Fallen too far for their banker chums to make huge mortgage profits on?
OECD is full of crap.
I thought it was a quiet reasonable article for the indo
Too far for the zombie banks and the zombie state…
Very very simplistic price to income ratio analysis. No account taken of other factors.
It is simplistic but given the scope of what they are doing it makes sense to keep it simple. It is just one indicator, there are others obviously.
(Theoretically if prices were to flatline here then it would come back to neutrally valued anyway as the long term average loses the boom values. Even a slow decline would see the level of undervalue reduce over time?)
To my mind, that they posit this as the basis of their argument is a shocking indictment of the prevailing status quo right across the so called developed world.
ie. Such an analysis is essentially saying “the more you are able to earn, through your own arduous effort, and the effort of your society to develop technology and productivity enhancements, the more WE are entitled to…”
You would think that with increased efficiencies in building technology, and increased individual productive capabilities that over time, price to income ratio would reduce. But it goes precisely the other way. Even if you account for how much house and property you get on average for the average price paid, the trend is towards less and less house and quality of build for your money. Incredible complacency on such fraud imo. The property industrial complex is the greatest scourge on our society. It is at least 80% purely parasitical. Basically, they just lay claim to the inherent value in the LAND, the only constraint to such claim lying in the mechanisms drawn on to monetise that value. It’s a form of slavery - one that the great majority seem to approve of, however.
If people were prepared to buy a 1400sq ft semi-d built and kitted out as it was in 1963 in 2013, you might have a point. But no more than cars, people are happy to spend the same portion of their income in return for fancier stuff. As for the land, yeah it is is a factor, but for example Rathfarnham in 1960 was the boondocks.
How has the OECDs past performance been on this kind of thing?
Was fit out more or less costly in real terms back then as compared to now? Again, it is technology that has enabled more attractive fit out at less cost. Was Rathfarnham any less connected to town, or less well serviced back then as it is now? Let’s leave aside the much reduced amenity of the area today come about through high density unimaginative development and heavy traffic pollution and so on. Anyway somewhat off topic. I thought assumptions would be fairly clear. Apparently not.
And their brilliant quote;
‘prices may have overshot to some extent. However, this does not imply that they will fall significantly: the housing market is not symmetric, and during a downswing people prefer to take their house off the market rather than sell at a loss. Thus, the most likely scenario is that prices will level out or decline slightly, housing construction will fall back gradually, turnover will decline and the market will remain subdued for some time’
but they did at least point this out;
‘But even in such a scenario, government receipts would weaken sharply, so that a substantial structural budget deterioration would come on top of any cyclical weakening.’
Just as well the government took heed and didn’t kept increasing tax credits, rate bands etc until the emergency budget in April 2009, oh wait
At a quick guess, they using average incomes rather than median incomes?
Better than the Irish Central Bank.
The Paris-based think tank has used rents …
So we increase rent allowance. House prices rise accordingly. We then flog off all the NAMA stuff. Problem solved! ?
They also include price-to-rents ratio as well. It’s just intended to be a snapshot. OECD’s more detailed analysis contains many recommendations for structural reforms, including in relation to the property market, in Ireland and elsewhere to encourage growth and employment.
The more general argument about why property prices should rise in tandem with income, when the ‘product’ doesn’t improve much, is explicable mainly by supply and demand factors. One can buy a house in Ireland for less than the cost price of the bricks and mortar (never mind the labour) embodied in that house. Dearer houses are simply ones where the demand to live in that area - ie the site value - is substantially greater.
It may be so for the average, quoted as €156,000. In fact I would be slow to bet against this.
However, how does this stack up against the SCD type houses and prices?
Including social transfers…
Is the house much better these days?
You’ll still get a good price for an uninsulated 1960s type house (or even 1900s house). The modern builds are often inferior, not because technology has declined but just because of the mentality and lack of long-term thinking of the builders. Most of the bits of my house that are “modern” and which wouldn’t have featured in a 1960s house are movable items, and don’t get factored into house price (even in 1960s you usually had electricity and running water, perhaps not central heating).
I guess the fundamental squeeze is around land and population (supply and demand question). If European population declines over next decades, then that will be what leads to a decline in house-prices/land-values, even though you’ll have an aged population trying valiantly to extract rents from younger cohorts.