Finance professor at Trinity College Dublin, Brian Lucey
Brian Lucey spoke to Gavin Jennings on Morning Ireland this morning following the release of figures yesterday from estate agents, Douglas Newman Goode (DNG), which claimed that Dublin house prices rose by €20,000 since end March (€220 per day or €6,600 a month).
In response to the figures, Taoiseach Enda Kenny denied the suggestions that there is a property bubble in Dublin and blamed the price rise on supply and demand.
Gavin Jennings: “Is the Taoiseach denying a reality?”
Brian Lucey: “Well, no, I think he’s more realistic now than other Government spokespeople have been over the last while. Technically, this might not be a bubble because there are huge supply issues as the Taoiseach has identified now. That is when you have very low supply and demand is rising you’d expect to see prices rising. The thing is though that when you see a 25% year-on-year rise in house prices that should absolutely terrify people. High house prices are not good for the economy. If we have learnt nothing, and, apparently we have learnt nothing…Then, you know, there’s really no hope.
Jennings: If you say a 25% year on year rise should terrify people, what should it do to an administration, to a government?
Lucey: Well I presume it should terrify them as well, it should spur them into immediate action to try an advance the things that can be advanced quickly. Look, we’ve known since 1970, 1970, 44 years, that there is problems with land-bank hoarding. We’ve done nothing about it, why would we expect that simply because we’re into another bubble would Government and administration would stir themselves. We’ve known that there are problems with SME’s [small and medium enterprises] getting finance for the past five or six years and most of the developers are not the big billion dollar people, they are people building 20/30/50 houses, SME’s by any definition. We’ve known that there are problems for 18 months with zoned land not being serviced because local authorities don’t have the money to engage in putting in sewerage lines, etc. Nothing has been done on that.
Jennings: Do you get the sense though, now that that could be changing?
Lucey: I think that this is beginning to change but these things take a very long time. You know there’s ideas of building five, 10, 15,000 houses, that’s great, that’s next year, that will help. We’ve a very thin market and the market could very easily collapse out under it as the cash buyers disappear which will result in a double dip. Let’s remember, if you go back to the pretty seminal work of Morgan Kelly, who is the man that we really ought to take very seriously, the man who took the scales from all of our eyes. His original 2007 ESRI data analysis, which nobody has been able to disclaim, suggested we should be looking at 65% fall in house prices. We’re recovering and we’re now at about a 40% fall. House prices are not affordable in Ireland. They might be affordable in the south west, they might be affordable in the upper Shannon basin. They are not affordable in Dublin. And there’s a big problem here.
Jennings: In a word Brian Lucey, for people who are looking at the property market and aren’t in it as yet, in a word, there is a headline on the front of the Daily Mail “House Prices Back To Boom Levels By 2019” Are we going there?
Lucey: [inaudible]…Ah jesus…I think we run a danger, you know, but that kind of, those kind of headlines, I don’t know if the Mail are being their usual pop self or not but we don’t want to go back there, we want to get house prices down to a sustainable level. At a €35,000 average income, which is what it is in the country, if you do the math’s of three times one salary and once the next salary, and at 80% or 85% loan-to-value ratio we should be looking at average house prices at around the €200,000 area. That would be up and down according to different regions. But, when you’ve got it well above that, which we have, when you have international property valuers saying we are overpriced, when you see vulture funds and value funds and bottom feeding funds, that we’ve seen come in and pick up the good stuff and are now leaving, they are saying the markets is not toppy, on the rise. This is about as big a flare-lit tip-off that we have a major problem as you could get. The danger is, in the middle of July, it will be October before anything gets done.
Jennings: Just very briefly Brian Lucey, speculation yesterday in commentary from a German MEP, a senior advisor to Angela Merkel, that there is no hope of a deal on the €64billion banking bailout, should we be surprised?
Lucey: No! I mean every single commentator has been saying that there was never a hope of this, the Government have been peddling the argument that this is a game changer, it was never going to work, you cannot on one hand say to people “we are doing great” and on the other hand say “give us a hand out” we were never going to get this money, and it was fallacious to believe so and disingenuous to claim so.”
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