Never mind the sucker investor appartments in Berlin they show on Daft.ie or property expo’s, check out a German property site, even if you don’t speak German you should be able to navigate your way around.
It becomes clear when looking around Germany, the Irish housing bubble is the product of the availability of credit. Without it, there would be little or no house price inflation. Germany is a very good example. It is quite difficult to get a mortgage in Germany. You need to have a sizeable deposit, and credit checks are intensive. You need to have a good credit history and a stable job. There are no interest only mortgages - you must have a repayment mortgage. The result is not necessarily to Irish peoples liking: property is mostly owned by two groups (1) those owner-occupiers affluent enough to meet the stringent lending criteria and (2) landlords with the financial clout to buy outright or with substantial deposits (20%-50%). The majority of the population lives in rented accomodation. That said, tenant-friendly laws and rent controls make life resonably easy for them. For property prices, this has meant incredible stability in Germany for the past 10 years. Because there is no easy credit, only savvy investors with deep pockets buy properties to let out and only owner occupiers that qualify for a mortgage buy one to live in. There is no speculative element in the market, and consequently prices are driven by supply and demand and are closely associated with the rental yield.
What can our government do to create and sustain such a climate? Short of revolution, one way for government would be to prevent these credit expansion and contraction cycles by imposing regulation on lending criteria. Of course, this is a concept alien to today’s free market approach.
If money lenders are allowed to do as they please, the market will ultimately correct itself. That is the power of free market capitalism. However, it leads to boom and bust. First there is credit expansion, and the associated asset bubble which ends in an outright excess, as we are seeing now… Then, when the cycle turns, money lenders become tight and careful, they reign in the lending, and the asset prices driven by speculation fall back to where they belong.
1)Is let the free market rip the market apart Celtictiger Style and brought us through the various phases as you have outlined Green bear.
In tandem they have ignored the oppurtunity to properly regulated the rental sector as a viable stable solution to offset the effect of point 1.
If in Ireland we had actually taken responsibility for Point 2 as I have outlined we could have negated the severity of whats happened and had a much lesser expansion.
Tackling the rental sector has been the biggest failure of this Government for obvious reasons, there is a huge vested interest allied to the powers that be. Garda landlords, the professions as landlords, the builder specualtors as builders and landlords themselves and paddy come lately the universal average specuvestor who only believes in UP landlords.
You’ll find few in the offices of power without some interest in the feudalisim that is the Irish rental sector.
Regulating the rental side of the housing solution is a very cost effective way to provide a housing solution wihtout overburdening the states agencies, especially if as a government policy is not to directly provide social housing albeit in a drip feedmanner, it is the least to be expected, it is the least that should have been provided.
Alas nothing effective in real terms has been done and thus expansion in evident across the scale in all directions. So much so anything done now to reign it in would only lead to direct traceable blame for casuing it to fall down around us and they know it. We are in the “too late” phase and must all share this mess even if we did not have one hand nore act in it.
Fianna Fail & The Progressive Democrats have actively done nothing or as little as possible. They will mostly likelyt be out the back door in the ensuing confusion. When the dust settles they’ll play the “knight in shining armour” card but hopefully we’ll all be property elephants at that stage, not property-headless-chickens as has been the current fashion of the last few years.
With no control over our monetary policy and no independent currency it is even more imperative for our government to prevent asset bubbles and run away cost inflation, but they havent and theres trouble ahead.
I doubt that most of our politicians understand how the fractional reserve banking system works. The few that do understand are probably compromised or are wary of taking on the hottest of hot potatoes. It could be argued that the rapid inflation in the money supply is an effective societal tool anyway; as it creates the illusion of the possibility of exponential economic growth and hence that all important consumerist opium ‘feel good’.
An instance. Joan Burton the Labour Party’s finance spokesman/person/woman recently decried the ECB’s rate tightening policy on her party blog suggesting that the rise in the cost of borrowing would hurt ‘ordinary people’ I responded to the post with a comment which Joan didn’t publish. My comment wasn’t profane it was just a calm explanation of why the ECB had taken the decision to increase the cost of borrowing. I stated that the levels of consumer debt in Ireland was dangerously high, that inflation was damaging the Irish economy and that the ECB base rate was still well below that in the US and the UK.
Joan didn’t post my comment. But she was kind enough to reply by e-mail thanking me for my comment, reiterating her position that rising rates will hurt many ordinary people.
So rest assurded we will continue with the illusion of growth through debt for a little while longer. The prognosis for the long term is bad however as an exponetial increase in indebetness is not sustainable; the reset button will soon be employded and the massess will be fobbed off with ‘its cyclical dont you know’ yet again.
Thats like banging your head off a brick wall or running around in circles, very poor response - no one that I can think, from any political party, absolutely NONE! of our politicians are fit to run our country.
Is anyone not astounded by that statement of groin-grabbing populism? Is there any political party out there that is willing to take an unpopular step and say, “Hold on here lads, we need to get this credit bubble under control, even if it will be an unpopular measure”?
If Fine Gael are willing to go into opposition with people like Joan Bruton then people really need to analyse whether this opposition deserves a shot at government.