Economist Peter Bacon on the property market

rte.ie/news/2008/0824/thiswe … 8,null,209

dynamic.rte.ie/av/209-2413308-320-180.smil [realplayer required]

Not listening to him got us into this mess, so not listening to him will get us out of it.

**[presenter] **Well, by now the dogs on the street know that the property market here is at best sluggish and at worst in freefall. Construction jobs are down by 26,000 from this time last year, unsold houses are lying idle around the country and the number of places for rent has more than doubled over the past 12 months to an all time high. Reports suggest that the government is being pushed from all sides to do something about it. But what?, Ten years ago the government did intervene and they did so on the advice of economist Dr. Peter Bacon, author of the Bacon reports.
We’ve been talking to him about the new housing crisis, first what are the options?

[Peter Bacon] I think the question that needs to be answered in the first instance is what happens within this sector if you do nothing, and probably that’s quite scary, it’s quite clear that, at the moment, the market is far from being stabilised. It continues to deteriorate, there is a significant overhang of unsold stock in the market and it is going to take a long time for market forces alone to work that imbalance out. It will take several years for the market to stabilise and work out the imbalance, the excess of supply over demand, which is there, in contrast to what was historically the case, the first set of interventions that government engaged in, where it was the opposite, where you had a deficit of supply over demand.

[presenter] Well I might come back to that period in the housing markets history, but you’ve just answered the how long of it, what about the how, as an economist what would you be advising the government to do?

[PB] {pauses} My own advice would be that subject to some qualifications you do have to intervene, because I think, you know, I don’t think it will be acceptable for society to go through a long and protracted adjustment period for the housing market to sort itself out. I think in the first place you wouldn’t try to stabilise just the construction sector, I think alone that wouldn’t be credible. It would have to be a package that would attempt to stabilise the economy, put some foundation into consumer confidence and something crucially that deals with that overhang. You know until that is gone, it’s very difficult to talk about sustainable levels of activity, you’ve got to deal with the overhang.

[presenter] OK, to go back to 10 years ago, when you first published your first advice to the government on how to deal with problems within the property sector, back then as you mentioned earlier, it was a problem of supply, now we’re oversupplied. How did we end up were we are and who’s to blame, I know that’s something a lot of people will have an opinion on, but what’s yours?

[PB] Well, you’re right, there will be many opinions on who’s to blame, I think the how is, is an easier question to answer in a sense and the how is that the market, got into a position where it was being driven by speculative forces, prices were rising, because people believed prices were rising and demand was being fuelled by, and being brought forward to take advantage of that position. Of course when you get into a cycle like that, the market effectively becomes a random walk. It’s not being driven by the fundamentals of supply and demand, it’s being driven by expectations, now expectations have been reversed and that cycle has been reversed and expectations are what’s driving the market down at present, so you have to deal with those expectations, you have to stabilise those expectations, you have to make people believe that there aren’t going to be further significant falls in house prices otherwise they won’t enter the market as buyers. I think no intervention is going to succeed unless you address the overhang. Now, at present what is that overhang, there isn’t to my mind a clear view on whether it’s 10,000 residential units or 15,000 residential units, and if it is within that range, what is it a government intervention can do to remove that from the market, in a way that doesn’t jeopardise the credibility of government in other sectors.

[presenter] Well indeed, what can they do to make sure it’s clear that people don’t think that they don’t see it as an intervention to protect the interests of those behind the construction industry?

[PB] Well, I think it’s an opportunity and time for government to go in and acquire those houses, I mean it was policy of government, that in relation to social and affordable housing , part V of the planning that so many, 20% of new houses would go to this scheme. If you actually look at the numbers I don’t find that 20% did, and there are all kinds of reasons for that, but I think if government want to deal with the affordability problem, there is an opportune time now for government to go in, acquire that stock and in the process inflict pain on the sector, in other words share the burden that is there, and provide those units to those sectors who have been locked out of the market, through innovative affordable housing schemes and part equity schemes, shared equity schemes with government itself.

[presenter] Well, you say that would share the burden, some people would say that would be seen as bailing out the construction industry.

[PB] And, it could be legitimately seen in that way, I think it’s down to the way in which the terms on which that stock is taken out of the market. If it’s taken out at cost, I don’t think you’re bailing anybody out.

[presenter] Dr. Peter Bacon

Was this the same Dr Bacon? Does he really think the overhang is in the 10,000 to 15,000 range?

Also, is he honestly advocating a builder bail out? And does the “at cost” include the builders profit on land banks and such?

I’m a little disappointed to be honest.

