Austin Hughes is still being asked for his analysis by the Irish Times.
Here are some gems from a debate Austin Hughes got into with Morgan Kelly on 8 October 2007. It was one of those ‘Head 2 Head’ opinion pieces the Times loves so well, and it was entitled “Are We Heading For a Property Crash?”
Austin said no, we were not heading for a property crash.
This is why.
This is his evidence.
We live in a world where every reversal seems to threaten a major calamity. But not every shower beings with it a flood. Not every cough threatens a fatal ailment. Not every sporting defeat spells catastrophe for the nation. In spite of headlines and hysterics, life usually goes on. Although this is a testing time for the housing market, the risks of a collapse shouldn’t be exaggerated.
The main reason why a house collapse is unlikely is that the key driver of the current slowdown - a sequence of interest rate increases every two or three months since December 2005 - now appears to be at an end. Although the European Central Bank may continue to threaten further increases, falling US interest rates, record highs for the Euro against a faltering dollar and weaker business sentiment in continental Europe combine forcefully to argue that the next substantive ECB policy change is more likely to be downwards rather than upwards. Before long, interest rate changes should support rather than soften Irish house prices.
Another reason why Irish house prices should not collapse is a surprisingly sharp and speedy response by builders to softer sales. A substantial drop in housing starts means that the bulk of the current correction in the housing market is likely to occur through weaker activity levels rather than markedly lower prices. If house building falls to around 65,000 units next year , it will keep Irish house prices roughly 10 per cent higher than would have been the case if building remained at last year’s levels.
It is sometimes suggested that, even if building is curtailed, the market still faces a problem of too much supply. Without doubt, there are mismatches in terms of locations and/or type of accommodation that make for excess supply in some areas. In the near term, this will keep prices soft. However, double-digit rent increases suggest that underlying demand for accommodation remains strong and supply is not excessive. Indeed, compared to most European countries, Ireland’s housing stock is low relative to our population.
While alarmist noises are often made about the number of “empty” houses, last month’s IMF report on Ireland shows the proportion of unoccupied dwellings here is slightly below the EU average. A surge in spending power that made ownership of holiday homes and accommodation for children at college almost commonplace is one element in this rise in so-called “empty” homes.
The scale of house price increases Ireland has seen may make some readers nervous. However, the Irish economy has undergone a transformation that is extreme in many ways. If it seems crazy now that new house prices are now 50 times higher than they were in 1970, it is even more astonishing that the money value of activity in the Irish economy is more than 70 times greater.
Increased prosperity has naturally translated into more expensive property. A surge in population in the past decade associated with a virtual doubling of employment, a halving of borrowing costs and dramatic gains in after-tax incomes have contributed forcefully to higher house prices. The unique transformation experienced by the Irish economy also means that many simple cross-country comparisons of house price changes can be dangerously misleading.
The slowdown is sharper than I expected. Softer house prices owe a great deal to higher interest rates. However, the fiasco surrounding stamp duties and some doom-laden predictions have also had a significant impact. As a result, these is a strong case for confidence-enhancing measures in the upcoming budget, not to avoid a normal correction in the market, but to prevent unnecessarily nervous conditions persisting through early 2008.
On average, Irish house prices are now around 2 per cent below the levels of a year ago. It is sometimes suggested that a definition of a downturn is when someone else loses their job, whereas a depression is when you lose yours. In the case of the Irish housing market, the personal experience of some would-be sellers may now be approaching what they would describe as a “collapse” , but across the market as a whole, the softening is more limited.
The broad slowdown we have seen is, in general, a healthy correction, and in the next few months, softer prices could well persist. However, with better news on borrowing costs, a sensible budget, lower levels of building and a resilient Irish economy, I would be confident that a house price collapse will be avoided. Indeed, a modestly improving trend in house prices in a more stable market should become evident during 2008. (Irish Times, 8 October 2007, p.14)