Ireland: The greatest property bust of all

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By Leith van Onselen

In 2004 Ireland was the toast of Europe and one of the world’s wealthiest countries:

“Ireland is one of the world’s wealthiest countries since its economy has grown nearly five-fold since 1973. It boasts one of the world’s highest levels of GDP per capita, some 20 percent above the European average—while 30 years ago it was 35 percent poorer than the average….

Ireland’s economic growth model has been hailed as an example of development done right, with everyone from professors in Pittsburgh to investment agencies in Armenia trying to figure out how to replicate the success of the Celtic Tiger.”

And in 2005, The Economist judged Ireland to have the best quality of life in the world.

How things change. Over the past six years, Ireland’s house prices have declined by around 50% (see next chart), wiping-out an estimated  €257bn inequity, according to the Irish Independent newspaper, reportedly making Ireland’s property bust the biggest in history.

The 50pc collapse in value since the peak of 2007 also means that by the Central Bank’s own estimates, Ireland’s crash has now become the worst experienced by any country in the world.

The combined loss to the owners of Irish residential properties since the bubble burst equates to almost four times Ireland’s total bailout sum of €67.5bn and more than half the total amount of money first set aside in the European Union’s €500bn Financial Stability Facility…

An estimated drop of 50pc in value puts the average loss to an Irish household at €155,316.

With 1.6 million households across the country, that is a combined loss of more than €257bn…

However, if some critics of the Central Statistics Office (CSO) system are correct, then the average property capital value losses per household could be even higher…Conall Mac Coille, chief economist with Davy, recently claimed that Irish values could have already shed as much as 60pc. If this were true, then the average property has lost €186,379 in value, and the nationwide equivalent loss in property value is, in fact, €310bn.

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Real GDP per capita in Ireland has also declined by around -12% since peak, with unemployment roughly tripling over the same period (see below charts).

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A interesting aspect of the Ireland situation was that public finances were strong prior to the housing bust (see below IMF charts):

The problem for Ireland was that government finances had become too dependent on property taxes – both capital gains taxes and stamp duties. In 1997, Ireland’s government cut the capital gains tax rate from 40% to 20% and extended property tax concessions, which helped fuel property speculation. In 2007, stamp duty and capital taxes yielded €6.7 billion, but in 2010 they fell to only €1.6 billion (see below IMF chart).

Following the collapse of property taxes and the costly bail-out of its banks following the bursting of its housing bubble, Ireland’s net debt has exploded. In fact, the IMF had previously forecast that Ireland’s net debt would increase by around 50% of GDP over the period 2007 to 2015 (see below IMF chart).

As is the case with most housing bubbles, Ireland’s was fuelled by a number of inter-related drivers: easy credit, speculation, and unresponsive supply.

A 2010 article by Saul Eslake provides a nice explanation of how low interest rates and easy credit fuelled Ireland’s housing bubble:

“Once Ireland joined the euro at the beginning of 1999, short-term interest rates in Ireland were no longer set in Dublin in accordance with Irish conditions, but rather in Frankfurt in accordance with conditions in the euro zone.

Thus Irish short-term interest rates fell from about 6 per cent, where they had remained during the second half of the 1990s (which the Central Bank of Ireland had deemed appropriate for an economy that had been growing at rates of 8-11 per cent a year) to 3 per cent (which the European Central Bank considered appropriate for an economy that had been growing at about 2.5 per cent a year).

From then until the onset of the financial crisis, short-term interest rates averaged 3.25 per cent a year in Ireland, as they did in the euro zone, even though Ireland’s economy grew at an average annual rate of almost 6 per cent (compared with less than 2 per cent for the euro zone) and Irish inflation averaged 3.5 per cent a year (compared with 2.25 per cent a year for the euro zone).

Because Irish interest rates were substantially lower than they should have been for an economy growing as fast as Ireland’s was, Irish households and businesses borrowed (and Irish banks lent) far more than they would otherwise have done, resulting in (among other things) an unsustainable property boom in which Irish house prices more than doubled in less than seven years”.

Meanwhile, the Ireland Central Bank’s (ICB) 2007 Financial Stability Report explains the role played by investor speculation.

First, lending restrictions on investor mortgages were relaxed in the mid-1990s, which enabled property investors to borrow at the same interest rate and on similar terms to owner-occupiers. This led to a surge of property investment, as shown by the below ICB chart.

In fact, as at June 2007, investors accounted for around 27% of total mortgage lending – slightly below Australian investor’s share of 32% of total mortgage lending.

And the sharp rise in property prices prior to the global financial crisis (GFC) forced rental yields down:

As such, recent investors were cash flow negative in 2007, since rental income nowhere near covered holding costs:

So just as property investors in Australia rely predominantly on capital appreciation to make ends meet, investors in Ireland were doing the same.

However, once property prices began to fall, Ireland’s over-geared investors rushed for the exits, thus helping to force house prices down. The risk of investors fleeing the property market en masse was acknowledged by the ICB in 2007 just prior to the crash:

“…buy-to-let landlords, acting as dispassionate investors rather than emotionally involved owner occupiers, might decide more quickly than owner occupiers to dispose of properties in the event of a house-price fall, and this could potentially destabilise the wider housing market. The concern is a mass exodus of investors at the same time would put additional pressure on an already fragile market, causing a quicker downward spiral than would have otherwise been the case.”

Still, in true central bank fashion, the ICB rejected the notion that Ireland would experience a sharp housing correction, instead predicting a soft landing due to strong underlying fundamentals:

“Regarding future house price developments, factors that will have an influence on the future direction of house prices are investors’ participation in the property market, the sustainability of current rates of immigration and the future direction of monetary policy. The underlying fundamentals of the residential market continue to appear strong, as evidenced by rent increases. The central scenario is, therefore, for a soft, rather than a hard, landing.”

Ireland’s planning system also contributed to the initial boom and then bust of house prices by creating a system of supply that was unresponsive to market demand. A 2005 paper by the UK’s Policy Exchange explained the Irish supply situation well, whereby the Government granted planning permits too late, resulting in the building of large numbers of standardised, small, poor quality homes in satellite locations far away from the major cities:

According to Dr Stevenson of UCD Dublin, development for new housing actually took off much too late. “In the early years of the boom, we did not see much building in Ireland”… Because supply was late to meet demand, by the time construction activity actually took off it was too late to deal with the backlog in a reasonable way. All that planners and developers could do was try to satisfy the huge pent-up demand quickly. The result was a quick fix, not a thoroughly reasoned solution…

First, large numbers of flats – something the Irish were not used to – went up, in the form of large apartment-blocks. Second, whole new housing colonies were built, often consisting of hundreds of virtually identical semi-detached or terraced houses lacking any individual character. However, these were often far away from existing amenities, hardly provided any amenities themselves, were poorly built, and served as dormitory towns for existing cities (mainly Dublin). They were also much smaller than comparable houses built twenty or thirty years ago…

To sum up, in the words of Dr Brendan Williams: “The quantity of our supply is very, very good. The quality leaves a lot to be desired”…

Much of the hasty development that Ireland has seen over the past few years could have been avoided if supply had reacted earlier and in a more flexible way to rising demand. But in the early years of the boom, central government had still not realised how important it was to encourage housing development, and local councils, left alone without an independent tax base and lacking the incentives as well as the means to engage in proactive planning, did not plan for enough new houses.

