Deflationary food for thought

Apologies for the gap in posts, normal service will resume next week when the new site is launched! In the meantime, I’ll present some food for thought on Irish inflation. It’s become an accepted ‘stylized fact’ that prices in a modern economy keep on rising and on average that they rise slowly and steadily: slow inflation/disinflation good, rapid inflation/deflation bad. Now that Ireland is slipping/marching/dandering into deflation (prices for the first quarter of 2009 were 3.1% lower than the 2008 average), no harm having a closer look at prices and how they trend.

Looking at Irish prices over the past thirty years, here are some things that surprised me:

  • Prices for furniture and household equipment have fallen each and every year since 2003 – that’s a seven year deflationary spiral (presumably quality-driven, as TVs and computers get cheaper and better) that no-one’s lost any sleep over.
  • Over the last twenty years, the typical (i.e. median) year saw a 3% fall in the prices of clothing and footwear. That particular sector is on a 15-year running streak of falling prices. Clothes prices are at the same level now as they were in 1980!
  • Prices for communication have fallen in 13 of the last 30 years. The typical fall is 0.2%. Communications prices are at levels similar to those seen in 1983!
  • Every commodity group bar three (there are twelve in total) has seen prices fall at some point in the last 30 years. Those three are alcohol and tobacco (prices are largely determined here by taxes the governments put on them), tourism and healthcare. (Prices for recreation and culture are only falling now, -0.3%.)
  • These falls in prices are getting more common over time. There were only 4 instances of falling prices across the 12 groups in the 1980s, compared to 15 in the 1990s and 25 between 2000 and 2008.
  • There will more than likely be a further 8 instances of falling prices this year – the four exceptions being alcohol/tobacco, health, education and miscellaneous.

The graph below shows the typical (median) rate of change in prices in a particular set of goods since 1990. It’s clear that some sort of gradual general increase in prices across the board is not the norm. Prices vary by sector and are at first glance very much under the influence of policy, as well as other factors such as competition and technology, and it’s probaby worthwhile that this ability to influence prices is incorporated a little more into policy debate, particular when looking at those sectors where costs continue to rise.

Typical change in prices, by sector, 1990-2009

Typical change in prices, by sector, 1990-2009

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How many mortgage-holders are faced with unemployment?

A couple of weeks ago, I discussed the likely extent of the problem of negative equity and homes worth less than when they were bought. This had led to a rich vein of suggested blog posts as extensions, including last week’s look at which counties have suffered most from “unexpected” unemployment since the start of the recession.

That post was a first step towards estimating how many households are faced with both unemployment and negative equity. Today’s post is an intermediate step: how many mortgage-holders are unemployed? How does this vary across counties? And what would it look like if the Live Register were to hit 500,000, as some have suggested it might?

There are about 1.7 million households in the country – almost 600,000 were mortgage-holders in the Census of 2006 and they have been joined by another 90,000 or so first-time buyers since then. (Landlords and buy-to-let investors are of course another issue, but I’ll leave them out for the moment.) At the same time, since the Census, the number on the Live Register has increased from 155,000 to 385,000, meaning there are about 230,000 “unexpected unemployed” around the country, many of whom would have bought property at some point over the last decade or two assuming a stable employment situation.

Working out how many of those two groups intersect is not a precise science. Given the broad nature of the economic downturn in Ireland, I have assumed that unemployment has been indiscriminate across working households, i.e. of the 230,000 new unemployed, 55% are in homes with a mortgage, the same ratio in the broader labour force. The map below gives the approximate percentage of households with a mortgage where one person has become unemployed since the recession started. The national average is about 7% of households with a mortgage (or one in fifteen) are currently faced with unemployment.

Unemployment among mortgage-holders in Ireland by county

Unemployment among mortgage-holders in Ireland by county

It might be useful to walk through one county to explain in more detail. In Louth, where there are 44,000 households, about 14,000 of them are more than likely households with retired (and mortgage-free) inhabitants. Of the remaining 30,000 households, just under 20,000 are owner-occupiers with mortgages. At the same time, almost 9,000 people have been added to the number of unemployed people in Louth in the last two years. Assuming that the spread of unemployment was not related to home ownership status, that would mean that 60% of the new unemployed – or just over 5,000 people – are mortgage-holders. If those figures are at least in the right ballpark, that means that one in eight households with a mortgage in Louth is dealing with unemployment.

