We need your help now
Support from readers like you keeps The Journal open.
You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.
If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.
Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
By continuing, you are indicating that you accept our Terms of Service and Privacy Policy.
THERE IS AN impressive amount of blame being apportioned to the ‘help-to-buy’ scheme, and it comes from many respected commentators who frankly ought to know better, because if you are going to claim something is shifting something as big as the property market you had best do your homework first.
To begin with, the scheme is designed to shift supply. Just go and google ‘how to shift a supply curve’ and you’ll see that one of the first things mentioned is tax incentives – you give tax incentives and supply increases.
This is precisely what the scheme is about. That doesn’t mean it was the best choice, or the right choice, but we should be clear about what it is meant to ‘do’ in descriptive terms. The same economists who publicly say it’s a demand curve shifter, will likely teach the students in their econ 101 class the exact (and more accurate) opposite.
Now on to the numbers. There have been 2,400 applications for the scheme approved which, although it started at the end of 2016, was back-dated to July of last year. Of this, 800 (33%) were retrospective. This means that the recipients were claiming money for a decision made in the past.
A post-hoc fallacy
One third of something is a sizeable amount, so it would take Dr Who-style calculations to determine that a tax rebate for a decision already completed in the past was a primary influencer of an entire market price after the fact. This is the very definition of a post-hoc fallacy.
When it comes to cases claimed, the money being paid out has been two to one for retrospective cases (673 existing or ‘past’ cases vs 333 new ones). Most importantly, when we talk about ‘price rises’ we do so based on ‘completed property transactions’.
So again, the timelines don’t make sense, price rises are based on ‘done deals’ yet we are saying those same prices rose due to prospective deals? Have 333 property transactions already swayed an entire market? Last year did the 673 cases impact the other 46,300 transactions which weren’t done under the scheme? The saying that you shouldn’t confuse correlation with causation has never been more appropriate.
We seem to be desperately searching for answers to why our housing market is banjaxed, and sadly there are no simple answers except that we fail to tax property correctly, we have an economy which is a giant bet on the housing market and we came out of a crash so ill-equipped for a recovery that only novice-level management and ignorance of property cycles can explain it.
There are of course a lot of new cases ‘pending’ – another 2,400 are now on the cards – but most of them are opportunists availing of a tax rebate. It isn’t as if everybody suddenly piled into the the market due to this.
First-time buyers were already flocking to new homes for a few reasons; one was that the price (depending on location) is often competitive, and you normally don’t get into a bidding war on a new home the way so many do on second-hand homes where richer older people simply blast them out of the water with higher bids.
Expensive rents are pushing people to buy
First-time buyers need homes if renting is too expensive. The decision to buy is rational. Our problem isn’t help-to-buy, it’s that we have the equivalent of a food shortage and are trying to do like Jesus on the mountain and split loaves we don’t have to feed everybody; these are incompatible objectives.
The rump of claims to date are also for homes below €300,000 in value and below 90% loan-to-value. Again, this is typical of the first-time buyers who can avail of it. They are the same people who would have saved up enough to enter the market this year anyway, even after badly thought-out Central Bank rules just put off last year’s problem and made it into this year’s one.
Lastly, the geography matters. Of the claims paid out so far (again, it’s only 1,000 so far) every county is represented. There is no housing shortage in Donegal or Kerry that we know of, none in Longford, Roscommon, or Westmeath either, yet all of them have had applications paid out.
City rats and country mice agree
That is because cities (due to a base effect) may be what is driving demand and prices, but thus far it is rural Ireland that has been as much a beneficiary of the scheme as anywhere else. Coveney was wily in devising a scheme promoted as being for city rats that managed to serve country mice just as well.
The secular trend, at least up to 2020, will be one of rising prices in both ownership and rents. Trying to stop it is like trying to stop the tide – it may be an admirable endeavour, but it will result in only marginal effectiveness.
For that reason we need to continue to hit the housing market with all we have or it will eventually destroy our nation as it has in the past.
What you can’t do is have commentary showing that rents are sky-rocketing, that there is a scarcity of houses, a shortage of supply, a situation where owning is cheaper than renting, a flat yield curve, relatively low mortgage rates and rising homelessness (out of that same expensive rented sector) – and then a simultaneous incredulity at rising house prices.
Scratch that – you can. But only if you happen to be the Queen of Hearts who told Alice in Through the Looking Glass that she was able to think of six impossible things before breakfast each day.
For me that can all be achieved in one line ‘I’d like an affordable house, in the city, a decent size, a good finish, energy efficient, a large back yard, no bidding war, close to amenities, south facing or a good view, and a great mortgage rate’.
Good luck with that, the sins of our collective fathers took that away from the younger generation who are too naïve to realise it.
