Alternative Reason for the Rise in Home Prices

As we track the Irish mortgage market, the soaring prices are blamed much on the shortage in supply alongside a growing demand.

The law of supply and demand dictate much of what happens in the economy and the many financial phenomena in which are seen.

This, being a large reason as to why the supply and demand law is being blamed for much of what is happening in the Irish housing market today.

To do an analysis on what actually caused the flawed market that there is today, it is important to study the market as it was in 2006. The market boom before the bust.

In 2006, home construction was at peak levels, with nearly 90,000 homes built. With a population of just around four million, that is an impressive number for home production to occur.

This, however, is where the law of supply and demand began to become of question.

As homes were on the rise and an increase in supply was seen, prices continued to rise as well. The opposite of what the supply and demand law states that should happen.

Prices in 2006 even rose by 11%. A drastic increase to say the least.

Since 2006, the evidence deepens.

2016 data reports an increase in Ireland’s surplus stock since 1991, at 9.1%, and an increase in the overall vacancy rate since 1991.

Ireland’s housing crisis is one that can only be described as a macroeconomic issue. Meaning that helps the individual to understand that land is inelastic and cannot be converted to capital.

Land is confined to its boundaries, meaning it can not be moved or taken from Ireland. Land, being then, the opposite of credit. The supply of credit can be affected by central banks and financial institutions making credit an elastic product.

In Ireland, when looking at the housing/property crisis from a macro perspective, it can be seen that the stock of land is in fact massively inflated. This impressive inflation can be in part due to the existing, unregulated, capital in circulation today.

It is important to note the importance and desirability of land as an asset. Land acts as an asset yielding high safety and value as the scarcity of it is on the rise in Ireland.

Land acts as a backup investment asset that typically preferred by asset management funds and insurance companies when there is a lack of government bonds available.

This, explaining an alternative solution as to why housing prices have shot up to such impressing levels recently. An excess in finance, differing from the previous supply and demand solution that has lingered as the fault in all economic issues.

With a shortage of finance, it is predicted there will be a fall in housing prices to follow. Just as with the rise in finance will come, so will the rise in home prices.

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