Then, when it was almost too late and prices had already skyrocketed, the government realised the dangers of this situation and encouraged building. But, as Ronan O’Driscoll put it, “the government only thinks in numbers and units” – thus failing to understand that good, flexible and strong supply means more than just “throwing in a few hundred two-storey, three bedrooms semis” (Liam O’Donnell). And this “thinking in numbers” was passed down from central government to local planners, who could basically declare that they had done their jobs properly if they could only show that their numbers had gone up. The quality of these developments does not appear in the statistics and is hard to quantify anyway.

In a nutshell, Ireland’s planning system was ineffective in mitigating price rises through easy credit and speculation, since the new housing was predominantly built too late in the process and only where they were permitted, rather than where the market demand was. The end result is a large number of empty estates of unwanted housing in remote locations far from amenities or employment, huge developer and bank losses, and an economy now in tatters.

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  1. Yes. Top analysis, UE. The familiar toxic cocktail: chasing capital gains with debt, restrictive planning and weak tax bases.

    I have been waiting for the ‘Gearers to wake up and hit the exits, but fear they are too dim to understand just how precarious their position is.


    Don’t Buy Now!

    • David – I think you seem to have missed the primary problem that Ireland had according to the article: As pointed out Saul Estlake, their monetary policy settings were coming from Frankfurt, setting interest rates at levels far too low for the high gorwth and high inflation levels Ireland was experiencing. This was the number #1 factor that allowed such a large asset bubble to inflate, and then inevitibly crash. The other factors you list were symptoms resulting from this primary cause.

      In this sense, Australia is very different to Ireland – we have our own soveriegn currency and control of our own monetary policy settings, which have always been maintained at essentially appropriate levels relative to our GDP growth and printed inflation levels. So you can look for similiar factors (like chasing capital gains with debt, restrictive planning and weak tax bases), but you will not find anything on the same scale compared to what occurred in Ireland here in Australia.

      • Australia is possibly closer to the UK: outright ongoing under-supply of housing, scandalous levels of “planning gain” in conversion of rural land to urban, less volatile price fluctuation but a relentless trend to unaffordability (rising median multiples) along with “housing” quality and household space shrinking. The price of land per square foot increasing far faster than households can make substituting trade-offs.

        This is still not good for an economy in the long term. It is like a long strangulation instead of a quick bubble and crash.

      • disco stuMEMBER

        Yes – and a good thing to… unlike Ireland we have a floating currency, meaning our $A’s can respond to economic factors influencing our terms of trade… oh wait a minute, no we can’t… all these damn foriegners are buying $A’s a as safe haven… well never mind, unlike Ireland at least we manage our interest rates independently to respond to our internal economic conditions… oh wait a minute, no we can’t, the RBA is being forced to cut interest rates due to the high $A…
        ….yes, Australia is so different to Ireland.

  2. reusachtigeMEMBER

    I actually think the the Irish are the lucky ones to have had their lessons learned already. Sure, there has been pain, but the average Irish are still doing ok, albeit 180k less well off.

    • Yes, as I infer above, Aussies will go on thinking they are getting wealthier, while their productive sector is slowly strangled by the “expense” that urban land represents.

      Adam Smith’s assessment of “the price of dwelling places” in 1776, was that this represents “an expense”, albeit for a type of goods that lasts longer than “clothing”.

    • That the average looks OK is no consolation to the unemployed 14.5% and those FHB’s and investors over 2003 to 2008 who are likely underwater on their purchases during that period.

      The big takeaway I get from all the recessed economies is the willingness to sacrifice 15% of their populations including 30% or more of their youth, or an ethnic minority to long term unemployment.

      It a tragedy that destroys the social contract.

      I actually like the US sequester approach of furloughing employees (in the public sector anyway).

      Share the pain and the work!

      • Very very important observation you make there re the social contract, Explorer.

        One of the first signs of this is of course the great house price rip-off. Our civilisation has hit its decadent phase when such a basic ingredient of the social contract no longer counts for anything.

        I just searched online for an article I recall reading recently entitled “The Screwed Generation” and there are so many articles with that name, I gave up trying to find the one I remembered specifically……!

        They’ll possibly never own their own home. They’ll possibly spend half their life unemployed. If they have student loan debt they’ll possibly never pay it off. If they DO get a job, they’ll be paying the highest tax rates in history, not just on income either. They’ll probably have the highest costs of living in history.

  3. Looks like Irish house prices increased by a factor of 5x within a decade, from ~50 to ~250 on the index.

    Did Aussie house prices ever increase by 5x in a decade? I think they doubled (2x) in a decade?

    Maybe Australia just had a regular boom (2x) while Ireland had a bubble (5x)?

    In fact Irish prices now, after the crash, are still 3x what they were before prices started rising, so even after the crash Irish prices are still relatively higher than Aussie prices.

    Doesn’t bode well for a similar crash in Oz, when we certainly didn’t have a similar boom!

    • ’89-’99 the Index doubled 50-100, a similar “prices will double every 10 years” nonsense that we get fed here, right? Then we got 100 – 250 , a doubling and a half; not far off what we had here? Now 250 back to 150, their 40% drop that we might still get as well…(or maybe it might only be a 30% fall, to take into account the over-shoot in Ireland!)

      • There are two markets in Ireland now, Dublin and everywhere else. Everywhere else is still sliding with no end in sight.

        I know of someone who has just taken a 200+k hit to offload a house 80km from Dublin to free up the cash to facilitate a move lock stock and barrel back into the city.

        Banks there are not lending unless you have 40+% deposit to hand. He has 60, so they are willing to lend to him.

        A lot of people are making the same move, depressing regional property even further. Given the recent re-introduction of property taxes over there. I predict a return to taking the roof off of dwellings, to render them non liable for payment.

      • The Patrician

        Nice try Archie.