Karl Deeter is a financial adviser at Irish Mortgage Brokers and Advisors.ie
To embed this post, copy the code below on your site
“Karl Deeter is a financial adviser at Irish Mortgage Brokers”
So the author has a vested interest in higher house prices and by extension is unlikely to oppose any calls to remove schemes that inflate property prices across the board…
@Richard:
If you knew Karl you would know that is not how he thinks. Yes the industry is full of dodgy people who just want higher prices but in fairness to Karl he is a good guy and tries to do the right thing for people. He is very outspoken about the need to keep prices under control and provide housing for the homeless.
@Richard: Exactly.
@Nick Allen: I don’t care what Karl actually thinks. What he has done here is publish a blatant falsehood that seems to present a “conflict” when you consider his profession.
Richard not everything is a conspiracy if you don’t agree with his points then counter argue but attacking his character is just pandering to your own bias.
@Richard: It’s a fundamental misunderstanding of what a mortgage broker does that leads to that conclusion. We prefer if prices are affordable so that the maximum number of people who would like to buy (if that is what they want) have the ability to do.
Higher prices alone tend to serve developers, funds, REITs, existing large asset owners and others far better. For instance, if prices go up as they did last year, but transactions are down – as they were last year – and we don’t capture more of the market then our income goes down.
It is in line with my vested interest (and also my own belief irrespective of this) that lower priced housing, affordable homes and a more rational approach to housing generally, along with taxation on land, would all be far more preferable than out of control prices.
That may not be as witty as a 2 liner back-handed remark, but please read the article, I think you just read the first paragraph.
@Richard: can you present us with data to confirm this ‘falsehood’ you claim the author has presented? Or are you just full of bluster?
@Jayo Breathneach: the data I used was just published on the Revenue.ie site so you can see it there for yourself. It’s not ‘massaged numbers’ because the dataset is so small you can only read it a certain number of ways none of which will change the sums presented.
If you saw prices go up by the ‘same amount’ then I’d question that because there is no ‘set amount’ on help to buy other than a cap on it of €20,000. If a developer did that it may be opportunism but think about the maths of it?
For a starter, say the property is €200k and they put it up to €20,000 as you say you have seen, help to buy is now a maximum of €11,000 and the buyer has to find another €9,000. You kill of your prospective buyers by doing that – not just some, but most of them.
If this is widespread (and apart from a few anecdotes it doesn’t seem to be), then it can only happen due to scarcity and low supply, otherwise buyers would go elsewhere or buy on the 2nd hand market instead. I’m not sure your logic is consistent with how the market works.
@Dilly Dong: I don’t know that prices are ‘good’, what I do believe is that there are few causes for downward price pressure present or likely. That doesn’t mean the market can’t topple. If you can pay down debt as quickly as you say then you will probably be just fine no matter what you do.
Regulations that impact process and materials etc. do embed certain costs in the process and a relaxation of some would be a good idea (obviously not to the extent that places would be dangerous). Costs in Ireland are very high, as are land costs – again, a result of badly taxing land (ie: not at all and then a site tax that is so Milquetoast and only applies to a subsection of land).
So much of our property market is in disarray it’s hard to know where to start.
@Richard: Have to lol “That doesn’t mean it was the best choice, or the right choice, but we should be clear about what it is meant to ‘do’ in descriptive terms” I don’t agree with high prices at all.
If an oncologist was on saying that smoking was causing cancer, not the lighters people were using (in this example smoking is ‘low supply and bad forward planning’ while the lighters are the smaller ‘help to buy’) would you be straight out to say ‘no! vested interest!’.
The reason it matters to me is precisely because I’m vested, my future and the future of the clients we represent matter a lot to me. There is no conflict in wanting a rational and functioning property market – unless you are a FF troll sent here to silence dissent?
@Richard:
It is not a conflict when you consider profession. Its is your limited view that considers it a conflict. That’s like saying a doctor wants people to get sick so that they can make money from making them better.
Some people hold themselves in higher standards that you are obviously used to.
@karldeeter: your article is agenda driven, polemical and constructs a straw man argument for rebuttal, the fanciful, concocted and mischievous notion that the help to buy scheme is being blamed as the sole cause for escalating residential property prices. No one has advocated that position.
Flogging mortgages comes to mind.
@Tony Daly: I knew you’d resort to ad hominum if prodded a bit! Well done, you didn’t fail to disappoint.
@karldeeter: and you started that process of the personalised approach.
It is ad hominem and rightly so when a financial advisor gives agenda driven analysis and advice using his professional status so to give his analysis credibility and status.
@Tony Daly: Tony I think I better apologize, I was having some fun with you by making a smart response to what was a fairly condescending initial comment – I said as much in it ‘light hearted p1$$ taking etc.’
