Saturday, 31 May 2008

Irish housing bubble is over

The UK housing bubble was a tame affair compared to the Irish one. The numbers are just extraordinary:

  • Over the last ten years, national house prices have increased by 270 percent, compared to an increase of just 30 percent in the consumer price index.

  • The average cost of a house in 1996 was just €75,000. By 2005, the average cost had increased to €280,000.

  • Between 1996-2005, the average increase was 14.9 percent each year.

  • In one year – 1998 - average national prices grew by a massive 30 percent.

  • The housing bubble generated a massive construction boom. A third of the current total number of houses were built in the last ten years.

    However, it is all falling apart now. Prices peaked in January 2007. Since then, prices have fallen by over 10 percent.

    Roy said...

    It is a long way to the bottom.

    Ed H said...

    Ireland's bubble doesn't get much press in the blogosphere. Thanks for putting this out. Question: when the construction loans go bad, which banks will be left holding the bag of loan losses?

    I bet you that British banks have a pretty hefty exposure in Ireland.

    Nick Drew said...

    in Ireland they talk of little else !

    any taxi-driver, any radio talk-in ...

    Anonymous said...

    Irish propoerty listings are a laugh. Take a look at this one:[cc_id]=&s[mnp]=2000000&s[mxp]=&s[bd_no]=4&s[search_type]=sale&s[furn]=&s[refreshmap]=1&offset=40&limit=10&search_type=sale&id=315742

    Ed H said...

    2.6 million? are you wise? That's absolutely nuts. No wonder the bubble's popping.

    aSteve said...

    I was previously aware of the Irish property bubble, and was aware that Ireland had adopted the Euro... but I'd never connected the two concepts.

    Now, I'm kicking myself... it seems obvious... I wonder if my thoughts are right.

    OK, I'll try to explain: I blame the UK bubble on securitisation of debt that has permitted massive inwards investment on the "money markets" which has driven down mortgage costs and driven up house prices. While many think that the point about the money markets and securitisation is to keep loans off the balance sheet (which is true) I suspect that the issue is foreign leveraged investment. Where foreign investors have access to cheap funds (The Euro has always had cheaper borrowing than Sterling) large profits can be made whenever exchange rates are stable... which they have been between the Euro and Sterling - from 1999 until recent months.

    If property took off even faster in Ireland than in the UK, maybe this has something to do with the fact that mortgage securitisation held no currency risk? People have been talking about the Euro bringing affluence - is that affluence actually debt? A long-term mill-stone?

    Is the situation, like with Spain, that the recipe for disaster is access to Euro money markets and a UK perspective on real-estate?

    Anonymous said...

    The Irish housing market is just mad.

    Alice Cook said...

    Asteve, the Irish property bubble is more due to inappropriate interest rates. Euro rates were kept low because the euro centre was doing comparatively badly and the ECB largely forgot about the over heating Irish economy. With low interest rates and high inflation, real rates were probably close to zero.

    The securitization thing was also probably important. If Ireland was not in the euro zone, Irish banks would have found it difficult to sell local currency denominated MBS.


    aSteve said...

    I think all property bubbles are to do with inappropriate interest rates.

    What I'm thinking is that the way things have panned out in Ireland strongly suggest that the foreign investors were using Euros rather than US$.

    We know that what happened in the Uk was down to foreign portfolio investment in debt... In respect to identifying which foreign currency invested in the UK, I think that Ireland's property market firmly points at the Euro...

    Ed H said...


    That's exactly right about Euro interest rates in Ireland and something anyone could have understood when the Euro began.

    The Euro was a double edged sword for Ireland and Spain because no one wanted securitized debt in local currency before the Euro. It makes Irish company debt much more liquid because you have a bigger market for debt in your own currency.

    But, the Euro is especially a problem for both Spain and Ireland in that they are fast growing economies in a zone dominated by France, Italy and Germany. The interest rates in the Eurozone were way too low for those two economies in 2003-2007. Hence, massive market bubbles.

    This will be a problem on the way down too because Ireland and Spain are not going to be the central concern of Eurozone interest rate policies (other than the fact that the ECB is concerned only with inflation and not growth).

    Basically, both Spain and Ireland are hosed because the Eurozone is made for the three big countries, and the Benelux. They need to get their economic cycle in gear with those guys or this will always be a problem.

    It's like being a state the state of Nevada in the U.S. No control over interest rates.

