Brendan O'Connor: No use cursing day we mounted property ladder
Now that we're in long-term relationships it's time to start loving our houses as homes, says Brendan O'Connor
Sunday January 10 2010
House Price Indices used to be much more fun. Every few months or so some website or building society or estate agents -- we didn't care who -- would put out a press release announcing that property had gone up by 10.8 per cent or some such. It was always a really specific figure with a decimal point, so it felt quite scientific. And then we would all scrabble to work out how much we had made in the property business in the previous year. Some years you would discover, courtesy of Permanent TSB or Daft that you had 'made' more money just by owning your house than you had by working the previous year. Indeed, some people took that kind of thinking to its logical conclusion, decided to stop doing anything productive in their working lives, and just fooled around with property, making millions. On paper. Indeed, the fact that so many of Ireland's risk-takers and visionaries focused on property was probably to the detriment of the development of other areas of the economy.
We don't celebrate the house price indices so much these days. For example, when Daft.ie told us a few days ago that asking prices for houses fell by about a fifth in the last year, we didn't get out the calculators with such glee. I don't know about you, but for me and most of the people I know, in a direct reversal of the boom years, we lost more just by owning our houses last year than we earned by working. All those paper millions that made us all feel so rich are gone, and now we curse the day we ever got on the ladder, we curse the ancestry that gave us this obsession with the land, and we curse the politicians, the banks and the media that encouraged the madness.
That's how it goes with most compulsions. It starts out great and you think, this is all good, I want more of it and I want it all the time. And then, gradually, you learn to rue the day you ever laid eyes on your compulsion. So the tendency now is to hate property, to view our homes as a liability, to regret the decade of prosperity we "enjoyed", to wish we lived in a rented bedsit, and to want to kill various people from developers to your local bank manager.
In reality, given that most of us are stuck in a relationship with our houses, we should perhaps learn to live with them. Yes, the infatuation is over, so maybe it's time to settle into something more long-term and less superficial. Maybe it's time to start loving our houses as homes, to realise that, unfortunately for some, the home might be a lifetime commitment.
This is a difficult one for us to get our heads around. Irish people's relationship with property, characterised by the property ladder philosophy, has tended to involve a form of social climbing. You started out with an apartment, dumped that once you could afford something better and eventually settled down with a nice sensible house when you hit your 30s. Maybe now we have to accept that that model doesn't work anymore, not for the time being anyway.
You could argue that we should have known this all the time, that the fetishising of property prices should never have happened. I'm often reminded these days of Traudl Junge, Hitler's secretary in his final days. I keep thinking these days of that scene in Downfall, the movie telling the story of Hitler's final days days, where his secretary, Traudl Junge, as it all begins to fall apart and the end is nigh, discusses with others the prospect of leaving the bunker. But Traudl asks where she could go. And she says something roughly along the lines of: my family and friends warned me not to get involved with the Nazis. What am I supposed to do now, tell them that I've realised it was a bad idea now that it's all gone wrong?
Now that the whole property dream has gone wrong, we shouldn't be ashamed to realise too late that it was a bad idea. In fact, changing your thinking to suit changing circumstances is a sign of sanity. Not changing our mindset to reflect our new circumstances, if not madness in itself, would certainly lead to madness. Policymakers also need to get with the new reality, as do the banks.
The new reality is that house prices are not going to "recover" to previous levels in the near future. The new reality is that house prices in Dublin have fallen nearly 50 per cent in real terms since 2006, according to Sherry Fitzgerald. This period has been characterised by two things -- historically low interest rates and wild lending by the banks. The wild lending has come to an end and the low interest rates will before the end of the year. Add to this imminent property taxes an d the outlook does not look good for property prices. If property prices couldn't thrive while the banks were throwing out money with minimal interest rates, they're certainly not going to double in the absence of those two spurs. And that's what they would need to do to get us back to to pre-crash prices. Even the 7-10 per cent growth in property prices for 2010 predicted by Bloxhams on Friday, if it were to happen, would claw back only a fraction of the value people have lost. House prices would need to double to "recover" back to what they were. And we all accept that the days of property prices doubling in a few years are gone. So basically, anyone who bought in the last few years is operating with what you might call a legacy cost base, a mortgage that does not reflect the current value of their property or maybe even what they currently earn.
We all have a part to play in accepting the new reality. The Government needs to get rid of stamp duty on residential property. They should do it for a year and then they should probably do it for another year. The banks need to start lending in a reasonable fashion and they need to create mortgage products that reflect the new legacy-cost-base nature of home ownership. They need to create longer-term mortgages and perhaps even mortgages that would allow people in negative equity to move out of properties they currently own and into homes in which they will live long term.
And meanwhile we can all only hope that when inflation does come, it will wash all our debt away with it.
- Brendan O'Connor
Originally published in