If you go to the original Manyeyes visualization, you can also look at the 2010 scenario of 500,000 on the Live Register, which assumes that the future increase in unemployment is distributed the same way the increase in the last 24 months has been. Because of that assumption, the regional dynamics don’t change – Leinster is still clearly worst affected – but the national headline naturally worsens. In that scenario, 10% of mortgage-holders would be faced with the problem of unemployment.

The final piece of the puzzle – next week’s post – is estimating how many of those who are unexpectedly unemployed and who have a mortgage are faced with the loan on their property being greater than that property’s current value.

Where in Ireland has seen the biggest increase in unemployment?

My recent attempt to put some figures on the scale of negative equity in Ireland – which concluded that about 40% of Irish homes are worth less than when they were bought and that as many as 20% of homes may be in negative equity – sparked some discussion here, on thepropertypin and most thoroughly on irisheconomy.ie.

The original post was designed just to put some numbers on the potential problem of negative equity, leaving aside for the time being the implications. Two important strands of discussion have arisen about the implications. The first relates to financial consequences, as mentioned by Karl Whelan, particularly in relation to the proposed NAMA and the fate of the banks. The second broad strand of discussion, being led by Liam Delaney, relates to how negative equity has labour market implications, particular when unemployment is on the rise. (Unemployment and negative equity are mirror images of the home ownership/labour mobility discussion being led in the US by Richard Florida.)

I’m currently working on estimates of how many households are affected by the dual problem of unemployment and negative equity. Combined with the likelihood of falling rents over the coming two/three years, rents being the alternative income a homeowner could get from their house, this is a cocktail for widespread misery currently partially staved off by all-time low interest rates and therefore mortgage repayments.

A next step in working out where both negative equity and unemployment will strike is looking in more detail at the problem of unemployment. The CSO provides very detailed statistics on unemployment by county/town and more occasional detail on the age profile and duration of unemployment. The map below gives an idea of ‘unexpected’ unemployment (original visualization here). It show the increase in those signing on by county in April 2009, compared to the average of 2005 and 2006, meant to indicate a natural level of unemployment (whether long-term or just switching jobs).

Unemployment in Ireland by county, April 2009 compared to 2005/2006

Unemployment in Ireland by county, April 2009 compared to 2005/2006

Those looking with relief at counties in a light brown – such as Waterford, Louth, Donegal and Mayo – should be aware that in all counties, the April 2009 was at least twice the 2005/2006 average. What’s more worrying, though, is that there are a number of counties where unemployment is three times what it was three years ago. In Meath and Kildare -stalwarts of Dublin’s commuter belt – unemployment has more than trebled. Likewise in Cavan and Laois.

The next part of the puzzle is to revisit county-level estimates of negative equity based on comments on the last set of figures and then try to put some numbers on how many households finds themselves faced with both unemployment and with a house worth less than their debt to the bank.

Are Irish workers undertaxed?

Recently, an ad for Liveline included an angry woman, decrying Ireland as a ‘high tax’ economy. Her argument was: “What’s the point in working if the government is just going to take all our money anyway?” That baffled me. As far as I knew, Ireland was certainly not a high-tax economy, certainly compared to some of the Scandinavian economies. I decided this was worth a closer look. Just how much of a low-tax economy is Ireland? And – given the €25bn gaping hole in the budget is going to have to be solved through a mixture of both expenditure cuts and tax increases – are Irish workers undertaxed?

The graph below shows the average “all-in” personal income tax rate levied on people who earn the average industrial wage, for a range of economies including Ireland, from 2000 on. The figure given is an average tax rate for four stylised households (a single worker with no children, a single worker with two children, a married couple with one earner and no children and a one-earner couple with two children). The figure for each economy includes family cash transfers, paid in respect of dependent children between five and twelve years of age. All figures come from the OECD.

Average 'all-in' personal tax rates, selected economies, 2000-2007

Average 'all-in' personal tax rates, selected economies, 2000-2007

Amazingly, in 2007, Ireland would have negatively taxed the four households, supplementing their income by 0.2% on average. Needless to say, negative tax is not the norm, certainly not for the average worker. Ireland is out of line with every other developed OECD economy. Our closest competitors, in terms of not taxing the average worker, are the Czech Republic and Korea – but both of those have an average tax rate for the four cases above of just over 10%.

Excluding child benefit, Ireland is still the lowest taxer, but the gap between us and the rest of the developed world narrows substantially. But including child benefit or excluding it, Ireland taxes its average worker the least of the 28 developed economies in the OECD in six of the seven different measures of average ‘all-in’ tax that the OECD produces. Only for single workers without children did one country, Korea, tax less than Ireland in 2007.

