Thursday 19 April 2018

Bubbles and tech speak

Mark Keenan

Mark Keenan

Q1: Do you know what a chimney piece is?

You probably think you don't – but you most likely see a chimney piece daily.

Q2: Do you know what a fireplace is?

Of course you do. But you'd be wrong – technically wrong at least.

A "fireplace" is the wall cavity in which the fire is lit while the correct term for the surrounding framework attached to the wall is a "chimney piece". So almost every home has a chimney piece. Despite this we all call our chimney pieces "fireplaces".

Or Jacuzzi – as I've oft been reminded by the language police – is an Italian multinational company and maker of whirlpool baths. So a "whirlpool bath" is the technically correct term for a tub with a bubble output, not a Jacuzzi.

Q3: Still on bubble output: do you know what a property bubble is?

Because it may have been a tad confusing in the last few weeks to hear a number of economists and pointy heads declaring fervently that Dublin doesn't have a property bubble at all.

Technically they are in solid pointy headed correctness – because mainstream economic academia holds that a true "property bubble" must be caused by a supply of easy credit. In it's absence therefore, there cannot be a "bubble" – at least not in the world of technically correct economic bubbles and speak.

Last week Property Industry Ireland director Dr Peter Stafford said: "The further 2.3pc house-price increase seen in Dublin in October does not point to a bubble," and previously Ronan Lyons of popped our notion that Dublin had a bubble.

But whether it's a biscuit or a bar – when we're talking about Dublin's "bubble" we're essentially all talking rampant price increases – at 15pc in 12 months according to the latest take by the CSO.

Indeed, an absence of easy credit would be an even greater worry. Because if prices are increasing this quickly now, then what happens when (rather than if) the Irish banks start lending again?

Another view that some economists are expressing is that Dublin's rapid increases should not be fretted about because they come from such a low base.

Once again technically they are right – but Dublin's prices have already by-passed levels considered "affordable" in other countries.

Recently the Demographia International Housing Affordability Study 2013 commented that while Ireland had "nearly returned to normal affordability following the house-price bubble," Dublin was the exception. It's "affordability ratio" of 3.6 (times the average salary) took Dublin well into the study's "moderately unaffordable" category.

Demographia maintains that prices at three times average salary are "normal". Dubliners would have to be earning an average of €75,000 a year to make its current average price of €226,000 (CSO) "normal".

Unfortunately there are far more than temporary blips at work in creating house-price inflation in the capital. The biggest cause is demographics – a steadily increasing city population which has been busy making babies but no houses for the last 10 years.

We're currently running with no new homes and one third of the normal second-hand supply in a city where one-third of sales are normally made up of new homes and where second-hand properties make up the other two-thirds.

So whether you call it a bubble or a shortage, none of this is good news for homebuyers.

But for the sake of the "know-your-bubbles" brigade let's get back to our last strictly technical question.

Q4: So what about the cash buyers lads? Accounting for an estimated 50pc to 60pc of purchases – where are they getting their money from? Might these be Irish people who are foreign based? Might they be availing of cheap credit in the US or the UK for their purchases?

And if they are sourcing their money thus, would it make Dublin's price thingy a "true" bubble after all?

Time to hoover the Jacuzzi.

Irish Independent

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