We're paying for gaffes of middle-class mandarins
The Central Bank boss's forecast on house prices could further stall any market recovery, warns Marc Coleman
Are Enda Kenny and John Hurley related? They're both decent skins, but that's not proof of blood relation. What makes me suspect a common gene pool is their propensity to goof things up, just when the going gets good. In Enda's case, voter anger at the Government prevented his Sinn Fein gaffe from derailing Fine Gael's home run last Friday. In John's case, history will be less forgiving. His statement that house prices were set to fall further is going to inflict more misery on those trying to sell their houses, not to mention the thousands of young people in negative equity.
Before he opened his mouth, the signs of recovery were getting stronger by the day. Last Wednesday UK house prices rose by over two per cent in May. On Thursday European Central Bank President Jean-Claude Trichet held out the promise of economic recovery next year. Unlike its Irish counterpart, the ECB is actually doing something to bring it about: since September rate cuts have reduced mortgage repayments by two-fifths, more than offsetting the impact of domestic tax increases. With November's Tax Commission report likely to abolish stamp duty, the fundamentals for recovery were falling into place and only two things more were needed. Firstly, the National Asset Management Agency (Nama) needs to finalise the clean-up of bank balance sheets by August so that credit can start flowing in time for the market's traditional resumption in the autumn. Secondly, confidence needs to be restored in the market's future.
As anyone who understands the current housing market, people are no longer refraining from buying houses because they can't afford them. The unemployed aside, affordability has risen in spite of tax rises and once our banking hiatus is resolved, the only issue is whether people think they are getting value for money.
With house prices back to levels prevailing in 2004 and 2005 -- before the Financial Regulator allowed the market to get out of control -- they have returned to a stable floor. The trouble is that some people don't think so. Using facile and irrelevant comparisons with the completely different US housing market, Alan Ahearne and Morgan Kelly predicted house price falls of between 50 and 80 per cent. Now Ahearne is a government adviser and the fact that the Central Bank governor has joined in the chorus would lead you to believe that running the housing market down is official government policy. This seems to fit the fact that, in spite of yielding virtually no revenue, stamp duty has not been abolished. Its removal won't guarantee a recovery, but the fact that this isn't being done as a vital first step could be deemed incompetent.
Or maybe it is something else. Maybe it is the fact that the mandarins that drive economic policy all have highly paid secure employment. John Hurley for instance earns €349,000 in secure employment (and didn't have to compete for his job). In fairness he voluntarily took a 10 per cent pay cut. But his salary is an indictment of a public sector closed shop where taxpayers' money funds top public service salaries and golden-handshake pensions.
The point is that being insulated from reality by this financial cocoon makes those like Hurley completely unable to understand the damage that their mistakes do to the rest of us. The daily struggle of those in the private sector to pay mortgages for houses now in negative equity is completely alien to them, as is the anguish of young families with more children on the way trying to trade up. Being in their 50s and 60s, these mandarins bought their houses decades ago and are comfortably in positive equity. Either that or they funded more recent purchases by selling their old houses to our generation at inflated prices.
They may claim to understand our realities by saying that they have children entering the market.
But their darlings will -- unlike the rest of us -- inherit property from their daddies who have no reason to tell them what it's like out there in the real world. One of my most startling experiences was listening to a central bank official tell an audience of OECD economists that young people had no problem getting on the housing ladder because their parents gave them deposits of €50,000. Such is the middle-class blinkered view of reality that prevails in our public service.
Given the shambolic record of the Central Bank and Financial Services Regulatory Authority, you would think, wouldn't you, that its retiring staff might at least refrain from doing any more damage to the rest of us.
We, unlike those working in the Central Bank and Financial Services Authority, live in a world of private-sector responsibility where screwing up gets you fired. The rest of us, along with our children, will have to repay the debt mountain that they left behind. As the results of the elections show, we aren't the only ones to suffer from their mistakes.
Marc Coleman is Economics Editor of Newstalk 106 to 108fm.
- Marc Coleman