    Ed H said...

    Here's a good article from The Times on Monday that highlights the issue I mentioned in the last comment:

    Mark Wadsworth said...

    Brilliant, serves them right. And all those rightwingers who don't understand tax will look a bit silly for yapping on about 'Tiger economy' and '12.5% corporation tax'.

    The Irish 'miracle', to the extent that it's not a complete lie (as are many things coming from that neck of the woods) was based on massive EU subsidies, negative real interest rates (after joining the Euro), a ridiculous house price boom and, basically, being a tax haven.

    Anonymous said...

    The Irish banks will have to have new share issues when the commercial bubble bursts . I hope they dont nationalise like UK Rock.
    40% drop res and 30 % commercial is the minimum drops forcasts by Davey Stockbrokers.
    Me thinks more.

    Ed H said...

    I'll try and pot a blog entry about this subject on my blog to referring back to this great blog entry. I'll post a comment if and when I do. I see Ireland and Spain as being in the same boat.

    It's only a matter of time before the writedowns come.

    Anonymous said...

    Ireland tried to do a Luxembourg on the business front. It's no surprise that most City banks and financial services firms have a large presence in both.

    My question is: why is Ireland a wreck whereas Luxembourg is in good shape when they both followed essentially the same tax, regulatory and economic policy (for luring in the banks)?

    I'd love to be able to just blame the Irish victim mentality, but I'll bet the reason is much more involved.


    Anonymous said...

    Nick: "My question is: why is Ireland a wreck whereas Luxembourg is in good shape when they both followed essentially the same tax,"

    Perhaps Luxembourg being smaller is getting much more European cash per capita. Also, Luxembourg has been at the tax haven game a lot longer than the Irish.

    Anyway, the Irish economy is not a wreck yet, is it?

    Mark Wadsworth: "And all those rightwingers who don't understand tax will look a bit silly for yapping on about 'Tiger economy' and '12.5% corporation tax'."

    It seems to me the Irish did the sensible thing, they got loads a money from foreigners and used it to reorganise their economy from essentially agrarian to something a little more modern and diversified. Good for them for taking the opportunity when it was presented.

    Second point where I take issue with you, the high business tax, high public spending regieme we have had in the British economy is equally, it seems to me in trouble in this country.

    Oh, and in actual fact given the choice of 'rightwingers' who don't understand tax, and the likes of Gordon Brown who use tax as an instrument of social engineering frankly, I would take the stupid rightwingers rather than the malevolent social engineers.

    If by 'rightwingers' you mean the likes of fatty Ken Clarke, he is hardly right wing.

    Mark Wadsworth said...

    As to Ireland vs Luxemourg, the net gains from being a tax haven are of course inversely proportional to population.

    Ireland = 4 million (half the population of Greater London)
    Luxembourg = 400,000 (the population of a large-ish local borough)
    Monaco = 4 dozen people and their dogs.

    Plus Luxemourg has long shared a currency with Belgium and currency was more or less linked to DM for decades. They are used to this and have been doing it longer.

    Ed H said...

    I have a new post on my blog about an impending commercial property problem in Ireland that I saw this morning in my RSS feed to Here is the link:

    Anonymous said...

    Don't forget the population of Luxembourg is really three times higher due to all the commuters from Germany and Belgium


    online lottery said...

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    Anonymous said...

    In response to Mark Wadsworth. The Celtic Tiger can essentially be split into two phases. The first, the genuine boom, took place from the early 90's up until 9/11. After Ireland had European low-interest rates, the Irish started on a the path of the debt boom that engulfed much of the Western World.

    "The Irish 'miracle' ... was based on massive EU subsidies"

    Most of the European money was ploughed into agriculture rather than the crippled infrastructure.

    "negative real interest rates (after joining the Euro)"

    Interest rates were normal in the boom years from the early 90's up until 9/11.

    "a ridiculous house price boom."

    House prices only started getting truly detached from fundamentals after the period of low interest rates in the early noughties.

    "basically, being a tax haven."

    This is a primary factor, but there are other complimentary factors such as an educated workforce, business friendly enviroment, (comparative) lack of corruption, etc.

    Anonymous said...

    I wish the house bubble hits IE hard and strong your greedy folks. Oh, and I love you to see you unemployed so nicely. IE houses are complete cheap rubbish, how could you buy one for 400k you greedy folks. The Lord is coming with punishment over you on your satanic island.