As clouds loom over global economic prospects, we should be thankful that two key changes made in the wake of the last property price downturn will prove absolutely vital in sheltering us from damage in the next.
We have the war in the Ukraine, surging inflation in all sectors, interest rates expected to rise, and Brexit set to stick its head up again via threats to the Northern Ireland protocol. The general global outlook is choppy.
That first change to be grateful for is the introduction of the property price register back in 2010. The second is 2015’s Central Bank’s rules introduced regarding mortgage loans.
To understand why the former is so vital, we only need look back at the fog of disinformation that was put out by vested parties at the beginning of the last property crash. So much so, that it took a year before the Irish public realised what was really happening on prices.
We forget that elements within the property/development sector, the banking sector and Government in fact colluded to mislead the public into believing all was tickety boo even as that ship was sinking. Through the fog they created and sustained, they held open a window in which Ireland’s golden circles offloaded at least some of their property assets at the top of the market, before the cat got out of the bag on falling prices and the game was up.
They were able to do this because there was no timely and reliable publicly available data on property prices to show otherwise. Only the banks and the property sector held that data and they certainly weren’t telling until it suited them. While we had the state’s CSO data, based on stamp duty paid, it was published so far behind the market that by timing it was useless.
Even today most people seem to believe that our property crash started in 2007 or even in 2008. In fact it began in 2006.
The Emperor’s New Clothes moment took place on Wednesday, May 17, 2006, although few saw it. But public opinion had bought into the myth perpetuated by the property sector, the banks and politicians: that it “was different this time.” A survey of Irish investors around then showed 80pc believed property to be the safest form of investment, with two thirds stating they’d reinvest.
Because politicians were weighing in to support a positive outlook on property, many started believing that those predicting a fall in prices were being unpatriotic and ‘talking down the market.’
By Easter 2006 a series of rolling interest-rate hikes had begun to kick in and there would be six of these by the end of that year. Then 21 Ailesbury Road in Ballsbridge went to auction on May 17.
It was six months after Gayle Dunne had bought Walford on Shrewsbury Road for €58m (the sixth highest price in the world that year) and agents had been issuing huge guidelines for big trophy Dublin homes which were vastly exceeded again and again at auction.
But when No 21 (ironically at the time, the home of insolvency expert John Donnelly), went under the hammer with an AMV set at €12m, the bidding stalled. The property was withdrawn without reaching its reserve and the market appeared to have its first backfire.
Sources say it sold privately after auction for €12.95m — within AMV. But no one had proof, nor in the absence of timely state data, would they get it.
Many properties that followed to auction also floundered. And while the auction podium method tended (until then) to bring in the biggest bucks, it was also a public forum, unlike the private treaty market through which most homes were sold. Soon there were less auctions.
Minister Michael McDowell’s claim around this time that Government would abolish stamp duty in the coming Budget at the end of the year further muddied the waters. So when activity slowed right after the summer recess, many believed this was the sole cause. Why would anyone sell before Christmas when they could hold off until the new year and duck stamp duty payments entirely?
But it was a red herring. The property market crash had already started in the leafy lanes of Dublin 4 and was moving outwards from that epicentre. Although it would take two years before it would eventually affect markets like Killarney and Galway city.
But between Easter 2006 and late 2007, there was a sectoral-led and politician- supported effort to hamstring press coverage. While in June a big number of big estate agencies were sold for top dollar. They knew what was going on.
At the same time many big banks and estate agencies denied prices were falling, increasingly labelling those who pointed to the emerging downturn as ‘naysayers.’ The politicians joined in. Supporting the property market’s prospects became a ‘green jersey’ issue.
One leading estate agency group sacked its own economist for issuing a press release that highlighted the worsening property outlook. It followed that up with an upbeat statement instead.
Another caused a leading business journalist to be sacked for writing a piece highlighting the fact that the agent had been publicly proclaiming the rude good health of the property market, while at the same time he couldn’t sell his own house which had been lingering on the market without a buyer.
When it did emerge in the public domain, that vital first evidence actually came from asking prices (rather than sale prices) and was provided by the online property portals. Not by the State (as in other countries), the banking sector nor property development sectors which had tried to keep it schtum.
In March 2007 I persuaded Daft.ie, which had data on the portal’s asking prices, to allow me to go public with their first quarterly data. My article showed the first evidence that asking prices had been falling. Logic suggested that final sale prices must be falling too.
There was huge sectoral and political hostility to that article and to others that followed. RTE’s Future Shock, screened the following month, highlighted the possibility of a crash.
Formal complaints flooded into RTE from the IAVI (the auctioneers’ trade association), developers and the Taoiseach Bertie Ahern described it as “irresponsible, inaccurate.” The yaysayers were hammering the naysayers.
In July, Ahern, leader of Fianna Fáil (a party then receiving big donations from developers) asserted that those “cribbing and moaning” should kill themselves.
But even despite the many articles and television reports which followed, many still believed the Government/property sector puff and continued overstretching to buy homes right into 2008. But irrefutable publicly available price data could have saved hundreds, if not thousands, from years of negative equity, repossession and pain.
So despite being brimful of mistakes and lagging some months behind sales (mainly due to solicitors dragging on data entry), let’s be grateful for the property price register. Because today there can be no more vested and politically protected smoke machines.
The second great measure introduced was the Central Bank’s set of lending rules of 2015 on mortgages, restricting home buyers to 3.5 times income with a deposit of 10pc required for first time buyers and 20pc from other buyers.
Despite constant opposition from vested interests within the property sector, this lasting regime has prevented us from being overborrowed to the extreme degrees we were prior to 2007.
But what we also don’t see is that these lending restrictions also shut down runaway price inflation of 20pc per annum which had prevailed by 2015 when too much money was chasing too few houses. It would have certainly continued in the years that followed because the shortage was never addressed.
Without the restrictions, house prices could be between 20pc and 40pc higher today.
So let’s thank the Gods for small, but sensible graces.