It could be argued that the use of manufacturing wages for Ireland – compared to a broader definition of ‘industrial average’ in most other OECD economies – could be affecting the result as it lowers Ireland’s average wage. That may be the case, and would affect the level of Ireland’s line in the graph above – but it wouldn’t substantially alter the trend. Ireland was already one of the lowest taxers in the OECD in 2000 and yet it cut its taxes by twice as much as any other economy.

This pattern since 2000 is important for where we are now, because a common explanation of how Ireland got into its fiscal mess is over-reliance on receipts from property taxes. That’s certainly true, but this wasn’t a passive over-reliance. This wasn’t a case of leaving the rest of the economy as-is and just not realising the once-off nature of the property tax windfall. This was very much an active over-reliance on property. The economy and the tax system was actively re-ordered based on a presumption that receipts from a property transaction tax and related sources would be the centre of the new economy. This was done with what seems like a reckless determination to tax workers less and less, without a due consideration of the sustainability of that policy.

I’m not saying that we should have high taxes for the sake of it. For one thing, direct taxation is only one part of the story – Ireland’s indirect tax rate (i.e. VAT) is one of the higher rates in the OECD (although it’s certainly not out of line). In fact, I’m not necessarily arguing that income tax rates need to go up. I can find only country in the OECD – the Netherlands – where the top rate of tax is above 50%. The Czech Republic, for example, which manages to get 10% in tax on the measure above, only taxes 32% at the top rate.

What I’m arguing is that we need to look again at our thresholds, i.e. at what point on the income scale do we start taxing people. We’ve got ourselves into this mess since 2000 and we certainly need to get ourselves back out.

Tackling the thorny issue of teachers pay

Earlier this year, I calculated average salary estimates for the public and private sectors in Ireland. The answer, that the average worker in the private sector earned €40,000 last year, almost €10,000 less than their public sector counterpart, has proved if not controversial than certainly a starting point for debate. Given some of the comments on that blog post, and the fact that the teachers conferences were being held last week, I decided to look in a little more depth at the education sector. How much do teachers in Ireland earn? How does this compare with other people in Ireland? How do teachers’ salaries in Ireland compare with other eurozone teachers?

Trade unions have been clear on one point since the size of Ireland’s fiscal crisis became clear: those most in a position to pay should bear the brunt. At the same time, teachers unions have said that their pay is not up for discussion. This implies that teachers presume that they are not among those most in a position to pay. How does that stack up with the stats? The chart below shows average earnings in mid-2007, the latest data across all sectors, with public sectors marked in dark blue, private sectors in light blue, and semi-state in mixed blue.

Salaries by sector in Ireland, 2007 (source: cso.ie)

Salaries by sector in Ireland, 2007 (source: cso.ie)

The single most striking thing is that all the best paid sectors in Ireland are either public or semi-state industries. (Those looking for more detail might start with Dept of Education figures out last week showing that primary school teachers earn on average €57,000.) Surely, any objective trade union leader should be arguing that whatever burden workers have to bear, the bulk of it should be borne primarily by the public and semi-state sectors.

There are a few common queries people have with the relevance of these statistics. The first often runs: “Hang on, you’re not comparing like with like. All teachers have a degree, while who knows how many people do in, say, paper and printing.” Ideally, I’d like to have the stats to hand to explore this. Unfortunately I don’t. My only comment before we move on is that if finance and business services had come out as the best paid sectors in Ireland, would the same people have argued that we should wait and see whether their higher wages were justified by qualifications/experience/profit created? Or would people have argued that as they were best paid, they should pay most?

Let’s move on, though. If comparing education with other sectors in Ireland is not fair, let’s compare Irish teachers with their eurozone counterparts? After all, our old trick in situations like this was just to devalue and hope for the best. Now we share a currency with a dozen or so other countries. Are our teachers overpriced?

The graph below uses OECD statistics to examine teachers’ salaries across the eurozone. (I’ll take this chance to recommend the OECD’s Education at a Glance 2008: even if you hate absolutely everything I’m saying here, do take the opportunity to wander around its facts and figures.) In Ireland, a teacher in the job 15 years, single with no kids, earns more after tax than his or her counterparts do BEFORE they’ve been taxed in most other eurozone members. Marry that teacher off and give them two kids and – despite Germany’s best efforts to catch up – Irish teachers are by far the best paid of the ten eurozone countries shown.

