The Sunday Times - Money Comment 12/07/09

Posted by Jill Kerby on July 12 2009 @ 21:12

Now that Professor Morgan Kelly of UCD’s earlier prediction that Irish house prices could fall by 75% - 80% before bottoming out appears to be on course, perhaps we should get the debate started on what should be done for the hundreds of thousands of homeowners with negative equity and increasingly, with negative incomes. 


The latest Daft.ie survey shows that property prices (albeit on a tiny number of transfers) has fallen in the first quarter of this year by 8.5%. If this pace keeps prices could drop by in 2009 on top of the approximately 25% fall  Daft say they’ve fallen since the start of 2008.  


With billions of euro already borrowed to bail out the insolvent property developers will there going to be any money left over to bail out defaulting, insolvent homeowners?


Early this year, when the prospect of mass defaulters didn’t seem very imminent, but some politicians were nevertheless bleating on about how young people who jumped into the red-hot property market were innocent victims of unscrupulous lenders, I wrote that the moral hazard risk of a taxpayer bail-out should be enough to dismiss the very idea. 


Why would anyone, (I wrote), struggling with a huge mortgage in a falling market, keep making their repayments if they knew the government was willing to step in to bail out the next door neighbour whose financial position was perhaps only slightly worse than their own?


Well, that was long before Nama.  A ‘great recession’ has turned into a full-bodied depression, and anyone who still thinks they see ‘green shoots’ in America or Europe is clearly unaware that California, the 8th largest economy in the world, is now paying its bills with paper IOUs (something the USA is also doing, only with paper known as ‘dollars’.) 

Wages and other asset values are in a downward spiral everywhere in the west –and as jobs keep disappearing, so does the ability of people to not just pay off their existing debts but to take on more debt, the warped cornerstone of modern economic “growth”.  


In the Irish context, there isn’t a hope in hell that first-time mortgage holders, with no equity and diminishing earning capacity, are ever going to be able to realistically repay their four or five hundred thousand euro property debts.


Like the multi-billion euro debt yoke the country has inherited from the developers, the one that’s weighing down young workers is also going to have to be partly shifted if this economy is to ever recover. 


The government has committed generations of taxpayers to the great property bailout and it now looks inevitable that the number of defaulting homeowners is going to get bigger as unemployment benefits run out; we need to consider whether Nama should be expanded to include the insolvent private residential sector. 


And as for moral hazard, well, we’re so far down that road already, it hardly bears worrying about anymore. 



Dublin has some way to go before we reach our proper, ‘mean’ position on the table of the world’s most expensive cities.  We’ve dropped from number 16 last year to number 25 today, according to the annual Mercer Consultants survey, but we’re still only a few places behind Dubai, at number 20 and just above Abu Dhabi at number 26. 


And just like those two, property-fuelled bubbles in the middle east, where tens of thousands of “investors”  completely lost their reason in their mad scramble to buy overpriced bricks and mortar, we will also no doubt end up at the middling to lower end of this notorious price register in a couple more years.


It can’t happen soon enough.  There never was any credible reason, except that we’d been caught up in a cheap credit-fuelled bubble, why Dublin should have ever cost as much to live in as Tokyo, New York or London where millions of people compete for scarce living resources in cramped geographic areas.  

Cities go up and down this index like yo-yos,  mainly due to exchange rate volatility against the US dollar, but by any criteria Dublin is not in the same league as New York or Moscow or Beijing and if gauged by the quality of life (and housing, transportation and even entertainment) Dublin doesn’t rank all that well besides the likes of Sydney (at number 66); Toronto (at 85), Montreal (103rd) or even Buenos Aries (112th). 


It’s just as well we’ve falling off this particular perch. Over recent years, a depleting number of Canadian friends and family could never understand how Dublin merchants could justify charging them London or Paris prices.  A nice low future ranking is a sure fire way of bringing them back. 




When a charity is spending a million euro a week, you don’t look even a bank gift horse in the mouth. I am told the €18,000 in sponsorship and donations raised by the first annual NIB Irish/Danish soccer tournament last month was much appreciated by the Society of St Vincent de Paul.


The V de P is the country’s largest domestic charity and like many others, is struggling to meet the increasing requests for help as unemployment skyrockets and wages fall in households that still have big mortgages and other bills to pay. 


Since none of us know when we might need help, if you haven’t done so already and still have an income, now’s the time to discover your charitable gene. 


Meanwhile, a nice gesture by all the banks would be to exempt charity direct debits from any bank charges, especially since they’re currently raising their credit card interest rates and penalties.

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