Dismal science merchants only happy when we’re poor - (Sunday Independent)
BERTIE Ahern got it absolutely right, even if his phraseology was unfortunate, when he said, “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.”
He was speaking about those practitioners of the ‘dismal science’, the economists and their more alarmist fellow-travellers in the media who want to talk Ireland out of its boom because it does not suit a mythical semi-socialist future where we would all be equally poor together.
Like over-enthusiastic football supporters, these people seem ready to cheer when the ball goes into the goalmouth - even if it is an own goal.
Can it be a coincidence that most of those house-price-collapse cheerleaders are themselves cosseted in the public service, with their safe salaries, their benchmarking and their fat pensions funded from the very taxpayers they’re doing their best to stampede into a crisis?
The State-funded Economic & Social Research Institute (ESRI) set the stalled ball rolling again last week when it regurgitated a hysterical rant from an academic who had the audacity to accuse those in the property business of “wishful thinking” because they remained optimistic about the future of house prices.
Professor Morgan Kelly, from the bloated campus of University College, Dublin (UCD), first jumped on the property bandwagon on December 21, 2006, with his paper, Irish House Prices: Gliding into the Abyss?When not too many people paid much attention to his thesis, the state ‘think tank’ reissued his gloom-laden forecast under the new guise of academic research. It came with complicated formulae, big words and long, hard-to-read paragraphs - but the same dismal conclusions.
Before that, we had commentator George Lee with his best doom-laden voice predicting that the end is nigh.
Journalist Richard Curran from the Sunday Business Post did his best to spice up the gloomy scenario with his own punchy tabloid-meets-Hollywood televised treatment of meltdown in the million-euro suburbs.
And, of course, we’ve been waiting years for David McWilliams’s wish-fulfilment on the property crash to happen. Most of the Pope’s Children appear to have abandoned their marriages, snorted a few lines of cocaine and retired to the nearest wine bar to drown their sorrows as they wait for the property crash that will ruin them.
Even further back - and it’s now so long since I first heard UCD’s Professor Brendan Walsh predict a “soft landing” in the property market that the good professor has since retired and the economy and the property market have powered ahead in the intervening years.
When most of the middle-class PAYE workers go to bed at night and dream a little of their good fortune, the only tangible thing of value they have is their house.
They may live in a modern liberal democracy, have a good standard of living and children who don’t have to emigrate to find work, but that’s not the same as knowing that their little plot has gone from being worth â‚¬90,000 to being worth â‚¬900,000 in the last 15 years.
While readers might find Professor Morgan Kelly’s, On the Likely Extent of Falls in Irish House Prices, published last week by the ESRI, tedious, with sub-headings such as Fundamental Regressions and Macroeconomic Consequences, they should really go back to his Gliding Into the Abysspaper of just six months before which is, in its own way, a brilliant piece of tabloid scholarship, to find out exactly what he’s saying.
“We can expect the biggest falls in apartments as speculators try to sell before getting roasted alive, and in the dismal outlying towns with long commutes to Dublin,” wrote the professor. “For many with 100 per cent mortgages on apartments that have fallen in value by â‚¬150,000, it will make sense to leave the keys in the door and relocate to London for a while.”
Residents of those “dismal towns” may wonder why the ERSI is using public funds to insult them, but that’s another day’s work.
Professor Kelly, unlike some of the other gloomy economists, has no difficulty actually measuring the dramatic fall in house pricesfor the ERSI.
“If the experience of economies like ours are anything to go by, we may be looking forward to large and prolonged falls in real house prices of the order of 40-50 per cent, and a collapse of house building activity,” he says.
He goes on to say that the Irish housing boom “is a bubble, pure and simple” and the reason for his thesis is that rents have fallen while mortgages are rising. “Why pay a mortgage on an empty apartment that has stopped rising in value? As speculators rush for the exit, prices will crash,” he says, comparing Ireland with Finland and Holland.
“Second, if prices stop rising, it makes no sense to buy a house,” he says, debunking the myth that every Irish person has some pre-Famine memory of being landless.
“Compared with mortgages, rents are ridiculously low,” says the professor. “For â‚¬2,000 a month you can pay a mortgage on something in a muddy field on the wrong side of Celbridge, without nearby shops or schools and a two-hour commute to Dublin. For the same amount, you can rent a â‚¬1,000,000 house in southeast Dublin, close to the Dart line and surrounded by good schools. Once people put off buying in favour of renting, prices will not stabilise, they will crash.”
But then he goes on to say that, “Just as rising prices generate self-fulfilling expectations - you have to buy now before prices rise further, causing prices to rise - so falling prices generate their own momentum.”
Do Professor Kelly and his doom-laden cohorts ever stop to think that they themselves are perpetrating a “self-fulfilling expectation” that prices will fall?
Naturally enough, estate agents CBRE take the other side of the argument, labelling George Lee and Richard Curran as “doom merchants” and pointing out that while investor demand is “easing”, houses are still selling.
“A house price crash is not imminent - just because it happened elsewhere does not mean it will happen here,” says Marie Hunt of CBRE.
Of course, there is no legislating for people who have unrealistic expectations. A lot of houses out there are not selling because the sellers are expecting the same prices that people were prepared to pay in the property madness of two years ago. But that’s another story altogether.
So do we need an arm of the State to be talking down the property market in what is still the most vibrant economy in Europe? Make up your own mind, but most people who have invested their lives in a “ticky-tacky little box” are depending on the feel-good factor to keep a little joy in their hearts.