What is "the long-term economic value of" Irish property??


#1

OK, so the proposed NAMA bill has stated that the price paid for the assets being acquired by Irish taxpayers will be based on “the long-term economic value of the property” which it goes on to say:

I would like to make representations to some of our elected officials with regard to the ‘long-term historical average’ value of Irish property so that NAMA do not ‘accidentally’ spend more of my tax money on these assets than their true long-term economic value.

I have seen some graphs here showing the inflation-adjusted value of Irish property but most have been out of date. Can anyone here advise me as to the best way to generate an inflation adjusted graph of average house prices which I can use to demonstrate the historical trend and to calculate the long-term historical average value of the average Irish property?

Failing that, can anyone tell me where can I get my hands on data for annual inflation rates and average house prices in Ireland for say the last 50 years?


#2

You can’t do it… and neither can they. It’ll be a shot in the dark and the wrong person will be killed.


#3

This graph covers the period from Jan 1978 to Jun 2009. Figures from the Dept of the Environment as well as the ESRI and Daft asking prices are in there. From this, the long term average price in 2006 money is around 100,000 euros.


#4

Great graph SkepticOne !

The only thing more I’d love to see on it would be a whisker plot of salaries, we’d see then just how out of whack the growth in prices is versus peoples basic ability to pay.

Congrats on 1st post too, welcome to the other side of the looking glass 8DD


#5

Thanks SkepticOne. :slight_smile:

Here’s one I did myself based on the DOE’s house price data and the CSO’s CPI data.

https://img229.imageshack.us/img229/9427/irishnewhouseprices1970.jpg

A quick analysis of the inflation-adjusted data tells me that from 1970 to 1995 the annual average house price never deviated by more than 33% from the Euro113,425 average during that 25 year period. House prices in 2006 and 2007 (when the majority of NAMA-relevant loans were arranged) were 206% and 210% (resp.) above this average. If the latest PTSB/ESRI figures are to be believed (!) new house prices are still 130% overvalued (i.e. they are worth 43% of what is being paid for them).

If NAMA takes the years 1970-1995 as representative of the ‘long-term historical average’ value of new houses then they should pay about 30 Billion for the assets associated with the loans of 90 Billion. :open_mouth:


#6

More useful to look at international comparisons, I’d think.

Interestingly the UK long term price average on HPC here (housepricecrash.co.uk/graphs … -price.php) was also about 125k before it rose above trend.

So something like 4/5 of the UK average?

Currently the (still falling) UK average on that graph is about £150k, putting the current value of ‘property’, on this basis, at about £120k, whatever that is in Euros.
If anyone could find German or other long term comparisons it might shed some more light on the subject.

At any rate the (very rough) UK comparision puts current values about 50% below where they are now…


#7

Forget about the graph. It is simply 3 and a half times average salary for a particular area.
In Crumlin take the average salary for a person living in a 3 bed. Multiply it by 3.5 and this is the long term mean price.
Do the same for Foxrock.
The only problem you have is allowing for salary deflation.


#8

Are the figures for 1978 to 80’s correct actual figures or am I misreading the graph in some way?
Reason I am asking is that a relative of mine bought a three bed with half acre for £5,000 in 1979 - Greystones.
I also know lots of people who bought houses in Greystones in the mid-eighties for £33,000 approx. Can’t recall any houses then being priced up to 100k apart from massive ones.


#9

Hi all,

Did some work on this last week myself, it’s available here:
ronanlyons.com/2009/07/31/no … -i-retire/

Two graphs that I’ll throw into the mix are the haircuts that NAMA should make (shown on vertical axis) if it wants to match a particular yield it regards as ‘historical average’ (from 4% up to 6%), depending on how far rents fall from 2008 peak values (falls from 20% to 50% shown on the axis below):
https://www.ronanlyons.com/wp-content/uploads/2009/07/nama1.png

Because people often think in terms of actual property prices, rather than yields (or even positive/negative equity), a graph show where house prices would be in 2050, based on the yield NAMA chooses and 3% average growth per annum (this latter percentage could obviously be changed) is below:
https://www.ronanlyons.com/wp-content/uploads/2009/07/nama2.png

Either way, the 20% - or even 30% - being mooted in the media seems to fall far short of the 37% bare minimum (and Liam Carroll-esque 75% upper bound shown below).