Average salaries (gross and net) for teachers in the eurozone, 2007

Average salaries (gross and net) for teachers in the eurozone, 2007

OK, so Irish teachers are well paid relative to other Irish workers – they may just be better qualified. And yes, they’re paid substantially more than their eurozone counterparts. Perhaps price levels are so substantially higher in the rip-off republic that teachers in Ireland need this extra pay just to break even? Unfortunately, eurostat figures on comparative price levels don’t back that assertion up. Whereas prices in Ireland are indeed 15% higher than in France, the single teacher above enjoys 75% more take-home pay. In Finland, prices are just 2% below Irish prices, but an Irish teacher enjoys a wage that is 54% higher than a Finnish counterpart.

If prices don’t explain the international gap, maybe Irish teachers work a longer year than their eurozone counterparts, explaining why they get paid more. Unfortunately again for Irish teachers, the opposite seems to be the case, as the graph below shows. Teachers – particularly secondary school teachers – work less days on average than almost all their eurozone counterparts. This leaves the amount paid for every day spent teaching in Ireland looking pretty unsustainable. Factoring in the pension levy only scratches at the surface of the problem.

Days taught by teachers and earnings per day of teaching

Days taught by teachers and earnings per day of teaching

Ireland is currently grappling with a huge fiscal and economic crisis. The government faces lots of tough choices about what stays and what must go. The fact that they’ve chosen to cut back some education services suggests that they are missing what should be obvious: the more we bring Irish teachers’ salaries back in line with counterparts elsewhere in the eurozone, as well as with other sectors in Ireland, the less we’ll have to cut back on the range of education services we offer.

As teachers of maths should appreciate, the arithmetic is simple. The government needs to make savings across the board in publicly-funded services, including education. To make savings in education, we can either cut back on education services (quantity) or cut back on teachers salaries (price). Teachers have so far been successful in passing those two issues off as one, and thus creating a somewhat bizarre alliance of service providers (teachers) and consumers (parents/children).

Given how Irish teachers’ pay compares domestically and internationally, it’s time we separated out teachers’ pay from education cutbacks and took a long cold look at what our teachers are paid.

A €4bn Budget day suggestion – just how much could an Irish property tax raise?

Yesterday, the latest daft.ie report was released. More details here, but the overall gist is that asking prices fell 4.2% in the first few months of the year. Coupled with the falls in 2007 and 2008, this means that asking prices are now down 18% in two years. On the face of it, this may not have much to do the Budget being released today, which has to deal with more pressing issues of the public finances, unemployment and the banking crisis. However, to say that Ireland’s stock of wealth tied up in residential property should have no role in plugging Ireland’s E25bn public finances gap is myopic in the extreme, particularly given Irish wealth-holding tendencies. Even if we rule out a property tax, we should at least know how much we’re throwing away in potential tax revenues, and this blog post hopes to establish approximately this potential is.

No harm, first, to recap the fiscal crisis Ireland faces, outlined in the chart below. In 2007, the Irish government expected that in 2009, tax receipts would be in the region of €56bn. By last week, the expected revenues for the year had slid down to €34bn. This €22bn gaping hole is staggering, as it represents a collapse of 40% in revenues. Any organisation with a 40% collapse in revenues has to re-examine its entire business model and Ireland is no different. Fixing the €20bn-plus gap between income and expenditure will require taking more money in and spending less. My contribution on the debate about spending less is for another day – you can probably get some inkling of what I think here – but on raising more, we have to look again at property. Property taxes in Ireland are based on transactions – we now know, and probably deep down knew all along, that the huge amounts the government was taking in over the past few years were totally unsustainable.

Government estimates of Ireland's 2009 tax take over time

Government estimates of Ireland's 2009 tax take over time

If we don’t tax property transactions, how will we tax property? And what contribution to plugging our €20bn gap can property make? Recent articles by the Sunday Independent and the Irish News of the World have discussed the scale of how much has been wiped off Ireland’s property market, while the combined report by stockbrokers Davy, Goodbody and NCB mentioned the potential revenues that could be earned by introducing a property tax in Ireland. So just how big is Ireland’s property market? The answer is about €460bn, as is shown in the graph below. The graph uses 2006 Census data on the number of households in each county, Dept of the Environment figures on new houses built in each county since 2006 and daft.ie quarterly average house prices by county.

The value of Ireland's residential property, 2007-2009

The value of Ireland's residential property, 2007-2009

The graph also shows that the total value of Ireland’s residential property is about E100bn less than what it would be were no crash to have occurred. A similar amount has also been wiped off Ireland’s stock exchange, which is plotted on the same scale to allow comparison but whose remaining value is €30bn, compared to the €460bn still in Ireland’s homes.