Then you come back with a ‘you started it’ after a little poke, go on to reply to virtually every comment on here, congratulate people commenting contrary to the article, praising their intellect while doing all you can to continue to put it down. I’m flattered that you care so much, but worried that I got under your skin in a way I didn’t intend to. Don’t take it personally, it’s just the internet, chances are nobody cares. xo
“Karl Deeter of Irish Mortgage Brokers” I bet you were licking your lips at the prospect of the revenue you’d be raking in from the help to buy scheme.
To claim that the help to buy scheme didn’t have a negative impact is a nonsense. All the current affairs shows last year were highlighting a clear jump in house prices within a week of its introduction
Darren, is it a unilaterally negative consequence of prices rising? Im interested in what price should a house be to attract developers to provide housing in your opinion?
@Darren Tully: And all I did was lay out the actual numbers from the actual data source (Revenue.ie) to demonstrate that this was conjecture, it’s called factual debating.
@karldeeter: i wouldn’t bother Karl; it’s the journal, facts come here to die. Opinion is the new fact.
@Alan Brogan: Just like Karl presented his “Opinion Piece” as a fact
@Darren Tully: with actual data fro. Revenue.ie.
@Alan Brogan: I made the argument that the introduction of the scheme has had a negative effect and pointed out that that there was wide reporting of supplier raising their prices in response to the knowledge that there was going to be a guaranteed increase in buyers getting funding. Which is exactly what those opposed to its introduction said would happen in the first place. The jump in price almost immediately after the schemes introduction wasn’t a response to supply vs demand it was cynical cash grab from real estate agents and developers who had spent the previous months giving out about the tighter deposit criteria for buyer’s seeking loans.
Karl just rocked up and said I looked at revenue.ie and have disproved disproved your point in my article with facts when he hasn’t even touched off it all.
@karldeeter: you should be forthright that you are advocating an opinionated position, one which is highly and unidimensionally favourable to the mortgage industry.
@karldeeter: The biggest danger in my opinion is buying houses at present prices, while maybe affordable at the present interest rates, while the ECB rate is zero, and is held up by printing Fiat money to buy Governments debts. The first signal that is about to change came last week and interest rates can only go one way and that is up. If interest rates rise by a modest 2% that would put significant pressure on borrowers,and could add to the 100,000 borrowers who are in serious arrears since the crash of 2008. Time will tel if we are creating another unsustainable house price market.
Karl Deeter April 6th 2017:
“We seem to be desperately searching for answers to why our housing market is banjaxed, and sadly there are no simple answers except that we fail to tax property correctly, we have an economy which is a giant bet on the housing market and we came out of a crash so ill-equipped for a recovery that only novice-level management and ignorance of property cycles can explain it.”
Karl Deeter July 31st 2007:
“You might think that being a first time buyer now would be a risky situation to be in, however in this article I think it will point out some aspects of a slowing property market that are actually to their advantage. We’ll look at some of the aspects for this.
1. Firstly there are 100% mortgages, some people say that if your property price goes down and you have a 100% mortgage you owe money that you don’t have the equity for eg: buy for 200k house goes to a value of 190k and you are down by €10,000. However is that really true? For a start look at the situation it would have been if you had had to save that €10,000? If you were earning at the 41% bracket that €10,000 would have meant you had to earn nearly 17,000 to come up with it, so 100% mortgages actually help a first time buyers cash flow, had you gone the other way and saved a deposit you’d be down €17,000 instead of €10,000! The idea is that you are using the banks money, money that doesn’t have to be paid off for a long time so yes you’d have to shoulder the interest but the risk is not really on the buyer ultimately its on the bank who lent the money.
2. You can only lose out if you sell. At the moment rents are rising, this is because as rates rise it becomes more affordable to rent than to buy for some people, this increased demand on rental properties – and the correlating increase of houses for sale (up for sale because the owners cannot or don’t want to pay for the increased monthly mortgage) – makes rental prices go up. Its demand pull inflation. The point here is that a mortgage is generally taken for 25 years and more, so a true loss would only be if your house isn’t worth the same price plus annual inflation in 25 years. The way to lose out is selling during the dip and funny enough that’s exactly what a lot of people are doing which is why it’s a great time to buy (I’ll cover more on that in a later point). During the ‘negative equity’ crisis in the U.K. the market had recovered and massive gains made within ten years, so for the people who weather it out there is a strong likelihood that they will come out as winners. Applications for RSI numbers and immigration are still rising so there are people coming here because of the strong economy, this will keep at least some demand for housing and the fact that one in five first time buyers were not born in the country it means that a lot of these people are not going to up roots so a sudden mass vacancy associated with a turn in the economy is not likely.
In a nutshell you have two choices, buy property or don’t. However if you don’t you’ll never have equity, either positive or negative and on a financial planning basis that is a concern, what will you do when you retire? Live in a rented home? Will you always have a landlord? This raises its own questions……………..
