Has Another Irish Property Crash Already Started?
“Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide…” - so said Bertie Ahern at the Irish Congress of Trade Union conference in July 2007.
Ahern’s shocking comment was aimed at those who he accused of ‘talking down’ the economy; people like the economist Morgan Kelly who correctly predicted in late 2006 that a catastrophic collapse in property prices was already underway.
Kelly and a handful of other economists, academics and journalists endured regular ridicule from establishment politicians, economists, developers, bankers, estate agents and a wide range of other ‘experts’ who predicted a ‘soft landing’ for the commercial and residential property markets throughout 2005, 2006 and 2007.
The month before Ahern’s broadside, the Governer of the Central Bank, John Hurley had predicted that property prices would experience “low single-digit growth” in 2007 and for the wider economy “the medium-term outlook for growth remains favourable.”
Just over a year later property prices were in free-fall and the entire private banking sector was on the verge of complete collapse.
As late as January 2009, the then Minister For Finance, Brian Lenihan was claiming that both Allied Irish Bank and Bank of Ireland were “fundamentally sound and solvent institutions’’.
A key lesson that many people learned from the collapse of the Celtic Tiger was to take the words of ‘experts’ who had vested interests in the property sector with a very, very large pinch of salt.
The ‘analysis’ of estate agents, bankers, developers, landlords and every other form of property vulture is fundamentally undermined by the fact that they stand to gain from ever higher property prices and ever higher rents. They are about as likely to admit that a property market is collapsing as a turkey is to vote for Christmas.
Citizens would do well to ignore the spin of the ‘experts’ and instead be alert for the red flags of the next inevitable property crash. Over the last number of months a number of such flags have appeared, including:
August 2019 - Pat Gunne and Stephen Vernon dispose of €1.34bn worth of Irish commercial properties through the sale of Green Reit. Dunne and Vernon are widely regarded as being among the shrewdest of property investors who started buying up Irish properties from as early as 2013.
12th December, 2019 - The Central Statistics Office releases data showing the residential property prices in Dun Laoghaire Rathdown dropped by 7.1% in the year to October 2019. This area of south Dublin has served as a consistent bellwether of the residential market for many years. Property prices in this area bottomed out as early as 2012, before recovering strongly.
24th January 2020 - Friends First Irish Commercial Property Fund (managed by Aviva Life & Pensions) is switched from an ‘acquisition’ to a ‘disposal’ basis. A switch of this type occurs when the amount of cash leaving a fund is greater than the amount of money being invested in the fund. As a result of the switch the value of the fund drops by 9.1%.
January 30th, 2020 - Aviva Life & Pensions bans investors from withdrawing their money from the Aviva Irish Property Fund and the Friends First Irish Commercial Property Fund. The funds, which are based on Irish commercial properties, have a combined value of close to one billion euro. The emergency six month ban was introduced after significant ‘recent net outflows’ from the funds. The last time a similar ban was put in place was over a decade ago at the peak of the financial crisis.
January 31st, 2020 - Irish Times reports that the Irish Life managed Irish Property Fund has also switched from an acquisition to disposal following significant withdrawals from the fund. The move reduced the value of the €400m fund by 7%.
January 31st, 2020 - Zurich Insurance confirmed that it too had switched their Irish commercial property fund, reducing the value of their commercial property fund by 7.7%.
February 1st, 2020 - European Banking Authority predicts that residential prices in the Twenty-Six Counties will fall by 1% in 2021 and by 2% in 2022. It also predicted that commercial property in the Twenty-Six Counties will fall by 0.9% in each of the next three years. No other state in the EU is predicted to experience a drop in prices.
February 4th, 2020 - Daft.ie rent report show that rents across the Twenty-Six Counties have dropped by 0.1% annually to the last quarter of 2019. This was the first drop in rents in seven years. While rents in Dublin were still climbing, they did so at the slowest rate since 2008. And the number of homes that were available to rent had climbed by 10% annually.
February 5th, 2020 - Fitch Rating issue warning about the danger of ‘contagion’ among Irish commercial property funds.
Emergency controls preventing investors from withdrawing their own money haven’t been used since the height of the financial crisis more than a decade ago.
Unsurprisingly the usual ‘experts’ have been quick to dismiss these red flags as nothing more than a ‘minor correction’ or a necessary slowdown in the rate of increase. They may be proven to be correct. Or they may be proven to be catastrophically wrong.
In truth, there is only two things that are certain. The first is that property prices will drop dramatically at some point in either the near or more distant future. The second is that the property ‘experts’ have are no better at telling the future than Mystic Meg.
And this brings us to the very heart of the problem with a property sector that is controlled by profiteers and the vagaries of the ‘free market’.
Establishment economists and politicians would have us believe that the market is a rational place, where the ‘law’ of supply and demand will regulate each other to produce a steady supply of affordable commercial and residential property.
In reality the property market doesn’t operate on a rational, predictable basis. It’s actually a place of absolute chaos that is structurally locked into a never-ending cycle of boom and bust, as the last twenty years in Ireland have demonstrated.
Until we make a break with this system, we will be forever plagued with either a chronic under-supply or chronic over-supply of commercial properties and homes.
The alternative to this chaos is to centrally plan the building of commercial properties and homes based on proven need and the requirements of individuals, families, communities and the nation at large.
Within the housing sector the creation of a new system of Universal Public Housing (UP Housing) would deliver the right volume of housing and the right type of housing in the right location at the right time. You can find out more about UP Housing here. If you’re ready to join the fight UP Housing get in touch today.