Supposing the housing crash continues so that Ireland’s 1.6 million homes are worth perhaps E400bn by the time they bottom out. While well below the €600bn or so that it “could” have been, this still represents a huge potential stock of wealth that is largely untaxed. Simple maths says that a property tax that averages 1% could raise €4bn per annum. Assuming that the government will be aiming for a three-year correction to 2012 that lifts tax receipts by €10bn a year, while it cuts spending by €10bn a year over the same period, a property tax could solve 40% of Ireland’s tax woes. The average household’s annual tax bill would be less than €3,000 – or about €50 a week.

How would a property tax work? There are of course some significant issues that Ireland would have to iron out first, before a property tax could come in. For example:

  • Politically, older citizens have proved sensitive to the idea that the government might have access to some of the wealth stored in their homes, even if it’s to pay for their healthcare. The illiquidity of houses raises the prospect of retirees having to downsize to avoid tax bills. While this is normal in many places, particularly in the US, it would require a change in mindset here. Put more bluntly, the idea that people should be entitled to have any wealth stored away in property, as opposed to other forms of wealth, untouched by the government is out of date.
  • Recent purchasers would have to be given property tax credits, so that double-taxation through stamp duty and then the property tax would be avoided. Those who made particular purchases based on stamp duty arrangements that existed at the time may also feel hard done by.
  • Measurement of house prices would become even more important, as it would have tax implications. In this day and age, though, accurately measuring house prices should not be an arcane task. Measures such as the daft.ie and ESRI/ptsb series are both based on well established hedonic price methods, which could easily be adapted to official Revenue Commissioners data, if these data were made available as they are in most other countries.
  • An instant extra tax burden is probably not what the economy needs now. Phasing it in gradually over the coming 3/4 years would be advisable as it would allow adjustment to a new system, while also showing medium-term planning on the part of the government.

Nonetheless, there are significant advantages to a property tax:

  • It gives the government a steady generally acyclical revenue stream and has an automatic stabilizer effect – i.e. the tax burden households face goes down when prices slump and more than likely their confidence slumps too.
  • There is lots of potential in a property tax to achieve other goals as well as revenue-raising. (Indeed, for the purists, taxes should only be introduced when other aims will be served.) For example, the average of 1% could hide differences, if the government wanted to incentivize, for example, energy efficiency. Houses achieving carbon neutrality or some top level of energy efficiency could be exempt from property tax, or perhaps pay a minimal rate of 0.25%, while homes that incur a significant burden on the rest of society might have to pay signficantly more. (This would require significantly more planning and guidelines for consistent rating than the recent BER scheme.)

Given that we’re talking billions – perhaps even twice as much as the joint report by the main stockbrokers suggested – this should definitely be explored in more detail over the coming months.

Intergenerational outsourcing and the consequences of building 10% too much: A look at Ireland’s property market in 2013

With Davy Stockbrokers predicting a 70% fall in Irish construction activity from its peak over the coming ‘medium term’ (2009-2011 or so), I though it might be timely to review some headline statistics for Ireland’s property overhang.

Recently, I’ve been peddling the idea that between 2004 and 2007, we were building twice as many homes as we needed and building twice as many for 3/4 years implies building half as many as you need for 6/8 years to return to equilibrium. Does that stack up? Or, put another way, if we start in 2002 with Census statistics on the stock of housing, use Dept of Environment statistics for the period 2002-2008 and turn Davy’s figures into ballpark estimates for 2009-2013, how bleak will things look in five years time?

The answer, much to the chagrin of those who loathe two-armed economists, seems to be that it depends – in this instance on what part of the country you’re talking about, but also about what you think is the appropriate long-term need for new houses in this country. If we take 2001 figures (technically March 2002 figures) as our ‘departure from normality’ point, how far off course are we? Between 2002 and 2008, we churned out over half a million properties, off an existing base of just 1.3 million households. Back-of-the-envelope estimates, based on an overview of economists’ figures on this topic, suggests that we should have been building perhaps 300,000 households in that same period. (That’s using an equilibrium figure of 40,000 properties a year, rising temporarily after the accession of new EU member states.) So, enough with all the stats, what’s all this for, you wonder. Well, I was hoping to use all this to answer two key questions:

  • Where suffered worst from Ireland’s properties building bonanza? Where is housing inventory lying around most?
  • How long will we have to sit around building hardly anything until we’re back to some semblance of normality in the property market?