My belief is that there are two great times to buy property, the first one was about 20 years ago. The other is today.”
@Mossy Muldoon: the arguments put forward there are fairly clear, buy or don’t, if you don’t there is no equity, had you bought at that time you would have gotten a tracker mortgage, gone through zero savings and perhaps have negative equity (although ESRI indicates this is largely gone), in return you’d would have had utility value and be capturing current uplifts in prices as well as having dirt cheap financing that is cheaper -even with a bigger mortgage- than buying today with the current rates. The banks captured most of the price drop with higher margins.
I’ll find the Harvard study on housing that shows that even if you buy in the boom the wealth effect is positive, that’s a vital point that is rarely mentioned, even the Pikkety data shows housing is where wealth lies ultimately. As a person who believes that the wealthier people are the more choices they have it doesn’t bother me at all to see that my thinking is consistent even a decade ago – unlike some who jump up and down when you pull up their past remarks.
Obviously, I can be wrong which is different, that can’t be controlled for, nobody is always right, but the logic is consistent.
@karldeeter:
What is entirely clear and consistent is that you will always argue to hype the property market regardless of the consequences for ordinary people trying to put a roof over their heads. Contemptible.
@Mossy Muldoon: I genuinely think you might not have read either article. I’m very much in favour of ordinary people getting a roof over their head, it’s what we do in my firm all day every day. What I have said clearly is that prices are going up and that one small policy is not the main issue, also, given the article you posted from 07′ talking about holding an asset for 25 years, do the sums, is the person going to be perpetually worse off? Hyping the market is not in my interest, promoting home-ownership, given that it has such positive wealth effects very much is and I can’t really get upset about promoting something that evidence the world over demonstrates does more good than harm.
@karldeeter: and if you buy at or near the top of the market, you will borrow at or near peak borrowing cost and the leveraging effect if borrowing on an asset which may decline in value against top of the market price will have the following detrimental effects:-
1. Potential unaffordability if real net income declines or extra costs of ownership impact such as increasing LPT, increased interest rates, and increase in TCO.
2. Negative equity may quickly stroke at the very time that selling might provide a sensible escape or exit. Property which is negative equity is illiquid and may prove to be a financially fatal millstone.
3. The total cost of borrowing will be much higher if you borrow at the peak of the market.
4. A mortgage can be a literal financial death pledge when a recession or depression impacts at the next down cycle in the market. A mortgage can be for a very long term and conditions can dramatically vary during that long term, often for the worse.
5. The financial costs of a distressed or delinquent mortgage can be massive for the mortgagor when penalties, increased interest, legal costs and fire sale of the mortgage security are taken into account.
It is important when giving mortgage advice and financial advice to present a balanced position, setting out the potential negatives as well as the potential advantages.
Over my life, I have seen 4 different types of non annuity mortgages, such as endowment mortgages, having calamitously adverse effects.
Mortgages come with potential massive financial risks which are not cured or balanced against by short term tax incentives.
@Tony Daly: 1. if you lose your income you may be bunched anyway and many people in arrears currently have equity, the equity debate in affordability is not one where if you have equity you sell up happily and saunter off. CBI data supports that. Plenty of people can’t afford homes and lived in them while making no payments for five years and more and still aren’t repossessed, in that respect they got a safety net given via our political system which panders to property owners that a renter never would have gotten, which is why homelessness is coming from the rented sector more than the owner sector.
2. Properti is illiquid at all times full stop, look up the definition of the asset, that poitn is moot.
3. The total cost of borrowing may be higher, but if margins rise as prices fall then that is subdued, equally, more expensive than what? Do the sums, if you rented all that time and then only bought in say, 2016 then the savings, costs and other considerations as well as the time indebted all have to be considered, you are talking about something with many facets in a very linear fashion which leaves too much out.
4. We now have robust insolvency laws and good bankruptcy laws, that was missing last time around, but the wealth effect of property is positive no matter when you buy according to research carried out by Harvard university – even when you buy during the boom. I don’t know if behaviorists ever get into things with numbers like that.
5. That’s all obvious and known, but also highly regulated as it should be.
We give balanced advice setting out future scenarios and conditions as best we can, that’s how we stayed in business all of these years. Mortgages can have calamitous effects, but to deny they can’t also facilitate deep savings effect and upward wealth belies the facts and the facts matter.
Lastly, I said in the article “That doesn’t mean it was the best choice, or the right choice, but we should be clear about what it is meant to ‘do’ in descriptive terms”, and that is to increase supply of new homes.
@karldeeter:
What your firm does is to feed people into the gaping maw of the banks who will exploit them for maximum profit through the debt mechanism. The greater the debt, the greater your return.