I got more and more angry as I listened to that, we are being softened up for a bailout under the guise of affordable housing as no other alternative is being presented.

If they really want to get a reasonable estimate as to how many empties are out there, then have the ESB supply the data on meter readings per county basis, those on minimal readings over a 6 month time period can be assumed to be empty within ± 5% accuracy. (holiday homes, people working abroad etc.)

10,000-15,000 empties? Peter Bacon has no clue, he’s being bought in as an ‘expert’ opinion to justify the bailout. What he also failed to mention is that buying those properties “at cost” from the builders is actually bailing out the banks who lent too much money for the land.

He seems to believe that it’s acceptable to manipulate people (called managing expectations) into thinking they have to get on the ladder before prices start rising again! What sort of economist has that sort of warped view? He was simply there to justify the bailout, nothing more!

I’m not.
He’s looking for business and what better way to get it then to tell the cretins what they want to hear.

Seriously, if you want to stop the bailout then get writing those letters.

It’s time to get campaigning, folks, cos there is *nobody *countering this bailout idea in the media.

It is rich of me suggesting this as I don’t have the time to do it but someone needs to set up “Irish Home Buyers Org”. Get a few thousand signatures and get their face in the bloody TV. Hobo is completely correct. This is absolutly one sided and the maggots like country Tom have us on the ropes.

A bailout is going to happen. I’m pretty certain of it now.

Sent a batch of letters last week - so far one acknowledgement letter (TD is on hols, will respond on return). But with this Peter Bacon stuff I am worried that it will be too little to late - they are clearly priming the “meedya” for an announcement of a grand plan to save the day! So what else can we do? Is there any way of launching a concerted campaign as isolated voices will not work. I’m not political in any way, but this bailout stuff makes me sick.

Is that the full interview ?

I ask as I’m surprised he didn’t correct the interviewer when he stated that the intervention the Government took was based on the Bacon Report.

I’m amazed he didn’t point out straight away that FF cherrypicked the bits out of the report that suited it, Sec.23 AH etc etc & totally ignored the bits that would actually fix the market long term. Stuff like the planning process & stopping the land barons from controlling the market.

If this were the UK I’d say he was angling for a Peerage, thats the usual reward for giving the Government that answer its looking for !

What a snivelling, silly gombeen-man that ‘economist’ is. He is advocating the maintenance of current price levels, not affordability.

How would buying AH stock at currently inflated levels ‘inflict pain on the sector’?

And why should prudent savers ‘share the burden’ of greedy developers and bankers?

Please don’t let the country go down this road, I really don’t want to have to emigrate again, but a bailout will test my resolve.

Wait for an announcement of a Re-Run of the Lisbon vote someday soon.

They’ll then hid the real story, the bail out for the builders, the same day & the sheeple will never even notice !

You can review a summary of the old Bacon Reports here

esatclear.ie/~buildingwithbacon/thebacon.htm

Housing Market

Action on House Prices (1998) (Following the First Bacon Report) (doc, 49 kb)

Action on the Housing Market (1999) (Following the Second Bacon Report) (doc, 67 kb)

Action on Housing (2000) (Following the Third Bacon Report) (pdf, 31 kb)

Bacon Report 1 - An Economic Assessment of Recent House Price Developments (Summary) (Peter Bacon and Associates) (1998) (doc, 82 kb)

Bacon Report 2 - The Housing Market - An Economic Review and Assessment(Peter Bacon and Associates) (1999) (pdf, 1,133 kb)

Bacon Report 3 - The Housing Market in Ireland - An Economic Evaluation of Trends and Prospects(2000) (pdf, 603 kb)

For those who remember the Government tried to bury the third report but the Irish Times published it here:-
irishtimes.com/newspaper/spe … /index.htm

In the true American tradition, you have to give the pressure group a name that vaguely sounds supportive of what you’re against!

Oh yea, agree that we need people lobbying politicians and writing letters. I have already voiced my displeasure to my local TD.

Incidentally, Bacon suggests buying the oversupply of homes from builders. I suggest taxing builders for unsold homes and taxing land owners who hoard land. Both would make the “correction” short. Why didn’t Bacon suggest my approach?

The builders are being setup as the fallguys here (not undeservedly), the real villains of the piece are the banks and the largest developers (major political sponsors - and not just FF). We know the fundamental problem is that the banks have been reckless and lent too much money to these gamblers and now they and their shareholders need a dig-out.

Since the extra taxation required and raiding of the state pension funds by the government can be considered as savings foregone by you and I, we need to make sure that the banks are returning the principal back to us with interest. :bulb:

it’s the government