Where did we build our extra properties? By the end of 2008, we were about 5 years ahead of schedule – i.e. we’d built 12 years supply in just 7 years. To give a regional flavour, based on insights gleaned from the property overhang per county figures I calculated in December, I split Ireland into three regions – Dublin, Connacht/Ulster and the rest of the country. (The data allow for a full county-by-county analysis, however time constraints and poor formatting in the various external sources has prevented me from threatening another heatmap!) Over the period in question (2002-2008), more houses were built in Connacht/Ulster than there were in Dublin, which has almost twice the population! As a result, in terms of years of “pre-production”, if you will, while Dublin had under 2 years excess supply by end-2008, Connacht/Ulster had almost 8 years. Once more emphasis: builders managed to produce 15 years output in Connacht/Ulster in just 7 years.

How long will we have to sit around building nothing? It’s all very well for someone to come along after the fact and say “You shouldn’t have done that”. What’s more interesting is to shed some light on where the adjustment will come first and where it will be hardest. One option would be just to close up our construction sector for a few years until inventory shifts sufficiently and prices start to rise. Practically, of course output doesn’t and shouldn’t collapse to zero and, as per Davy’s figures, will be in the range of 10,000 to 25,000 over the coming 5 years.

Therefore, I’ve assumed output of 20k in 2009 (still slowing down), 10k in 2010 (bottom of the market) and then a simplistic 5k increase in output every year after that, rising to 25k in 2013. Let’s call this the ‘post-Section 23′ scenario. This is contrasted with a ’20:20 foresight’ scenario where steady-state output in construction remains 40,000, apart from a minor blip of 35,000 in 2009 due to global economic circumstances. In both scenarios, new houses are allocated according to a region based on its Census weight – crucially, and we can relax this later, even in our post-Section 23 world, output resumes in Connacht/Ulster, not at the distorted rates we saw but in proportion to its size. The result of all this is the chart below. The figures show the excess of properties as a percentage of the total property stock in each of the three regions.

Ireland's excess properties, % of total properties, by region, 2003-2013f

Ireland's excess properties, % of total properties, by region, 2003-2013f

The results are pretty clear:

  • Even with some major internal restructuring of the construction industry (i.e. rebalancing output of houses according to a region’s weight in the economy), Connacht and Ulster will still have a significant property overhang, more than 10% by 2013 – and that itself based on a drastic 70% contraction in building activity from peak levels.
  • For most of the country – and indeed the country on average – the overhang will have halved by 2013 but will still be in the region of 5/6%.
  • In Dublin, shortages in housing may emerge as quickly as 2012.

Objections to the above might include one along the following lines: construction will not only contract 70% but also no-one will be building in Connacht/Ulster for years to come so even the rebalancing of output described above is not an accurate forecast. In that case, the overhang will just take the full 8 years from 2008. Section 23 and the property boom will have taken construction jobs from 2009-2015 and left them in 2002-2008 – a sort of integenerational outsourcing.

Another objection is that the optimistic (if 2012 is optimistic) scenario painted for Dublin hinges on that long-term need of 40,000 units a year (which translates into about 12,000 new units in Dublin annually, based on its Census weight). Significant and persistent net outward migration from Dublin from 2009 on – which incidentally is why I believe that Dublin Bus, so clearly an ‘inferior good’ in the economist’s sense of the word, is losing money when incomes fall – might mean that the demand for housing in the period 2009-2013 may fall to 20,000. Replacing 40,000 with 20,000, from 2009 on suggests that the average percentage overhang for the country stays stuck at 10% and Dublin – while still much lower – remains stuck at 3-4%.

In sum, we are where we are. We’ve more than enough houses everywhere in the country and plenty of houses in places where we won’t need them for another 10 years or so. Therefore, it would be wise for the Government to take this crisi-tunity, as Homer Simpson would say, to harness both supply and demand sides of the market.

  • On supply, it should focus the efforts of the much-trimmed residential construction industry, when that sector starts to medium-term plan in 2010/2011, on Dublin and other areas around the country most likely to show a shortage of property this side of 2015.
  • On demand, the Government should attempt to deliver balanced regional development, taking property overhang as an opportunity for affordable housing to create new centres of employment. Taking this to its most logical conclusion, firms outsource because they want to free up resources to specialize on what they’re good at. Therefore, we must adopt a mentality along the following lines: “Let’s take this opportunity to treat our property boom as intergenerational outsourcing, which has freed us up to focus on what we’re good at.” (Just don’t say all we’re good at is construction!)