While most people are completely unware that the nation states authorize their commercial banks to create money from nothing and charge interest on it.
All commercial banks create new money from nothing each and every time they issue a loan. Around 97% of the money in circulation in the world today is created electronically by the commercial banks when they issue loans. In issuing credit, banks simultaneously create a brand new deposit in the borrower’s bank account.
Quite simply, the loan itself creates new money. The banks bring this new money into existence by pressing a computer keyboard, nothing more. Money doesn’t grow on trees but if you hold a banking license it grows on your IBM. The money is extinguished/retired as the borrower pays back the loan and the outstanding principal amount falls. The bank of course gets to charge interest on the loan which it created with a casual wag of a finger. This interest which the borrower must also find is not extinguished but is held by the bank as retained profits.
The bank is only authorized by the state to create new money in order to meet a loan request and cannot simply add the money to their balance sheet in a single entry as profit. When a bank issues a new mortgage for €200k for example, the mortgage loan is entered on the Asset side of the bank balance sheet while the newly created deposit of €200k appears on the Liability side of the balance sheet. This is how the new money is recorded in the double entry accountancy system. €200k of new money has now been brought into existence which didn’t exists before the bank created it. The bank deposit is then sent out into circulation in the economy when the builder or seller is paid for the house for example. The money is gradually taken back out of circulation as the borrower repays the loan.
For most people, the biggest purchase of their lives will be the family home and so the mortgage will be the largest debt they ever undertake. A bank can create a €200,000 mortgage in a couple of seconds with a few keystrokes. Over a term of 25 years at an interest rate of 4% to 5%, you will pay somewhere between €110k and €150k in interest payments to the bank on top of the principal repayment. This means that a person on an average annual wage of €25k net will work for 4 to 6 years and hand every single cent that they earn in that time to the bank to repay interest on the money which the bank created from nothing in a matter of seconds.
This is the enormous power that has been granted to the private banks which they have used to massively exploit the rest of us through the debt mechanism. The banking function needs to be taken from the failed, endemically corrupt and grossly profiteering parasite banks and returned to the rightful democratic control of the people.
http://positivemoney.org/how-money-works/how-banks-create-money/
@karldeeter:
The reality of commercial bank lending creating new money (bank deposits) from nothing is confirmed by the Bank of England here:
“Every new loan that a bank makes creates new money. While this is often hard to believe at first, it’s common knowledge to the people that manage the banking system. In March 2014, the Bank of England release a report called “Money Creation in the Modern Economy”, where they stated that:
“Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.”
http://positivemoney.org/how-money-works/how-banks-create-money/
@Mossy Muldoon: excellent and persuasive analysis.
It is good when a competent person explains that the Emperor is naked.
My worry is that people might buy into Karl Deeter’s agenda.
Karl : Cool story Bro
The blame needs to be put where it belongs.
Left wing working class councillors on Dublin city council elected by left wing working class and welfare class residents blocking the required densificaiton and regeneration of Dublin, and not zoning adequately. These residents fear both gentrification (they don’t want middle class people around) and they also fear tall buildings because they genuinely don’t want to live in tall social housing (though most of the proposals are for private housing)
The solution is to abolish DCC and just run planning as a technocratic endevour, maybe answerable to a cabinet member.
@Fred Jensen: My personal favourite was the recent rejection of almost 500 homes in Sandyford because of how it might impact the area despite it actually being in line with the development plan there! It’s laughable.
@Fred Jensen: And Then you end up with a huge mess as you ignore expert advice on design and have a politician doing what the public want now with no regard for the future. What people like to ignore is the public put pressure on the banks and politicians to offer ever larger mortgages. The reason building bylaw approval was replaced with the private engineers signing off was a political move ignoring the risk. That lead to the likes Priory Hall.
The problem with simple ideas is they don’t deal with reality
@Kal Ipers: And the people put pressure on the banks for the loans because they property developers and real estate agents manipulate the supply to push the prices of a dwelling (a human necessity) far beyond the means of someone on a working wage.
You’re a mortgage broker. Definitely no vested interest there…..
@Aaron Gibson: So you disagree with anything in the article on a factual basis?
Karl Deeter’s approach is selective and distorted. He is not an economist or a market behavioural expert.
1. The “Help to Buy” scheme is one of 5 key influencers in the decision to buy an newly constructed home and in determining the price level. The more that you can afford to pay, the more that you WILL pay in an escalating price market of severely constricted supply.
2. Behavioural economists are not merely quantitative in approach. They look at “signals” , “boosters”, “incentives”, “rewards” and stimulants which create or stimulate an exuberant effect far beyond their quantifiable value. This is the irrational exuberant effect stimulated by official endorsement. The message is to get in, buy as high as you can, and avail of the reward. Discounts, money back, rewards always have a disproportionate effect on human behavioural decisions. That is their purpose.