        As per the Economist House price index 2013

        IRE – 1% UNDERvalued against rent and 5% undervalued against income

        AUS – 45% OVERvalued against rent and 23% overvalued against income

      • Being bewildered by the Aussie property market like most people on here, I’m trying to make sense of why the market has stayed so ‘strong’.

        One thing that comes to mind is that the components used for measuring value are inaccurate. For instance, as you mentioned property is 23% overvalued against income, however, the measurement of income in Australia seems far from accurate. For instance, the reported median income for a carpenter and electrician is $56k and $60k respectively. Whilst this is just two examples, however I think reported incomes are underestimated by all but PAYG employees.

      • Whichever way you cut it, Winston, prices relative to incomes have inflated.

        Just as long as the data sources and methods are the same at the start and finish of the analysis, if it shows an inflation, there has been an inflation.

        Inter-country comparisons are more difficult. Nevertheless there are certain similarities in long term historical data – house prices do tend to cycle around a similar happy medium relative to incomes until some shock disturbs the whole system.

        If the inflation was 250% from the long term happy medium in two countries, they are both in a similarly bad way at the end of the inflation.

        I believe that what is keeping it up in Australia, is the banks, the central bank, and the government are using every trick in the book to keep it up. Everywhere else that a crash has happened, it took everyone by surprise. I believe Ireland and Spain and California could have kept their bubbles going a bit longer if they had been anticipating the possibility of a crash as the Aussie authorities have been.

        Had Aussie been the first bubble and crash, everything would be different.

    • Brilliant recent history lesson.

      So many of the same mistakes have been made in Australia and of course, the vested interest are either in total denial or predict a ‘soft landing’.

      They keep chanting “Australia is different”…. lol

      OZ house prices in Sydney leapt from less than 3x average income in the 80s to over 9x by 2007… any way you look at it that is unsustainable growth and is now beyond the reach of all but speculators and the foolish!

      As the above history proves, the end result is fairly predictable! Get out while you can still find a buyer!

      • Sydney house prices were never 3 x average income (average full-time wage) in the 80s. I have all this data at hand, and the cheapest Sydney median houses ever were in the 80s was 4-5x average income, and only for a very brief year or 2 immeidately after the deep and terrible early 80s recession (when unemployment hit 11%). By 1988/89 they are 7-8 times income. If you go back to the early 70s you can find a couple of years when prices were 4 x average incomes. All things have changed a lot since the 70s…..

        House prices were perhaps as low as 3 x times income in other smaller Oz cities at some point in the 80s, but not in Sydney.

      • Sydney’s place in the Aussie hierarchy of cities is slightly similar to that of London in the UK. It has more “global” income flowing into it. This always makes house prices higher relative to local incomes, and makes it harder for local young folk to buy into a house in their own parents city.

        I also suspect that Sydney was quicker than other Aussie cities to have a problem with “supply” of housing and the cost of infrastructure – due to gross mismanagement.

      • I agree, Sydney RE prices are not overvalued by any recent (last 30 years) historical measure. However, Perth and Melbourne are definitely overvalued.

        The big difference between Sydney and the other Aussie cities is the absence of a building boom. For the last 10 years there has been a steady decrease in the number of new houses. Logically this situation would make no sense if land-banking was the sole cause of Sydney’s high RE prices.

        I believe there is even upside for the Sydney market but at some point in time wages need to play catch-up, thats when the real problems will show themselves.

      • Sydney is just behaving like the UK has been for decades. Supply of housing going lower and lower, prices going higher and higher. This does make sense. This is much easier to work out than the “simultaneous price inflation with good volumes of construction” paradox. It’s not just land banking – it is the difficulty of bringing a development through the regulatory process. If this takes longer than the market “demand upswing” phase lasts, you are going to get long term declining construction.

    • You are incorrigible, Archie.

      By the single metric of ‘house prices’ you are narrowly correct. Underneath that doubling is a 5x increase in private debt and a 3x increase in debt to disposable income.

      Looking longer, land prices to GDP have increased from ~50% of GDP in 1951 to ~250% today. (All data Philip Soos chart pack)

      High land prices impose staggering costs everywhere. If government genuinely wanted a dynamic economy or cared about its people it would boldly embrace inexpensive land as a central objective.

      Don’t Buy Now!

      • David again and again says exactly what I might have, and saves me the trouble.

        Urban land costs are an expense to the part of the economy that actually PRODUCES anything. It is only a “gain” – in zero-sum terms BTW – to a sector that does NOT produce anything.

      • Government cares about its people and about 65% of families (and about the same for voters) benefit from house prices rising.

        Australia on average won’t have a housing crash unless there is a big unemployment or median/modal income hit.

        A long slow melt in real terms is more on the cards, although some markets are likely to be much more volatile over the next 3 to 5 years because of oversupply and end of mining construction boom.

      • What happens to China over the next few months may determine the validity of the Aussie house price “slow melt” idea.

      • “….. 65% of families (and about the same for voters) benefit from house prices rising…..”

        How do they “benefit”?

        How many of them cash out their capital gain?

        Borrowing money against a rising notional value is a zero sum game for the economy and not in the interests of anyone in the long term. The money still has to be paid back and/or the debt serviced, out of future income.

      • Yes, but in 1951 councils paid for the local roads and drainage – so the prices were included in rates.

        Water, phone and sewerage extensions were paid for out of rates and charges.

        So, of course, if the cost of the infrastructure was accounted for consistently that comparison would be quite different. Since infrastructure cost is a huge part of the total land package, this is not a trivial point.

      • Land economic theory holds that the intersection between supply and demand determines the price of land. If the capital gain is substantial, the cost of fees built into the final price is just a “share” of the price that is taken by whoever the fees are paid to. If the fees were abolished, the original land vendor and/or the developer and/or intermediate land bankers would make even more money than they do.

        It is true that fees are a cost “added into the price” in the absence of capital gain / “planning gain” in the land value. But when the capital gain over and above the original cost of the land in other uses eg farming, is something like $200,000 for a tenth of an acre section, the fact that there is $100,000 of fees in it does not mean that abolishing the fees will reduce the price $100,000.

        If the section was $30,000 like it should be and the fees were $100,000 and the total price was $130,000, abolishing the fees would indeed bring the price back to $30,000.

        It is a serious social justice issue either way, because the inflation (whether fees or planning gain) in new houses affects the cost of ALL houses – so first home buyers pay this inflated cost regardless of where they buy, and incumbent vendors of properties reap this uplift as a windfall gain at the expense of the first home buyer.

    • Did Aussie house prices ever increase by 5x in a decade? I think they doubled (2x) in a decade?

      In Australia you can find many houses that went from $100k, $200k, $400k, $800k over 30 years.

