Comments on: IRISH HOUSING AND WAGES, 1977 to 2006: PORTRAIT OF A SCAM

By: Paul Lee

Paul Lee — Sat, 15 Jan 2011 04:24:01 +0000

Brilliant work Conor and an excellent intelligent discussion. I find it flabbergasting Irish people’s lack of inclination to discuss anything of substance when it comes to moral or fiscal responsibility (though we have been forced to do so by the circumstances). If you brought up a subject like this during the Celtic Tiger era you would have been branded a wierdo or lunatic.

The Irish are happy to go along with whatever is moving in the “right” direction economically. e.g. the use of Shannon by the US War Machine.

We Irish like to think of ourselves as a wonderful people. In reality we are as crooked as the worst of them, most especially when we can’t see the results of our actions.

By: Jack

Jack — Fri, 26 Nov 2010 18:29:13 +0000

Wow, and I thought we Americans were getting screwed. So what’s in the water that every country’s bankers and politicians have been drinking? Shit, I’m sooo glad I’m still in school, hopefully things will be a little worked out in 3 years. Probably not though.

By: Dara London

Dara London — Mon, 14 Jun 2010 23:36:05 +0000

Fascinating bit of analysis - so simple and yet so telling. Makes you wonder how they didn’t see it coming? I don’t suppose anyone has come across a decent pre-crunch article highlighting these concerns? It would make very interesting reading I think.

By: House prices & available mortgages « Colum McCaffery’s Weblog

House prices & available mortgages « Colum McCaffery’s Weblog — Fri, 11 Jun 2010 14:31:22 +0000

[…] http://dublinopinion.com/2010/06/08/irish-housing-and-wages-portrait-of-a-scam/ […]

By: Conor McCabe

Conor McCabe — Fri, 11 Jun 2010 14:15:53 +0000

Thanks for the comment, Colum, and the figures. Most helpful. Cheers.

By: Colum McCaffery

Colum McCaffery — Fri, 11 Jun 2010 13:13:56 +0000

A young person ambitious to launch out into life can be vulnerable to overcharging on housing. (I remember!) There was a time when such a person’s ambition/desperation was limited. In the early 70s the building society formula was that loans were for 75% of the price and the loan amount was calculated thus: 2.5(Annual salary 1) + Annual salary 2.

Take two people on good incomes setting up home in the early 70s. Say, Salary 1 = 1.5K and Salary 2 = 1K. This gives: 2.5(1.5) + 1 = 4.75. That is to say, these two young people could borrow up to 4.75K as 75% of the house price. The house price then comes out at 6.3K. Guess what? In 1970-71 Gallagher’s were selling 3 bed semis in Lucan, Tallaght and Raheny for a tenner less than 5K.

Let’s try this calculation with Euro and today’s incomes. What would be good incomes for two young people today? Well, let’s assume that equality has made strides and that it is two young people on the same income. How about 35K each or a “household income” of 70k?

Here goes: 2.5(35) + 35 = 122.5. That would be a 122.5K mortgage as 75% of the house price. This would give a present day price of 163K for a 3 bed semi in the Dublin “commuter belt”.

I accept that these calculations ignore many variables. They’re rough! However, they indicate that an affordable 3 bed semi with gardens to which two Dublin residents on good incomes might aspire should be about 160K. The price today - AFTER all the reductions of the past year or so – is still in the 220 to 300k range.

The scam was worked by abandoning the 2.5(X) + Y formula and giving 100% + mortgages to people made desperate by incessant talk about the “property ladder”.

By: Tomboktu

Tomboktu — Thu, 10 Jun 2010 21:06:18 +0000

I think the Irish Times did one of those summer “filler series” in the late 1990s (I’m guessing 1998 or 1999 +/- 1 year) in which they looked at the price of houses compared with salaries between — if I recall correctly — the time the article was written and the 1950s. My mother told me that the husband of a cousin of hers inherited some houses on Marlborough Road in Donnybrook in the middle of the C20 and sold a pair of them a year apart, with a huge increase in the price over that year.

By: Mark Leyden

Mark Leyden — Thu, 10 Jun 2010 15:32:49 +0000

“At the end of the day, it was Irish people that bought and sold houses as commodities rather than dwellings that largely caused the spike.”

A great read is John Kenneth Galbraith’s ‘The Great Crash 1929: The classic account of financial disaster’. He states that you know you have a bubble when the underlying asset class becomes irrelevant.

Some people were buying 5 / 6 apartments at a time, off plan, and flipping them 6 months later. If this isn’t an example of the ‘underlying asset class being irrelevant’, I don’t know what is…

By: Conor McCabe

Conor McCabe — Thu, 10 Jun 2010 15:07:25 +0000

Yeah? Any evidence for that? Would you like to provide actual analysis instead of just saying “most analysts” and leaving it at that?

By: k. Lynch

k. Lynch — Thu, 10 Jun 2010 14:45:27 +0000

no property was overpriced in Ireland but not nearly as much as your article says! Most analysts say that at the most it will fall by another 10% before it reaches its real value.