3. The tax credit was announced well in advance and known to solicitors 3 months before it was triggered with expected retrospective effect. The expectation had effect.
4. Prices of homes in Dublin are not “competitive” or value for money when you use the most sensible ration which is the price of homes expressed as a multiple of gross income and as a loan repayment to net income ratio.
5. No one is suggesting that the “Help to Buy” scheme is the sole or only influencing determinant. It is an unnecessary and unhelpful voluntarily introduced factor on top of 4 other uncontrollable factors. It has not caused the fire but it is a significant and damaging accelerant.
6. It is impossible to precisely quantify the price impact of the “Help to Buy” scheme on the prices of newly constructed homes but based on the modelling of effects of such incentives on human behaviour, it is highly probable that the impact is far greater than the net and real value of the incentive.
I would not be inclined to accept the position or thesis advocated for by Karl Deeter for a number of reasons. His opinion is far from authoritative and should come with a critical health warning. This is not an information article. It is advocacy and it advocates in only one direction. It is not an objective and balanced assessment. It should be taken with liberal dose of salt and health scepticism.
@Tony Daly: Correct, I’m not an economist, I prefer to stay in the actual maths oriented fields of financial maths & accountancy. I am not a market behavior expert because I have a life and don’t wish to be a neckbeard. Now on to your other weakly made points:
1. Consider your opening qualifier ‘in an escalating price market of severely restricted supply’. That alone demolishes your own argument from that point on. Supply constriction is the issue, not help to buy which is a supply curve shifter.
2. How is ‘the message’ (you seem to imply it is only a policy oriented one) to ‘get in’ when the greater signalling is likely rising rents, reduced rental supply and an upside down market where ownership is cheaper?
3. The policy may have been mentioned, but nobody knew what it would involve, certainly not that it would be for rural one-off homes for instance. Again, look at the numbers.
4. I am not celebrating high prices, in fact I think it’s a disgrace that a lack of proper management has allowed such a situation to develop so we can broadly agree on this, but ‘value for money’ doesn’t dictate need any more than water not being good value for money in the Sahara means people won’t need it.
5. To say a cup of fuel was what burned down a house that is already on fire is a weak argument and not one that would pass the rigor of any self respecting intellectual which you don’t seem to be. From this I can deduce that you might actually be a behavioural economist, or are at least as annoying as most of them.
6. While quantifying something like this is always tricky, the mathematics of percentages and marginal effects can be guessed at and the numbers (official revenue numbers) presented back up the thesis (so far) that it isn’t some massive market shifter. Equally, the CBI rules took people out of the market who saved their way back into it either way so there was always going to be a bigger crowd of buyers after artificially cutting them back.
Regarding the authority of my opinion, I hope you continue to disrespect me so that we don’t risk meeting in real life as I am not seeking a cure to insomnia which is what a chat with you would amount to.
There’s some vinegar to go with your salt :-)
*and also done in the spirit of some ligh-hearted p1$$ taking*
@karldeeter: gosh! I would certainly not take mortgage advice from you. I think that you are contributing to excessively one sided financial risk taking in your advice. You are behaving as if you had skin in the game instead of a detached and impartial analysis.
I think that caveat emptor might be a wiser approach.
Jesus.. Since when is the author of an article supposed to get involved in a p!ssing contest in the comments section.
All I know is that the poverty line is going up. Working people are at risk of homeless now because of lack of supply. Lose your rental in Dublin and forget about finding a new place
I enjoy listening to your input on national
media around the housing market over the years. I haven’t always agreed but as a past student of Moore McDowell’s, it’s nice to hear about the “utils” and “widgets” on the wireless.
Would you agree that rising house prices is a secretly popular aim of the Irish psyche in 2017? Only a very small minority do not have a vested interest in house prices rising. It suits those in debt and those with property as the bulk of their pension portfolio. This lip service to the poor first time buyer and government ministers (none of whom rent) going through seventeen point plans is just hot air.
The electorate at large will never let the government fix this.
The collective fathers are still sinning against the younger generation in my eyes. Every day.
The solution to housing is to let it trade at market price, dictated by supply and demand. If the gov came along and seized enough cars in the country to squeeze supply and drive up demand, then sold the cars to vulture funds who started charging say 50 percent more, there would be public outcry, it would be deemed criminal behaviour. Yet the can do it with housing and property because they need the money and stop the banks from going bust, resulting in making thousands homeless, it’s supposedly ok to do. It’s pure madness. It’s criminal behaviour and it’s totally unacceptable. These bankers and politicians need to be thrown in jail, instead they give themselves pay rises!
Oh no, not another so called “expert” telling us that the help to buy scheme has made no difference to house prices. Go away Karl, you’re just another institution mouthpiece waffling that I have no desire to listen to.