      • Giordano Bruno

        Brunswick melbourne – house prices went from $90-$150K in 1998 $650K in 2005 – I should know – we have dozens of houses there.

        There now pushing the million dollar mark.

        It’s the most gentrified, hipster village in Australia – and they are all going to get smashed beyond recognition.

        I can buy a three bedroom house 4 blocks from the beach, renovated for less than a dog box victorian workers cottage in far north brunswick – surrounded by factories.

        It’s insanity on a massive, massive scale.


  4. I promise you. No one in Ireland was buying property in 2007, or even 2010, because they thought prices were going to fall! The same applied today, as it does here as well.


    A fantastic video relaying the import of this post.

    I agree, BB are more like sheep than current mega mortgage morons, so once the collective meme goes from buy to sell, standby.

    Bring it on!

    I live in a beautiful house next to a retired couple (nice folks) huge house but kids grown and long gone and so they are looking to crystallize there investment and downsize. They couldn’t get people to come and look through at the price they wanted/needed.

    They need to unlock that cash soon as their nest egg diminishes.

    I feel sorry for them, on the outside they look set and have it all. The next five years will be hard on them I fear.

    Dont buy now (unless you’re a mug, in which case, knock yourself out!)

    • TheRedEconomistMEMBER

      I hear you Muzzer018

      But the Wife wants her own home by the end of the year.

      I tell her a new house will not be ours… but the banks as interest alone will exceed the rent we pay now by around $200 more per week for the first 3-5 years + we have to pay rates and maintenance

      This is with a $140K deposit.

      I cannot hold out much longer…

      It is funny how history repeats itself.

      The same thing happened when we had to buy in 2004. We bought a place in Sydney Outer west, (where we could afford) to only to see its value drop by 40K as interest rates rose in the last day of the Howard Government.

      We sold out at a loss to buy better place during the GFC … only to see the wife fall pregnant and one income not enoough to support a $500K loan. So we rented where we want to live at a fraction of the price

      Drums are beating again… If I do buy … I will let you guys know… as sure enough… prices will slide if the wife gets her wish.

      • Relationships Australia matey

        She will break you and it will all be your fault when you can’t keep up the lifestyle.

        Short harsh answer, get a better wife or pull your partner in to line. One of you will have to be the grown-up.

        I’ve seen this from men and women. My partners ex husband was a financial liability. Note he is now the ex.

        Enough said.

      • I feel very sympathetic, I know first-hand, ever so many younger couples in this sort of situation.

        I can’t get any of them to take any notice of my warnings; and I reckon I would be one of the best people around at making the “don’t buy now” case. The problem is all the other “well-meaning advice” they are getting from their entire circle of family and friends. My stance is actually costing me friendships. I am starting to be regarded somewhat like someone who is devoted to the “9/11 truth” movement would be.

      • Iron HorseMEMBER

        If your wife can read just sit her down for 20 minutes with a cup of tea and ask her to read this post….

      • @TheRedEconomist – I hear your pain and have been through the same agonising negotiations – economic fundamentals v wife hysteria!

        We have reached stalemate – the cheque book is locked – and so are the wifey spoils.

        It’s a difficult position to be in – cashed up and saving – but with a wife who want to nest.

        At the end of the day she has accepted the status quo but has left me with these words ringing in my ears “YOU BETTER BE RIGHT!”

        I hope I am……

      • I sympathise with you and understand your wife’s demands. We have been renting for 3 years now, and I hate it! Once you have had your own house, you can never relate to a rental property in the same way, it doesn’t feel like home, and especially if you are a Mum it’s a natural instinct to want to provide a real “home” for your children, one that will hold all those special childhood memories. I don’t believe that is possible in a rental. My kids talk really fondly of the house they grew up in, which makes me feel guilty for our current situation. I have the lease renewal papers in front of me, waiting to be signed, but can’t bring myself to sign away another year of my life….

        So my heart wants to buy, but my head says ‘No! don’t buy now’. It’s hard. Our alternative is to move to a cheaper area far away from my husband’s family or go back to the UK which despite everything I read (about the economic despair) does look tempting…..

      • I’ve a house to sell in the UK Annie.

        Rural Cheshire nice area, nice house 😉

        If I didn’t have my babies here I’d be off home.

    • And although they might buy and sell at the same time if downsizing, they will sell in one market and buy in another.

      They sell out of high land content house and likely buy in low land content unit with high labour and building materials content.

      Based on long term demograp[hci changes, demand for units is likely to increase and input prices other than land rise, but land is a smaller component. Demand for houses is likely to grow less and the land component more susceptible to falls.

    • No need to add that every day the delay continues is a another day that low income earners and families will continue to grossly over pay for a basic service – housing.

    • There is an even worse conundrum. The longer the policies are persisted in, the higher the price of land PER SQ FT goes.

      So the “equity” that will be wiped out is not merely a question of looking at house price median multiples.

      Ian Abley of AudaCity is the guy who made me understand this about the UK. There are trillions of UK pounds of equity riding on the price of urban land per square foot – not “median multiples”.

      The space per household has been sacrificed and sacrificed and sacrificed for decades as the price of land per square foot has risen. The house price median multiple of 6-9 in UK cities, is for “housing” on something like 1/12 of an acre per household.

      If “the right to build” was restored to its pre-1947 condition in the UK, this would mean such a crash in the price of land per square foot, that NEW housing at 3 times household income would be on sections several times the size of the status quo ones. And the new housing would be much higher quality.

      So the millions of dingy dog box “houses” would not just fall from a median multiple of 6 to 3; they would go way below that. You could knock most of them down; they are worth nothing as structures; and the 1/20 of an acre of land underneath might be left at a value of 10,000 pounds or less instead of the current 150,000 pounds plus.

      I then saw the absolute hopelessness of ever getting reform done in the UK. The UK economy is toast. The high urban land prices are an economy-killer in themselves anyway.

      The longer Aussie persists in the same sort of policies on urban planning, the further down this path to urban-economic Mexican standoff Aussie goes. Someone needs to make this case very urgently to the Abbot government-in-waiting.

  6. mine-otour in a china shop

    Great article and a lesson to the rest of the world about the perils of housing investment, poor lending, poor buyer judgement and poor government policy intervention.

    One thing I would add that is paralysing Ireland’s domestic economy, is the high cost base before and after boom. This loss of competitiveness driven by rising wages chasing higher land and house prices, resulted in higher prices and a cost spiral. This devastated many small businesses who have struggled post recession to press the cost reboot button in the face of low demand.

    Australia is the same – high costs and wages are already paralysing many small businesses and households, and will be hard to reset (even across the domestic economy) once the housing bubble bursts.

