" "they were worried about me" "it seems you're wasting all that fancy education" - because I haven't a house etc. etc. (and my job isn't permanent - everyone in my sector is on short-term contracts if they're under 35/40.) Needless to say that all these relatives retired early, have final-salary pensions, own 4 or 5-bed houses with most of the rooms empty, and play a lot of golf. :angry:

Share this post


Link to post
Share on other sites

great article but the inter-generational friction thing is over-hyped as most 50 something beneficiaries have children they care about who're victims of this whole scam

I honestly don't think many, unless they know about current proprty prices, have really quite realised this yet, though. In 5 years' time they will, but at the moment most just don't get it. I spent days trying to explain to my father that the entry-level price for property where I live is now 200k plus. He doesn't really believe me, even now. He got really upset becuase he (very generously as he saw it) had offered to give me some money for a house deposit. I had to explain to him that even if it was 10 times the amount he'd suggested, and my salary doubled overnight, I still wouldn't have a big enough deposit to buy at current prices. he thinks I'm ungrateful - I don't mean to be, but his idea of 'helping out' was completely off base in terms of what the reality really is :( My parents still work off what things were like "in their day" - ie. work hard, hang on in there and it will get better, we bought a house in the end and it was all all right - BUT they bought a nice family house on one graduate salary in 1984 and it had doubled in value even a year later.....

Share this post


Link to post
Share on other sites

I honestly don't think many, unless they know about current proprty prices, have really quite realised this yet, though. In 5 years' time they will, but at the moment most just don't get it. I spent days trying to explain to my father that the entry-level price for property where I live is now 200k plus. He doesn't really believe me, even now. He got really upset becuase he (very generously as he saw it) had offered to give me some money for a house deposit. I had to explain to him that even if it was 10 times the amount he'd suggested, and my salary doubled overnight, I still wouldn't have a big enough deposit to buy at current prices. he thinks I'm ungrateful - I don't mean to be, but his idea of 'helping out' was completely off base in terms of what the reality really is :( My parents still work off what things were like "in their day" - ie. work hard, hang on in there and it will get better, we bought a house in the end and it was all all right - BUT they bought a nice family house on one graduate salary in 1984 and it had doubled in value even a year later.....

How long before someone murders their parents just so they can house their family? :ph34r:

The motive is there......

Share this post


Link to post
Share on other sites

Incredibly well-written article and completely representative of my thoughts. This 'selfish generation' are enslaving their own children into lives of worry and subservitude. What are people in our situation supposed to do? Wait for our parents to die and leave us money to buy??? What a terrible way to live our lives.

Share this post


Link to post
Share on other sites

Revenge is a dish best served cold,,,

Just picture your lovely house in your head (assuming you don't own one yet) and focus on it.

Timing is everything you know.

Buy now = husband AND wife MUST WORK for EVER

Leave it till prices are better = Only one must work - the other can work if he/she wants for luxuries.

Stay strong - remember, Jesus advocated Righteous Anger....

Share this post


Link to post
Share on other sites

Oh god, I know :( This is what my life is like! I could have written this! I spent all Christmas holiday with elderly relatives telling me that I "hadn't done as well as they had expected" "they were worried about me" "it seems you're wasting all that fancy education" - because I haven't a house etc. etc. (and my job isn't permanent - everyone in my sector is on short-term contracts if they're under 35/40.) Needless to say that all these relatives retired early, have final-salary pensions, own 4 or 5-bed houses with most of the rooms empty, and play a lot of golf. :angry:

Well it's early yet. All we can do is play the waiting game and hope things improve. You're not at the peak of your earning power until 30s/40s, and logically at some stage we've got to be on top of the pile.

Mind you I do feel that more political involvement from younger people in 20s/30s and perhaps trade unionism might help, though I have to put my hands up to it and say that although I vote that's about the end of my efforts there.

But you only get one life and one shouldn't waste all one's youth worrying about this stuff. Most of us are in the same boat and we'll get through OK in the end, especially if we manage to avoid the debt traps. Fingers crossed.

Incredibly well-written article and completely representative of my thoughts. This 'selfish generation' are enslaving their own children into lives of worry and subservitude. What are people in our situation supposed to do? Wait for our parents to die and leave us money to buy??? What a terrible way to live our lives.

Well we might get a nice bout of high inflation which would eat our mortgages and erode the value of their cushy nest eggs and pensions.

Wow. Lightbulb monent. That's why inflation is considered such a bad thing. It's intergenerational economic warfare and the other side have the artillery.

:bangs head off wall:

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 336 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.