@Ian Oh: yet you took the time to comment? Admit it, you read the whole thing and are all excited and lathered up in sudocream as we speak. g’wan. :-P
@karldeeter: Ireland’s leading objective and detached financial commentator.
Trust Karl. He will always see you right.
Karl, clearly a complicated area with many factors at play. While it’s almost certainly true the help to buy scheme isn’t the only thing driving up prices, economic theory would indeed suggest (despite your claims to the contrary) that it, along with the CB measures, are contributory factors. I think you’ve misunderstood the economics.
You are indeed correct that “google ‘how to shift a supply curve’ and you’ll see that one of the first things mentioned is tax incentives” – but the next part “you give tax incentives and supply increases” does not necessarily follow. Supply-side tax breaks shift the supply curve but the help to buy (HTB) scheme (and indeed the CB measures) can be viewed as demand-side tax breaks. With the HTB scheme the price of the house doesn’t change but your net wealth/income is higher (as a result of the income tax rebate), than it otherwise would have been were you to purchase the same house prior the policy. The textbook theory (ignoring issues of bounded rationality) would then suggest the effect can be viewed as the same as a rise in income of the amount of the rebate, i.e. the demand curve shifts to the right. This raises prices as supply is constrained in the short run, supply can only respond in the longer term (You can’t pop up a house in the morning). Now that’s the basic microeconomics but macroeconomics can also offer insight. Arguably the most important rule of macro can be condensed to what is good for the individual is not always good for the collective. A tax break for the individual first time buyer is great for him/her but only if there is no competition from other first time attempting to avail of the same tax break, as this cancels out the individual advantage and forces everyone to compete with each other at higher prices if the market is tight (for example if supply was constrained- as is the case naturally with new builds). It also wouldn’t seem be a good idea to signal months in advance of any firm policy so they could price this in but that’s common sense not necessarily economics!
The following is Colm McCarthy on the Irish economy sarcastically thinking through Minister Noonan’s logic (Noonan’s comments are in quotation marks). I think this explains it eloquently.
http://www.irisheconomy.ie/index.php/2016/10/19/supply-curves-explained/
Numberless ‘experts’ have misunderstood the government’s mortgage deposit subsidy. It’s all about the supply elasticity, as Michael Noonan helpfully explained to the Irish Examiner on Tuesday.
“The economists are saying we should have concentrated on the supply side. When there’s a demand for something, it leads to increased supply. If we can give deposits to people there will be an increased supply. The [building] industry will move to supply the extra demand. To give you an example: When it was done previously, the first [car] scrappage scheme was introduced by Ruairi Quinn back in the 1990s. The theory then was the motor-car business was on the flat of its back — no cars being sold. So, with the scrappage scheme, people were given money and that money expressed itself in demand for new cars and a lot of new cars were sold. So, when there is demand backed by cash, supply responds and that’s the theory of it.”
So you whistle up some guy in Germany and he ships over 100,000 houses, at yesterday’s price.
Why didn’t I think of this ? Does Philip Lane read the Examiner?
The fact is it has little to no affect on 2nd hand houses and there are so few new houses being built shows it. Lots more older houses are being sold and they are going up in price with no grant shows they aren’t related
As a former pupil of Karl Lane (he never taught 101, he taught 401 I think…), he’s describing the short to medium term effect of facilitating and supporting the entry of additional buyers leading to upward price effects. It might be the most simple and boring observation possible from a rather brilliant economist.
I’d be willing to entertain some of Mr Deeter’s proposals a little more if he hadn’t so patronisingly referred to Prof. Lane’s assertion as “ought to know better”.
The arrogance on display in this article and illogical dismissal of plain fact is beyond biased and as the comment section seems to be displaying, Mr Deeter’s claims are not being entertained and seem to be flooding ill will towards the body he’s representing. I’m comfortable with that.
@Ciaran Ó Fallúin: Professor Lane’s name is Phillip not Karl (that’s me) and I wasn’t having a go at him exactly, although I can see now that it may appear like he was the one in the cross-hairs.
I was having a go at the Central Bank introduction of the mortgage lending rules – and was against how they were done from the start, as well as being pleased that for first time buyers they were lifted – that was the main element we had asked for in our submission on the matter.
Like I said, if you look at ‘shifting a supply curve’ you’ll see tax incentives are one of the top things mentioned, you can’t have it both ways, where you say in public it creates higher demand (the demand was there anyway) but then tell your class the opposite in the lecture hall.
@karldeeter: Apologies, Philip Lane taught 401 with Karl Whelan. I was confusing them.
Prof Lanes comment related to short term upward price movements – in the long run, one can expect a supply lift because of the new incentives.
Your article specifically links to Mr Lanes comments then misrepresents their intention and merit.