    But sure it could never happen here?

    • +1

      A minimum wage of 16+ bucks/hour is unsustainable.

      There will be a *lot* of unemployed and unemployable waiters, baristas and personal trainers when the ordure impacts the rotating air cooling device.

    • Another important insight there.

      Even in an economy like the UK’s where there is a relentless shortage of houses and the prices of them never crash precipitately; they just continue to go higher and higher as a cost burden in the economy, and the effect you describe is killing the UK economy too along with all the other effects of inflated land prices.

      • But in the UK some of the slack is taken up by immigrants who live 12 to a room and work 12 hours a day, often under the “occupational health and safety” radar that is busy shutting down local established businesses.

  7. GunnamattaMEMBER

    Actually the thing that nailed the Pats was the widespread view – particularly after they joined the Euro – that there really had been a complete paradigm shift.

    They had had a massive increase in GDP from the mid 1980s, as international companies used Ireland as Euro entrepot and R&D hub (reflecting low taxes in Eire).

    After they joined the Euro they had low rates underpinned by the ECB, while banking oversight was effectively still in Dublin. There a group of senior banking officials, property developers, and politicians (remember Eire is a small country) effectively games the system – you can google countless Irish press articles. Just like here there was a massive press campaign which smothered any dissenting voice (there were certainly those).

    The country had always run a tight budget. Their budget was only blown out of the water when the government made the decision to stand behind the banks which had lent ludicrous sums on property development.

    May not happen the same way here, but there is plenty for Australians to learn from what happened there.

    • mine-otour in a china shop

      “Run a tight budget”? You must be joking!! Champagne Charlie McCreevy ensured higher surpluses were not achieved during the boom – he had no idea of counter-cyclical fiscal policy. He spent it like it was going out of fashion – government spending was rising in double digits during the boom.

      He and other Finance Ministers through the guise of Social Partnership with Trade Unions ensured a wages bust (mostly in the public sector). This poor policy also contributed to the rising deficit alongside the bank debt transfer of debt.

      Too much money was spent on a Rolls-Royce welfare system and high civil service salaries instead of being put into more productive capital investment. Trying to unwind these high levels of spending without further deflating a weak economy has proved troublesome. Some of the fault lies back in time with McCreevy and others.

      • GunnamattaMEMBER

        Well I meant historically chief. Sure at the height of the boom they went ape. But historically the Irish hadnt been profligate spenders at a budget level. I know more than a few who would argue they would have been fine with the budget splurge they had had circa 2000-2006 had the government not stood behind the banks

      • mine-otour in a china shop

        Fair enough and yes we weren’t the worst spenders until the boom arrived. Just annoys me that this part of the equation is often forgotten.

        Policy mistakes were made at the height of the boom with rampant government spending – one of the few policy tools left. Sure the deficit would have been more manageable without the banking bail-out and debt transfer, but that said the high civil service wages and high welfare rates did contribute significantly to debt once growth and tax revenues disappeared. These things are hard to unwind in a downturn so better not to pour petrol on the flames during a boom.

      • Great insights, Mine-otour. This is really the same problem everywhere there is a house price bubble.

        Government gets “bubble revenue” and blows the lot AND commits to ongoing spending programs. After the crash the lefties are screaming blue murder about the new governments who inherit the mess, making “massive cuts” to this, that and the other thing; that still doesn’t get government spending back to anywhere NEAR the pre-bubble norm.

        And they’ve got the gall to call for “Keynesian” deficit spending to “solve” the problem……!

        MATE, Keynes would boot a few backsides if he came back, for misrepresenting him so extremely. He was talking, back in his day, of a temporary boost in government spending that in his time was at around 20% of the total economy; and then of course resuming fiscal responsibility in the good times at the historical norm of around 20%.

        It might just be possible that government spending is part of the PROBLEM at current levels even before “Keynesian” top-ups are added?

      • Don’t forget that Keynes operated in money system where currency was convertible to gold at a fixed rate.

        US, UK, Japan Canada, Australia, China etc have a fiat currency (ie non-convertible) and free floating.

        European currencies and state governments in US, Aust live in a money environment more like that in which Keynes wrote.

  8. I second the first comment: very good analysis.

    And another optimistic assessment of the Irish economy pre-GFC, from The Economist, that reliable pool of expertise:

    “Yet only a few years later the Irish miracle had arrived. What caused it? Can it be replicated? And can it last?”

    The Luck of the Irish.

    • The moment I knew it was all over for Ireland was when The Mustache of Understanding (Thomas Friedman) declared:

      “It is obvious to me that the Irish-British model is the way of the future, and the only question is when Germany and France will face reality: either they become Ireland or they become museums. That is their real choice over the next few years – it’s either the leprechaun way or the Louvre.”

      • Nice….! I must save that link to throw at Thomas Friedman admirers who I come up against in debate.

      • “I must save that link to throw at Thomas Friedman admirers who I come up against in debate.”

        Surely such things exist only in Friedman’s imagination??? I feel pretty comfortable saying he’s literally the most often wrong person in the world (despite obviously having no way of measuring that).

        Amusing review of one of his books here –

        “Like The World is Flat, a book borne of Friedman’s stirring experience of seeing IBM sign in the distance while golfing in Bangalore, Hot,Flat and Crowded is a book whose great insights come when Friedman golfs (on global warming allowing him more winter golf days:

        “I will still take advantage of it—but I no longer think of it as something I got for free”), looks at Burger King signs (upon seeing a “nightmarish neon blur” of KFC, BK and McDonald’s signs in Texas, he realizes:

        “We’re on a fool’s errand”), and reads bumper stickers (the “Osama Loves your SUV” sticker he read turns into the thesis of his “Fill ‘er up with Dictators” chapter).

        This is Friedman’s life: He flies around the world, eats pricey lunches with other rich people and draws conclusions about the future of humanity by looking out his hotel window and counting the Applebee’s

      • Alex Heyworth

        ” I feel pretty comfortable saying he’s literally the most often wrong person in the world”

        Paul Ehrlich has provided some pretty stiff competition.

  9. This is an excellent article on the Irish boom and bust.

    For many years I have been molested by PBT* shortage-deniers telling me that Sydney prices must soon follow Ireland, Spain and anything else that went down. Of course this has not happened and it is worthwhile to find out exactly what is different. Leith has done a great job of investigating the real situation instead of parroting dogma.

    Other factors to consider are that Ireland used to be an economic backwater and many young would leave Ireland for better prospects. As a result there was little need to build extra housing. The whole planning system became based around not needing extra houses. Being a poor country the housing became run-down and extremely cheap to buy.