#10

They are inflation adjusted figures. The prices are in 2006 euros.


#11

Ah. Many thanks SkepticOne


#12

Love the long-term graphs. What caused the 77-82 mini bubble-and-bust?


#13

I did a Dublin second hand house (not apartment) one a while back and came in closer to 130/140k…


#14

Abolition of domestic rates, motor tax etc?


#15

Fianna Fail 1977 election “sweeties for all” followed by stagflation


#16

Supply Shortage of the genuine kind , the number of empties in Ireland was at a historic low of around 6% in 1979


#17

Copy of thread sent to Sell Buy Rent and stickied.


#18

Talking about long term value is cover for

“listen lads, I know you can show that houses are changing hands today for x, but if we use x as a basis
for what we pay the banks they’ll be fooked, and we’ve already put ourselves on the hook for any bank failures.
So, NAMA be overpaying for all this stuff. Overpaying by A LOT. And when NAMA is finished overpaying the banks,
the state will be paying a little bit extra to the banks on top of that. Get used to it.”

No amount of representations to our glorious leaders will make a blind bit of difference.
Even if the IMF had to come in and run the Country, the two Brians would spin it as all part of the plan.

-Rd


#19

Welcome back DaltonR,reports of your demise have been greatly exagerated!

All such discussions are meaningless,measuring inflation,house prices,wages inflation - it means nothing.This whole NAMA exercise is about maintaining house prices at their current value.NAMA is going to pay very close to bubble/current values for ALL property and even part completed developments,even sites.You are all needlessly overcomplicating things.

The extent of the overpayment will range from low teens to high eighty/ninety percents,noone can know the extent of the gouging of the Irish taxpayer.The calculation is impossible as it will be worked out as the nightmare of losses,bankruptcies and reposessions unfolds.The government hasn’t a clue,nor the banks nor anyone else.The government will simply pay whatever it has to.

Just be content in the knowledge that this is all about maintaining the belief in the minds of the average Joe and Mary that “you cannot lose on property”.

Their recent faith has taken a large test,and is about to be rewarded by the ECB in the form a cast iron guarantee to the Irish government of all the property based losses of the banks.

Most families in Ireland as anywhere on planet earth,do not want the value of their house to go down,have you all got that?they think it should only go up.The fact that it would give them more of their own money to spend as they wish every month,instead of giving it to the banks in the form of interest(or the government in tax to pass on to the banks via NAMA) doesn’t even enter their heads.To them,they have bought it at x00,000 euros,and so their monthly payments are effectively fixed(interest rates aren’t going up for years to come)so if house prices fall and new/first time buyers have lower payments it doesn’t affect them,so they rather selfishly would rather the government does everything to keep house prices artificially high.

If you don’t understand that pyschology,you will incorrectly assume people will do what is right for the country and what is right for society as a whole.

The people want to be shafted,nothing you are going to say on this site or do is going to change that,banks offer these people the chance to make free money by over borrowing on their mortgage.The government- via the taxpayer- is offering to guarantee the whole process,god forbid anyone who stands in the way of what they consider to be their rightful gains.

Since the mortgagees and the taxpayers are one and the same,it just remains for the more intelligent of the gombeens to work out that like the diner at the table of the restaurant where the bill is being split between everyone,those who eat the most pay the least.

Roll on the next bubble.


#20

Great remark the other day by an american chap on Radio 1 (apologies for lack of attribution details). He made the point about so-called ‘long-term economic value’ that essentially there is no such thing, or else it is unguessable, as at any time it is indistinguishable from the current price. The current price of an asset is the market’s view of that asset’s expectation of future returns. That is, the price today contains within it how that asset is expected to perform over its entire lifetime. And if I had to define the phrase ‘long-term economic value’, that would be a pretty good definition.