News Marc Coleman

Friday 19 September 2014

A tale of two Davids, three big challenges - and Superman

Two experts have given a verdict on where the housing market is at, says Marc Coleman

Published 03/08/2014 | 02:30

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Left: AIB CEO David Duffy comments on AIB’s first-half interim results. Photo: Shane O’Neill/ Fennell Photography Right: David Duffy of the ESRI said high rents could delay ‘family formation’ Photo: Shane O’Neill/Fennell Photography
Left: AIB CEO David Duffy comments on AIB’s first-half interim results. Photo: Shane O’Neill/ Fennell Photography Right: David Duffy of the ESRI said high rents could delay ‘family formation’ Photo: Shane O’Neill/Fennell Photography

David Duffy must be a genius. When not running AIB, his namesake is pumping out research for the ESRI on a regular basis.

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Presumably between AIB headquarters in Dublin's suburb of Ballsbridge and ESRI offices on the quays is a telephone box where, Superman-like, Duffy wrestles with himself for a few minutes each day before emerging in a new guise. This week, that telephone box was fully occupied as three obstacles to a full recovery - problems it would take Superman to solve - were to the fore. AIB's David Duffy was firing off analysis on all of them: the plight of those stuck with their parents due to high rents, the plight of families in rented or cramped accommodation, unable to buy or trade up; and the plight of those in negative equity.

Yes, the economy is recovering. But, far from a rising tide lifting all boats, some are so badly holed below the waterline, it could pull them under, with rising house prices pushing home ownership further out of reach. To make recovery work for younger generations the housing shortage, credit famine and negative equity must be tackled.

Along with David Byrne and John FitzGerald, David Duffy of the ESRI - aka Superman's alter ego, Clark Kent - sprang into action on Wednesday, as they warned that high rents and house prices could delay "family formation" (nerd-speak for starting a family).

The same day, AIB's David Duffy pointed out how, as this economist repeatedly predicted, a rising population is boosting housing demand. Had we, as often advocated here, planned for the future, then house building and house-price growth would have resumed earlier and more steadily. And the housing shortage and construction unemployment would be less chronic.

But, as AIB's David Duffy pointed out, tens of thousands of families now face a four-year wait before the housing shortages can be eased. As pointed out here last week, rising prices are needed. But they must be planned and orderly. Commenting on why AIB's latest interim results are so much improved on last year Duffy, who signed off the results on Tuesday, said loan impairments are falling "driven by an improved economic environment including an increase in private rents [and] increases in residential property values". This means that taxpayers are more likely to be paid back some of the €11bn put into the two pillar banks and PTSB. Credit is also more likely to return to prudent growth. With retail sales growing just 0.1pc in June, falling demand for big-ticket credit-driven purchases (ie cars) is holding back domestic recovery. Rising house prices raises bank-capital quality and therefore the likelihood they will pass the ECB's stress testing this coming October.

By Friday, ESRI Duffy was back in Clark Kent mode, with new research on negative equity. From a third of a million in 2012, the number of households affected has fallen to just over a quarter of a million. If, as predicted here, prices settle at 2004 levels (this assumes supply normalises and, if not, prices could go higher) then households affected should fall to 100,000 by 2016 and the size of exposure should fal,l allowing remaining gaps to close by 2020.

But as negative equity is resolved, other problems worsen and another arises: last year's Land and Conveyancing Reform Act makes foreclosure on arrears easier. While easing, the arrears crisis hasn't gone away. Partly because other legislation, the Credit Institutions Stabilisation Act of 2010 (which gives Michael Noonan powers over banks), banks are wary of provoking political anger by getting too touchy. But that Act ceases on December 31, by when the ECB stress tests will be completed. Despite rising house prices, mortgage lending is still weak, as is retail lending. So, while prudent lending growth is needed, banks might be tempted to turn distressed mortgages into asset sales to fund it.

The challenge for government is threefold: Firstly, to deepen and extend its welcome initiative to promote house building. Secondly to further ease the burden of mortgage interest. And, last but not least, to help those whose arrears problem is beyond budgetary assistance.

Lending and house prices are set to gather pace in 2015. With an election in 2016 if not before, government has little time to waste if it wants to influence events before then. Now I've a radio show to present. Anyone know where there's a telephone box?

Marc Coleman presents "The Marc Coleman" radio show at 8pm tonight on Newstalk 106-108fm with special guest David Norris on Ireland in 1914 and the conflict in Gaza

Sunday Independent

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