    Then Ireland joined the EU and many things changed. The govt introduced tax holidays to encourage startup companies to come. They did come and there was an influx of immigrants and Irish returning. But the housing supply system was not updated to suit. As a result there was an instant shortage of housing and prices could and did rise enormously from their low base. Govt ran dangerous boomtime tax policies. Eventually, in response to the terrible shortages and high prices, massive supply came into the pipeline. Ireland had almost no local builders so they needed to be imported at high wages, adding fuel to the boom, and adding to the housing shortage as they needed to live somewhere as they built housing.

    Eventually bubble stock came into the market, prices fell, building stopped, foreign builders went back home, startup companies failed or left Ireland after the tax holiday, money disappeared, Irish young went back overseas as before.

    The main reasons for the boom and bust? Bad tax policy, bad lending policy, unresponsive supply, wild flows of people.

    *PBT Pure Bubble Theorists

    • Yes, government was one of the “bubble chasers” in Ireland – chasing revenue and shares of “planning gain” from the still-planned expansion.

      This is one of the essential things to get right when discussing reform of housing “supply”. I constantly despair of politicians talking about “releasing more land”, as they did in Melbourne and are talking about now in NSW and NZ.

      This has massive potential to replicate Ireland’s toxic mix of a PRICE bubble AND over-supply of housing. It is all very well to “release 10 years supply of land” when this quantity of land is still not only easily capturable by land bankers, but in fact NEEDS to be bidded for by developers against each other, often in a kind of Dutch auction process, if developers are even going to stay in business. They might go bust anyway after paying far too much for the land; but having no land at all for the next 10 years (while competitors do) is not a recipe for staying in business either.

      ALL the underlying problem with house price bubbles stems from “planning gain” in the raw land. If you’ve got a significant level of “planning gain”, you’ve got a house price bubble. This level of planning gain is always hundreds, if not thousands, of percent when the land supply is subjected to regulatory quotas.

      The kind of “housing supply” that DOES keep a lid on prices, is the “Metropolitan Utility District” (MUD) system that is used in much of the USA – a developer can de facto incorporate a new municipality to build a new exurb or even a whole city just about anywhere he wants to. He raises his own money for the infrastructure and charges “local taxes” over the next 30 years to pay it off.

      Dale Smith is an expert on this stuff:

  10. How many Irish are now living in Australia? Next time I order a beer, I’ll ask the waiter/waitress what they make of our housing costs.

    • Good idea, watch out for one of those pubs where they often have an “Irish folk” band playing. Twang-twanga-twanga-twanga, tappity-tappity-tappity….etc

    • mine-otour in a china shop

      90,000 born in Ireland now living in Australia is the latest ABS estimate. Not all of us are waiters/waitresses though – many older people with different skills have also moved (including many financial services staff and even Economists). Mind you we do make excellent bar staff!!!

      Ask most Irish people what they think of Australia and they will say a beautiful country with great welcoming people but a disaster waiting to happen – think of Ireland 2007.

      That is because of high land and housing costs, prices, wages and costs (and of course some other different factors).

      It is bad when you repeat the same mistakes as others but to be honest the horse bolted many years ago on lax lending and bad policy. Once the Asian recession comes all those other bad things (only supported by confidence tricks) will be unmasked. At that stage you might want to go back to your barman or economist for advice on what and what not to do!!

    • As someone with an Irish partner and a large number of Irish friends…

      The Irish I know think it’s damn expensive but still better than being in Ireland for the moment. They all also believe it’s going to end in disaster like it did in Ireland.

      You can throw any of the popular sayings “This time it’s different…”, “They’re not making any more land…”, “Property doubles every 7-10 years…”, “The government will never let property prices crash…” at them and they’ve heard them all before.

      • mine-otour in a china shop

        And of course the final nail in the coffin is when the IMF and S&P give your economy the seal of approval and your Finance Minister tells you that you are the envy of the world. Heard that all before too…

        When will Tom Waterhouse start betting on the timing of the crash? He could be an expert pundit at the RBA monthly meetings?

      • McPaddyMEMBER


        I’m an Aussie who lived in Ireland from 2000-2005. My wife is Irish and we moved there to get married and start married life together. Imagine my pleased surprise when I found out that my wife’s mother had put a deposit down on an off the plan 1 bedder for her daughter and we could start married life in our own apartment.

        So, a year after moving in, the “value” of the property had gone up so much that we were able to draw out “equity” and pay back the deposit to the wife’s parents. Couldn’t have been better. I wasn’t much into saving in those days.

        Fast forward to mid-2005 and we left Ireland with around EUR200k in “equity” in the place. Seemed like the right time to sell, but taking the wife out of Ireland as well as selling the apartment seemed a bit cruel and, hey, what could go wrong? Turns out torching EUR200k in what are to remain forever merely paper gains and going into negative equity can go wrong.

        So anyway, I’m quite a bit more financially literate now than I was then. Fool me once and all that. I am making myself less welcome in Australia by the day (I don’t live in Oz at the moment and will not buy in until this madness has ended, by which time I should have around 50% of the price of my preferred housing option as a deposit) by pointing out to my diminishing number of friends the uncanny similarities between the two places, especially in terms of the complacency, arrogance, wilful blindness and risk-ignorance of the lovers of leveraged speculation. New paradigm? Try “China will save us”.

        It was interesting to see how the Irish rental yield ended up about the same as we currently have in Australia. Irrelevant, right? We’ve got kangaroos, right? Best place in the world and therefore expensive because who wouldn’t want to live here just look at all those boat people (LOL), right?

      • So serious question – after reading the article above, you can’t see the fundamental difference between the circumstances Ireland faced before it’s crash and the circumstances in Australia? I’ll give you hint – it’s in the stuff quoted from Saul Estlake, and has to do with monetary policy, the Eurozone etc. Explorer nailed in his comment a bit above as well.

      • So serious question, have you read “This Time Is Different: Eight Centuries of Financial Folly”?

        You can talk all you want about the differences between international housing markets, but in the end it comes down to inflated asset prices and un-repayable debt.

        “Throughout history, rich and poor countries alike have been lending, borrowing, crashing–and recovering–their way through an extraordinary range of financial crises. Each time, the experts have chimed, “this time is different”–claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters.

        With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes–from medieval currency debasements to today’s subprime catastrophe.”

      • McPaddyMEMBER

        I’m not going to say that there’s no differences at all between the Irish and the Australian situation. That would be absurd. Let’s just say that I believe that the fundamentals are all the same:
        1. Property massively overpriced relative to incomes.
        2. Property massively overpriced relative to rents.
        3. Investors relying on capital gains for a return.
        4. Governments artificially stimulating the markets, thus exacerbating points 1-3 because: (a) they rely on property transactions for revenues; and (b) they are hostage to all the paper millionaires their policies have helped to create.

