Housing Bust Revisited

Housing continues to be a deepening crisis in Ireland, with continued drops in prices even in the highly-prized Dublin market, possible further increases in interest rates, and increased rent hikes for those who are priced out of the market despite this. Meanwhile, take takes plummet as the stamp duty from property related sales implodes (ironically, the blame put on the entire stamp duty debacle - largely a concern of wealthy middle class property owners, has now pretty much been exonerated of the blame for a nose-diving property market).



Meanwhile the build-to-remain-empty market continues to mushroom, with as much as 20% of entire housing stock vacant or underused: there is no proper register of how many of these properties are holiday homes, in need of repair or simply awaiting a sale or new tenant. Thats not even counting speculative investments: with increased protection for tenants, and up to autumn 2006 price increases of 60 euros a day or more tax free, it was hardly worthwhile finding a tenant for a place that could be placed back on the market within 1 to 2 years. Empty carparks in a country almost totally dependent on the private motor car were a tell tale sign of this, not to mention stories of speculators not even bothering to collect the keys to their properties. The most extreme case of this I saw was a luxury development of homes on the Bailick Road in Midleton, which were completed around late 2005, and sold for an eye-watering 450k each - at the time nearly double the price of an average 3 bed semi in the area, yet almost 6 months later, only one lonely car occupied the car park, clearly indicating that the houses were either vacant or holiday homes. The inherent value of these homes was not based on location, usage, or even quality, but on the assumption that their value would continue to escalate in an ever mushrooming market: for homes already costing at the time nearly 15 times the average wage, a foolhardy assumption.



To some extent the housing meltdown has been temporarily replaced by a boom in pseudo-social housing: section 5, which is basically subsidised property for middle class would-be purchasers still wealthy enough to afford slightly cut prices homes on offer but not entirely priced out of the market since in most cases an income of 1.5 to 2 times the average wage if not several times it is still required to qualify for the mortgage. In Cork for example, even the cheapest homes on offer in the city area are around 170k, which would need an applicant to earn about 42k per year in order to qualify - a figure that is nearly 30% more than the so-called average industrial wage, and significantly above real wage levels for the kind of people who will be applying for these homes. As a result the vast majority of this kind of housing is currently going to lower grade professionals on high starting salaries who in just a few years time would have been well able to afford market prices and are in reality in no need of such subsidy.

Those who genuinely need such subsidy are priced even out of this market, and generally dumped back into the semi-regulated twilight zone of the private rented market, where even their landlords will receive more subsidies than they will in the form of tax savings.



Much of the cause of price hikes in this sector is due to the absence of a limitation on the number of occupants per square foot. As such it has been possible for landlords to continue to hike up rents well above what should be a realistic rate, which is resulting in severe overcrowding in apartment blocks, shares houses and houses divided into multiple units. The wear and tear increases on these homes, resulting in poorer quality for subsequent tenants as few landlords manage to maintain their properties in the same way as owner occupiers - and in many cases far beneath basic standards. The particular demands on 1 and 2 bedroomed units is particular severe as in most cases the rents now require at least 2 good incomes (in Dublin most such units cost around 1100 euros a month). The net result of this is that a large Victorian house divided up into 6 flats that previously housed around 6 residents is now housing as much as 12 people, which is straining not only the quality of that (more than likely totally unmaintained) property, but putting pressure on local resources such as water, power, telecoms, parking, public transport, waste facilities and other communal facilities. And there
is no penalty for landlords who continue to overcrowd such properties, nor any incentive to restrict the number of occupants per square foot.



It is probably for this reason that at least one such ESRI study explicitly suggested that the real problem in Ireland causing massive housing inflation was the private rented sector.



What is quite striking is the fall in house prices in the greater Dublin area, since even cursory glance at DAFT would suggest that demand in this area is still significantly ahead of rural Ireland (dividing the number of houses for sale in a particular area into the total population suggests a massive glut of houses for sale in rural regions). It is still surprising why prices have remained more static in rural regions while the most in demand region has suffered a significant fall. This to me suggests that the carnage has yet to come for the rural regions and that the impact could be significantly more dramatic than previously expected there.

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