There are fundamental, legitimate economic forces leading to increased house prices but to dismiss a legitimate force as your opening paragraph does, when clearly qualified as a statement is either an error and should be rectified or deliberate and something else entirely.
@Ciaran Ó Fallúin: Philip teaches in TCD Whelan is UCD no? Anyway, I see now why you figured it was aimed at him – there’s a link in the piece, I didn’t put that in the original, that was TheJournal team, and they rightly did to the extent that he did say those things, but you also seem to be accepting that my contention that it’s a supply shifter not a demand shifter is correct so whats the final side you are coming down on?
Also: the fundamental and legitimate forces are least likely help to buy, the numbers simply don’t support it, I gave the numbers, they are publicly available, do you still think that such a small marginal segment of the market shifted the entire national market including second hand homes? That’s a strong tail wagging the dog.
@karldeeter: Karl Whelan and Philip Lane were both in TCD together a few years ago and shared lecturing responsibilities for final years.
Current property prices, are a function of shortage of supply in the areas where it’s needed – Dublin and her hinterland. There’s nothing new there. The demand side is pent up – it’s an amalgamation of ten years of fear and apprehension manifest – 30 somethings who have only known renting are still renting and due to a combination of career and salary stunting combined with the CB restrictions from 2 years ago (which I think were appropriate requirements for deposits personally). This demand is panicky – it’s mostly not bought before and is a novice at buying – they’re making calls, expressing interest, exploring financing options – all of which is stirring up an already desperate market – and that’s where Prof Lane’s comments were spot on – as few as one thousand people chasing after the same properties is enough to have a real effect on house prices when they are looking at 5 of them frantically each. Not to mention the hordes others who haven’t got their paperwork together yet to formally apply but still have the time on a Saturday morning to attend viewings are further solidify the demand driven price bidding fear. So, no, I disagree with your assessment, I can see how the policy, without requiring a huge number of successful applicants yet can contribute to inflating prices faster – I don’t think we’re in bubble territory, but the prices have risen quicker than they would have.
You mention “badly thought-out Central Bank rules ” by the way – from last year…. Presumably you are referring to the removal of the 20% requirement over 220k – with respect, that was quite clearly explained at the time in the CB report – people borrowing over 220k were no more likely to default, meaning the requirement for additional deposits was punishing unnecessarily.
All of what I’ve described leads to increasing house prices, as have what you described. The problem is, you’ve denied that the new incentives have contributed which I believe to be false.
@Ciaran Ó Fallúin: I meant badly thought out in that they never should have imposed the limits on lending to first time buyers (who were the bulk of those getting over 80%) because they have no alternative, they have to live somewhere. I have no issue with investor loans facing the same limitations. Our submissions at the time reflect this and that it would lead to a rental crisis as well as rising prices (we said it back in 2014)
Yeah, i mean only an idiot would see any link between increasing demand and an increase in price, amiright!?
@Eyepopper: read the article, then google ‘supply curve shift’ and you’ll see that tax incentives increase supply. Prices don’t move demand or supply curves, they represent them, that’s the economics of it.
Regarding prices rising, they were doing that anyway and were set to do so in advance of the scheme.
@karldeeter: “Regarding prices rising, they were doing that anyway and were set to do so in advance of the scheme.” Could that be due to increasing demand, due to the ‘recovery’ and more people being in a position to buy in an under supplied market? By your logic then I’m guessing that inflation in the housing market has slowed down since the introduction of the HTB scheme, and that supply has increased? You don’t need a degree in economics to understand that increasing peoples ability to buy, in a market where under supply is the biggest issue, will increase prices.
Karl
Well done for coming on to defend yourself. Very few people would have had the balls to engage with people who regard opinion and hyperbole above the facts
@Nick Allen: Thanks Nick! I had a bit of free time so I figured that rather than comment and stroll off I’d poke the trolls to see what came out, thus far nothing worth worrying about. Thank you for staying dignified in the face of it, not easy, I stooped to slagging people off a bit!
@karldeeter: agenda driven polemic is not objective financial advice.
No wonder the financial services and advisory sectors are unreliable.
@Nick Allen: Spot on .
Karl,
A very interesting article which makes a lot of sense when you look at the numbers. Also some very intelligent, witty and dignified responses to some pretty low life comments that didn’t warrant any sort of acknowledgement. Well Done
@Tony Daly:
“Agenda driven polemic”. I hate those articles with facts and numbers. Facts & numbers alway have an agenda. They are always trying to viciously cut down the valid opinions of all of those people who just make stuff up. Numbers. The enemy of words.
“No wonder the financial services and advisory sectors are unreliable”. The nasty little sting of a dying wasp.
Referendum needed to avoid repeated housing crises … https://www.change.org/p/referendum-on-family-home-special-status-in-ireland
have your say