        I think those factors outweigh Australia’s ability to control its own interest rates. Let’s be honest. What would happen if rates were raised now? Mortgage stress, anyone? That so-called freedom has been frittered away at the altar of the RE industry and in a vain attempt to retain/win the votes of those who still believe that windfall RE gains are their due because of their “savvy and sacrifice”.

      • I believe that what is keeping it up in Australia, is the banks, the central bank, and the government are using every trick in the book to keep it up. Everywhere else that a crash has happened, it took everyone by surprise. I believe Ireland and Spain and California could have kept their bubbles going a bit longer if they had been anticipating the possibility of a crash as the Aussie authorities have been.

        Had Aussie been the FIRST bubble and crash, everything would be different. But I don’t believe that the high prices can be sustained indefinitely. Discretionary spending in the economy has to be lower for the next 20 to 30 years, vulnerability to shocks of any kind is higher, the cost to the productive sector is higher.

      • Serious question – can you see any similarities? We can all play ‘spot the difference’ but it’s the similarities which may end up being more important.

  11. I am one who sees the obvious – Australian property is grossly overpriced and wonder how long it will continue. But I also wonder: does Ireland have negative gearing like we have here? Negative gearing is one of the biggest drivers of the bubble in Australia. It might not have been to begin with, but as wages have grown every man and his dog wants to minimise tax so they don’t seem to mind paying far too much for an investment property as long as they can make use of this very generous tax.

    Also, did Ireland have immigration on the same scale that we have here? I know they did have a lot of immigration, but I somehow doubt it would have been ramped up just to prop up the Ponzi scheme. And then foreign investment – we have foreigners (especially Chinese) encouraged to buy up everything at the upper scale, completely unrestricted, again to prop up this housing bubble. At the same time the government is quite happy for vast tracts of our land to be sold to overseas interests. In fact, all our government’s policies are geared towards keeping the cost of housing high.

    If someone could enlighten me on some of these factors as they happened in Ireland, I would be very grateful.

    Maybe we have to wait for things to slow down in China before our bubble can deflate.

    • Hi , I can try to answer here, having returned to live in my native Ireland at the tail end of the Celtic tiger ( great timing ! ) and now back in Oz with a good education in booms and busts!

      Negative gearing : Owner Occupiers effectively had this benefit due to tax relief on interest payments.
      Investors had this too but it was confined to property income only ( so not as generous as here ).
      There were other tax benefits and incentives depending on property type , purpose, location etc.

      Immigration : yes, on a large scale from Eastern Europe – to me it seemed largely males working in construction and various trades.
      This was unrestricted as they were all legitimate immigrants from EU member states so no controls or encouragement were possible or needed.
      By the end , you pretty much had Polish tradies building houses for Irish investors/speculators to rent out to other Polish tradies!
      In my experience the Eastern Europeans were not too quick to buy and seemed quite happy to rent ( and sensibly save their Euros ).

      Foreign investment : minimal ( for residential property anyway ).

      In reference to a previous comment , when I landed back in Oz recently , I felt like I was in the Celtic tiger of 2006/7 : all the phrases ( different here , different this time ), all the rationale for high property prices, all the same vested interests singing to the same tunes, then all the expectations of a soft landing … so many similarities. I can expand to non property related similarities too – the crazy prices for food , entertainment and ..well everything! , higher than long term trend wages , people traveling overseas for cheaper medical procedures ( e.g. dentists etc. as mentioned in a recent article in the MSM here ) and also a sense of bloody minded entitlement!
      I could go on and on but I’ll stop.
      Ok , one more – the same second class citizen social status of renters ( who are all pretty happy now they didn’t buy at the time. )

      • +1

        Add in a thoroughly corrupt government giving wholly unnecessary tax write offs to favoured high net worth contributors via Section 23 relief etc and Bob’s your uncle.

        It will not end well here, all signs and symptoms are present.

  12. While I have always been in a job it scares me that over the last 5 years or so it is impossible to save any money from one’s wage packet. Things we take for granted such as a beer and a meal on a night out are so riculously over priced. Eventually people will stop spending and this will be the start of the crash. Why would you pay $8 for a corona beer in the pub if you can drink it at home for $2? It seems that someone out there knows how much the average person earns and set their prices to ensure they spend all of it and savings are becoming a non existent event. Maybe we should take a lesson from Socialst countries in this respect because if this is capitalism then I can now understand why there were so many wars in the centuries prior to this one.

    • I am with you here , i mentioned this elsewhere in that this was like Ireland 2006/7. People did eventually stop spending ( e.g stayed at home to drink, entertain )and TV shows like ‘Rip Off Ireland’ helped people to see the insanity. It all came to a head at the start of the crash. Similarly in the way that very few Indians I work with here will spend 10 dollars on lunch and will bring in their own instead , the immigrants I worked with in Ireland were much more frugal than the natives. The pubs were full of Irish people whereas the Poles bought their grog at the bottle shop and stayed at home.
      Don’t get me started on the gouging on software / itunes etc….we will be charged what we will pay ( till we stop paying ).

    • The problem is “crony capitalism”. And the problem with that is the “crony” bit, not the “capitalism” bit.

  13. Some of the comments on this post reflect the tragedy of the housing situation for the young – ostensibly its discretionary to buy a house, but the rentals (and little-landlords, and the legislative support) are so bad that it probably better classed as non-discretionary.

    So here we have the politicians attempting to use monetary policy to ‘force’ young australians to take on debt to pump-prime the employment as the mining boom slows.

    Even worse than this, the monetary policy is failing and is really just resulting in increased costs for established housing without any real short-term employment kick. So they are giving young people the debt without the jobs!

    Young people should be looking after-themselves very carefully, because the country sure as hell isn’t.

    • “Young people should be looking after-themselves very carefully, because the country sure as hell isn’t”

      This is one thing that I find so curious about Australia these days where RE has become such a divisive issue. I was recently at a BBQ and suggested that the solution must involve boomers accepting less for their humble abodes. I was certainly not ready for the vitriol in their responses.

      In future I’ll stick with safe topics: like sacrificing their virgin daughters to the money gods.

      • McPaddyMEMBER

        Just remember: The debt-fuelled, ponzi, windfall gains of the Howard years are sacrosanct. Only the miners have to pay a super profits tax. Everyone else gets to keep theirs. Too late to the party? Suck it up.

      • GunnamattaMEMBER

        I must confess I have found myself in similar situations of late.

