Monday 22 January 2018

Dan O'Brien: Data provides building blocks to making sense of recovery

BUTI: Frank about euro zone’s failings Picture: Tom Burke
BUTI: Frank about euro zone’s failings Picture: Tom Burke
Dan O'Brien

Dan O'Brien

In the incredibly complex world in which we live today, the observations of any one person are of limited value in explaining how things are changing and evolving. That, however, does not stop people from coming to conclusions about things based on little more than their own experiences.

A common case in recent times is for people to observe that there are quite a few vacant retail units in a given area and then to conclude that there is no recovery taking place in the same locality.

There are plenty of vacant retail units in my part of Dublin, but there is no way I can jump to the conclusion that the local economy is not doing better than it was three years ago. To know that I would need more detailed observations of a range of things. In other words, I would need data.

It is hard to overstate the importance of data in understanding today's world. That is particularly true of inherently complex systems, such as economies.

Knowing what is going on in the many markets that make up an economy is important. Knowing what is going on in volatile markets can be even more important. Good data on the volatile residential housing market is essential, for many reasons.

The launch last week by the State's statisticians of a new, much more comprehensive data series on property prices is to be warmly welcomed. It provides lots of valuable data on the market that will help home buyers, businesses, planners, local government and national government make better informed decisions.

Before last week the figures were based only on properties bought with mortgages - about half the total number of transactions in recent years. Information from the banks, made thoroughly anonymous, formed the basis for the CSO's property price figures.

Now, sensibly, all properties are included. Tax data (ie stamp duty) from the revenue commissioners are just one, but certainly the most important underlying source of the new stats.

The most surprising thing at first sight was the absence of a surprise. The old, much narrower series turned out to be very similar to the new, fuller dataset. In both series, property prices peaked in 2007, plummeted from early 2008, plateaued quite suddenly in 2012 and started rising again in 2013.

The new figures show that the peak-to-trough fall was bigger than previously thought, but not by much: -54pc v -51pc.

Nor has there been a big revision to the trend since the bottom was hit. The price increase from the trough to last July 2016 was a bit higher, at 43pc, than the unrevised figure of 37pc.

All told, this points to the market having had an even wilder rollercoaster ride than previously thought.

The new series is a great deal more detailed than the old one. Whereas the previous series only had indexed data, the new series has average prices of homes and the number of sales.

Perhaps the biggest change is the geographic coverage. In the past, the only breakdown was Dublin and non-Dublin. Now, not only are detailed figures available by region and county, but also for each of the 128 eircode areas.

Those figures show that prices are on the rise in all 128 areas of the country. As this column points out frequently (too frequently, for those who want to peddle the myth of no recovery in rural areas), there may well be different rates of increased activity across the country, but nowhere is being left behind.

That is to be seen not only in price developments, but also in the numbers of properties being sold. The figures show that the market is normalising - the number of home sales almost tripled between the beginning of the decade and last year.

Yet again, not a single one of the 128 areas for which figures are available failed to record a pick-up in turnover. At the extreme end of the scale was rural Bagenalstown in Carlow, which saw a near eight-fold increase in the number of homes sold over that period. Belturbet and Clifden, neither urban metropolises, were in second and third place respectively.

At the other end of the scale was Lucan. In the five years to 2015, transactions increased by a 'mere' 25pc. Indeed, urban areas generally dominate this end of the table. As data on transactions only go back to 2010 it is hard to know if urban markets are recovering more slowly than rural ones, or if rural markets seized up by more in the crash and therefore had more normalising to do when things stabilised.

Regardless, the reams of new data on residential property across the country show positive signs. It is to be hoped that the availability of much better data will help make the market less volatile in the future.


Some thoughts out of Brussels. The eurocrat in chief at the European Commission's Directorate General for monitoring national budgets has just published a rather interesting (and short) academic paper*.

Marco Buti - who was closely involved in all the bailouts - writing with, a colleague is frank about the failings of the Eurozone during the crisis. And these decision-making failings persist. He believes "a consensus is eventually achieved, but often too late and at much higher costs. Not being based on genuine ownership, consensus proves difficult to sustain as soon as the market pressure abates."

He touches delicately on the increasing dominance of bigger countries in pre-cooking outcomes that end up as faits accomplis. "The European Council, often in its eurozone formation and based on pre-agreement between some member states, defined not only broad policy orientations - which is the role entrusted to the European Council by the Treaties - but also detailed arrangements."

Naturally enough, he advocates a greater role for European-level coordination, which in effect would mean more clout for his institution, but the paper is worth reading nonetheless.

Also worth reading is Buti's colleagues' latest analysis of the Irish economy, published early last week **. They weigh in on the upcoming budget choices.

The eurocrats in Brussels put it in their inimical dry way: "Calls for expansionary measures by various political forces and stakeholders would most likely have a negative impact on public finances". That is because, they continued, "it cannot be assumed that revenue outperformance will continue and discretionary changes to expenditure ceilings remain a feature of the Irish Budget process.

"In addition, plans to cut personal income taxes and the suspension of water charges would absorb further resources and narrow the tax base."

For good measure they complain about the retrograde nature of the latter two measures, saying, that they "represent an erosion of reforms introduced under the programme".

Three steps forward; two steps back. * **

Sunday Indo Business

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