The good thing about a Property Bubble

economic doom and gloomThere is so much gloom and doom in the press recently that only those with the greatest fortitude seem to find any cause for happiness. Personally I have been talked down off the roof a few times already (philosophically not in reality). And hardly a day passes where the Government don’t give us some negative outlook news. If you are into sadomasochism there is a new way to get your kicks, it’s called the ISEQ and if you are truly sick you can always watch property prices.

However, today’s article is going to focus on the good life and the good things that are coming out of the property bubble and that will continue to serve us all better in the future (catastrophic losses aside)

government failure was private sectors success1. The Bubble performed where the Government and Good Intentions failed: The Government and all of the good intentions in the world were never able to gentrify the north inner city (my former home), but the property bubble did a GREAT job! Walking down Sean McDermott Street or Gardiner Street after dark is no longer considered an extreme sport.

The North Inner City is not a totally regenerated area, there are still social issues and a good concentration of people who are in the ‘have not’ section of society, however, the property bubble did make the place better in so many ways, it has brought in many new buildings and apartment blocks, down by the Five Lamps there are coffee shops, offices, retail areas and new apartments, this was unthinkable even a decade ago. And in acknowledgement of investors, it was private sector money that achieved it all, public money had little or nothing to do with the city’s regeneration. Granted the Section 23 allowance helped a great deal but an incentive doesn’t mean that people just jump in hell for leather, it still requires private class money to be earned and invested.

property used to be confusing, now it makes sense2. We have much better market tools: look at all of the market resource tools that have sprouted up, some are commercial and but they can have research tools attached to them too is a prime example of this as is daftwatch both of which use the Daft site to track rises and falls in the wider market (albeit that since their inception the trend is down and the creators are bears who made the sites for that exact reason). However, we cannot deny the excellent addition to the market that these sites have given us, fast information, accurately, at our fingertips in seconds! Hats off to all of them.

3. Distribution of the population: Decentralisation was/is a joke, but the house price bubble did a great job of getting people out of the city. Drogheda, Navan, Trim, and many other regional towns became rejuvenated, the locals there might curse it as a Jackeen Invasion but the fact is that these areas also experienced a huge infrastructural uplift due to the new inhabitants, and their existing property would have had a handsome increase in their property values to make up for it. Even though prices could fall 40%+ that would still be a better return than the return they would have gotten if property had grown the way it does traditionally (consistently mediocre performance).

no longer do the blind lead the blindWe saw many people opting to get bigger houses for less in far flung areas but that has also had a ‘balancing’ effect on the nation, and not everybody there was in commuter hell, many were self employed and set up shop in their new home areas thus bringing more jobs to these areas and creating local economy which in turn supports local council via taxes etc. and the overall effect is that the country as a whole is better off in terms of infrastructure and the movement of at least some labour out of the capital and main cities (although Lietrim will forever be in a depression it seems, all nine of the people still living there have told me that)

4. Upgrade of the countries housing stock: We need not think too far back in time to remember the tenement stock of property prevailing through many towns [this point does tie in a bit with point 1]. The housing stock of the whole country, and in particular inner cities and regional towns has been upgraded. The average house on the market today represents a quantum leap forward compared to what was on offer 20 years ago. You can rant about them being shoe-boxes, piled up on each other, and built with materials that won’t last a century and to this I will always say ‘it still beats a tenement’ and that is indefatigable.

financial genius, now anybody can be one5. Sophistication of Consumers: Who doesn’t know at least a little about ‘interest rates’ today? A decade ago the only people watching interest rates were bond market men and City of London folks. Today’s consumer knows much more about bank charges, rates, APR and many other things that previous generations lacked. There is a part of me that thinks the intermediary channel is going to decline because of this, if people know all they need to about finance it takes away from the knowledge power a broker has, although I think there will always be a place for brokers, I don’t accept that we will be as numerous as we are today in the future.

6. Excess capacity creates prices wars: All of this extra property will not be burned or smashed down, it will be marked down appropriately and sold on for what may be catastrophic loss to the seller but what will be a long term good buy for the purchaser, if we accept that those who can handle loss better are the investors (if not then they shouldn’t be investing in certain asset types) then we must believe that they will be able to recover, in fact, they must recover because it is investors and the private sector that will eventually drive the economy to any meaningful recovery. In the meantime we may have some ghost estates, but if the price gets low enough somebody will buy them.

7. Creation of a Property Regulator: We finally got a huge area that has witnessed many incidences of abuse over the years regulated. This means that there is a point at which the ‘buck stops’ and it is the Property Regulator. How they actually perform is another matter but formalising some of the transparency and enforcing the qualification requirements of people in the property business is a great thing and long overdue. I recall one instance where a builder took back contracts and sold them on for 30k more each, total abuse and only capable because of a lack of control. We had an estate agent ask for ‘proof of a loan’ from a client of ours and not from another, we knew it was because the client was African and thus complained to the IAVI, who in turn did nothing, and in fact they defended the idea. So bye bye abuse, hello regulation! If this is done right it will ensure a proper and equitable system can exist on both sides of the equation, for professional and consumer.

ride into the sunset8. Education about asset classes: In years gone by people were not financially astute in general, on that point, I believe that the single greatest feat in the area of education in this country and many others is that of ‘financial education’. For that reason I take a pro-active approach and will be running courses in VEC’s about money, and I also hope to get involved with larger groups to establish a ‘money curriculum’ that might one day end up in schools, most importantly into inner city schools where breaking the cyclic generation pattern of poverty is most likely to succeed. Today people know more about stocks, property, rates and commodities than they did in the past, and talks of ‘oil prices’ don’t focus on what you pay at the pump only, people talk about it per barrel, that means we are starting to use investor words in appropriate context. Onwards and upwards!

So while many are thinking of only the glum things, I’m concentrating on the bright side of things, it’s especially easy to lose yourself to gloom and doom in a market like this, but anybody out there is not going through this alone, the whole country is feeling it, so I would hope that there are others who can see some of the good to have come from the property asset bubble, and this by no means indicates the game is over, property will still be an asset class as long as there is freehold and people with any money, we just have to acknowledge that it won’t be the same during the next ten years as it was during the last ten years.

Don’t lament just yet, after all what goes up must come down, and by extension what goes down should one day, come back up, and if it doesn’t just be glad that it did, because it made today’s Ireland better than yesterdays.

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