        I make a point of not raising the issue but I do that in the virtual certainty someone will ask me when I am going to buy a house and actually believing (so therefor stating) that there has never ever been a more ludicrous time to buy an house in Australia, and that (as in my case) if you have capital overseas, there has never ever been a worse time to shift dough into AUD. My baseline position is generally around the idea that either the real estate market breaks, or the AUD breaks, and that it is quite possible both will.

        I know about that vitriol you are on about. I have had blue haired biddies screaming venomously, and righteous huffing and puffing from relatives and their associates (generally older and with the dough, but including some up to their eyeballs in debt who are younger). But I have also found that invariably after the subject gets raised there will be those who drift over quietly to say they agree.

        I’m not up on virgin daughters, so I tend to run strong on football cricket (not politics as mine is often at variance to every other person in the vicinity) weather and salads dressings etc.

      • GunnamattaMEMBER

        If any of you punters are in Victoria (and have kids) then maybe we should all get together for a ….

        ‘Australian Economy and Real Estate Doom Merchants picnic’

        a relaxing afternoon without wondering about crowd control if the conversation drifts to real estate could be good….

      • Let me know when, i’ll bring the potato salad :p

        As for the topic at hand I can only echo the same sentiments. 95% of the time when I discuss the real estate market with people they get quite animated before shouting down my facts and evidence with rhetoric and meme’s like “property always goes up” etc.

        I will however say that recently I was dicussing the possibility of my parents buying an investment property. After showing them the Macrobusiness presentation of the current state of the housing market and the historical data they felt violently ill but very relieved they had the right information before they bought in.

        Finally convinced my perma-bull dad that it wasn’t a good idea to buy and after explaining household income to price ratio his head exploded. He realised that when my parents bought the family home in the late 80’s it was less than 3 times median household income. Today its worth 7-8 times median income in the area.

        With property everything is fine till it isn’t at least in the eyes of the central bankers and the specuvestors . As Gunna said with the potential for either a property crash or importing inflation through a lower AUD the goldilocks area where the economy can continue to grow is shrinking by the day.

      • The BBQ discussions seem to be driven by those who think they have been brilliant, astute investors by buying property. Anyone who doesn’t own their own house and an investment property is foolish.

        It hasn’t occurred to them that it could (will) go wrong. If I had a dollar for everyone who told me “property prices here will never actually fall”, I’d have enough to buy a renovated 3 bedder.

        I’ve placed my bets. Even if prices never fall, I’ll be literally hundreds of thousands of dollars better off.

      • “I’ve placed my bets. Even if prices never fall, I’ll be literally hundreds of thousands of dollars better off.”

        Ding, Ding, Ding we have a winner.

        For as long as its far more expensive to service the interest on a mortgage than to rent its foolish not to save your pennies for a deposit or to invest. Based on median numbers its over $11k a year cheaper to rent than to buy the median Melbourne home. I think i’d rather have the $11k per year, with prices relatively stagnant and very little possible upsides for prices in the medium term.

    • Young people with housing decisions to make like oldies with Super asset allocation decisions to make, need to do their analysis and take their chances.

      Over the long term it has generally been a mistake 10 years later to have chosen not to invest in a dwelling.

      • I’ll take my chances.

        The house I need now i.e. family and kids etc is not the house I’ll need in ten to fifteen years years.

        I’m not saying never buy, DC isn’t saying NEVER BUY.

        Just don’t buy at the top of the market. From what I can see, the only people screaming for the tax payer to subsidize this cancerous industry and to buy at these BS prices are the people with a lot of property to sell.

        I’d rather be wrong with no debt than right with a huge liability making me a wage slave and i think that is the way many younger people are feeling.

      • “Over the long term it has generally been a mistake 10 years later to have chosen not to invest in a dwelling.”

        Based on Stapledon’s data, Australian house prices dropped in real terms for 70 years from 1880 to 1950. Surely it can’t have been a mistake not to have invested in a house during this time?

        No other twenty-year period in Australian history has seen such a massive increase in house prices and household debt levels as the last twenty years.

        I’m going to go out on a limb and say that recent house price performance will be no indication of future performance.

      • And over the longer term, the Herengracht Real Location Value Index tells me that there have been plenty of ten-year periods over the last 385 years where it would have been a mistake to have “invested” in buying a home.

      • I don’t think anyone is suggesting young people shouldn’t buy houses explorer, but they should be more careful and innovative in how they do this than ever. An increase in personal debt is no panacea to personal wealth, but this is mindset that is being sold to get the private debt numbers moving to improve employment.

        Remember those that took on big debts and survived over the last ten years had the most epic ToT plus the build up of a massive level of personal debt to guarantee wages and wages increases.

      • The Patrician

        Yeah…generally…like those thousands of young people in Ireland who took their chances 10yrs ago and chose to invest in a dwelling.

      • The only real winners are the guys who buy a property early in the cycle and actually sell it off near the top.

        The guys who buy a property to live in, early on, are unaffected by the rise and fall; there might as well not have been one.

        Anyone who buys their first home near the peak, is hundreds of thousands of dollars worse off over their lifetime than someone who bought early, even if prices never fall. The more people in this situation, the weaker “discretionary spending” in the economy will be for the next 20 to 30 years, and the more vulnerable the economy is to shocks of any kind.

        I simply cannot see it being sustained; I mean the high house prices, the government spending on “entitlements”, the increasing debt both public and private……

      • dumb_non_economist


        talking to a mates ex the other night. They are in the process of a financial settlement, anyway she mentions he’s bought 2 apartments (tot 1.6m) and needed to get a bank eval on his mothers home which she thought they bought in 06/07 (6065). Bank eval comes in at $460k, they paid $485, the loan has been interest only and I think the purchase price hasn’t included SD.

        So with interest/rent diff alone I reckon they (well, him) are down some 80K.

  14. Stephen Morris

    The Economist is threatening to displace Time magazine as the world’s most reliable a contra-indicator.

    Look at their glowing report (May 2011) on Australia’s superannuation system!!

    • mine-otour in a china shop

      I go for a composite contra-index made up of the IMF, S&P, The Economist and the number of times the finance minister uses the phrase “envy of the world”.

      Of course what most ordinary punters don’t understand is how their 60% “balanced” super fund is geared heavily to equities, and particularly exposed to stocks in the big banks.

      China, mining, housing, banking and super risks all rolled into one big clusterf*ck sandwich.

  15. reading articles like this makes me more and more nervous to enter the market. have sensibly stayed out for ages, but wife is on my case so have capitulated. Auction in 3 weeks, then I’ll be hoping the unsustainable situation continues.