I don’t often take swipes in this blog but today there is a difference, somebody or some one (preferably a qualified psychiatric professional) has to have a serious one to one with Tom Parlon of the Construction Industry Federation (CIF) because he has finally crossed the Rubicon that divides reality from fantasy land and turned his attention towards the utterly insane, namely by stating in the Sunday Business Post that the solution to the economy is more houses.
Just when we are hearing how there is a massive oversupply, how in three years 250,000 houses were built to satisfy a demand of about 130,000 required, and when prices are falling out he comes with this little gem. Supply outstrips demand, and his response is ‘more supply’. Perhaps it would be wiser for the CIF to employ an actual builder or engineer to do his job rather than a politician who has no experience in doing the job of the people he represents.
In his article he points out that for every 10,000 houses built that 1 billion goes to the exchequer and that the property slowdown has cost 30,000 jobs. I feel for the people who have lost their jobs, I genuinely do, in fact, I even feel for the contractors who are being punished with the Governments new ‘GDLA’ contracts (more on that later).
I don’t accept that just because houses put money in the coffers of the Government that it is therefore the way forward, the Government have to make their own plans and if they get money for houses being built then naturally they may want to see more of them going up but the fact is that in the end they will have to bail out everybody when further oversupply destroys the market, facts are facts: there are too many houses and prices have to drop so we can reach a balanced point in the market. Interpretation to fact is a wide open subject though and on that note Tom does an excellent job.
If you really want to see a recovery in property there is only one way to make that happen, namely demand must outstrip supply, that is simple economics and the way for that to happen is to have a few years of under development during which demand can build up, during these years prices would drop and then one day start to rise and as deman outstrips supply, the wave-like cycles of markets are natural and trying to stop them is no more effective than the king who tried to stop the tide from coming in, George Bush and the Fed couldn’t do it so how will Tom Parlon and Brian Cowen be able to? Short answer: they won’t, but they will be sure to mortgage future generations in an effort to do so!
Mortgage future generations, lets take a moment to consider that and what it means. If you raid the NTMA (raid the states pension money-as previously suggested by Parlon) or bail out builders or housing then you will need money to do so, money that could otherwise be used to improve hospitals and schools, but that aside – you take money that you don’t have (Irish Government is in a deficit so they would have to borrow) and you then pay it back some day, but that ‘someday’ has to be funded by taxpayers of all types, companies, individuals and even unborn children because the bond (debt issuance) that guarantees that money will fall on the shoulders of people for the next 20 years meaning that the people who benefit are not those who actually have to pay for it.
Developers and banks didn’t share their profits with me or you on the way up, so why should anybody be forced to share their losses on the way down? I’m not one to quote the bible very often but they said it best 2,000 years ago ”Your joy is your own your misery is your own, nobody can share them with you”, for the sake of this analogy you can replace ‘joy’ with ‘profit’ (not prophet!) and ‘misery’ with ‘loss’. The lesson in all business needs to be ‘you can’t privatize profits and publicize losses’.
Toms call for Government to reach ‘equilibrium’ on property supply is flawed, to reach that equilibrium we need to see demand and supply meet, currently supply outstrips demand so more supply is the polar opposite of what we need, if he is truly the spokesman for construction then why is he advocating a solution that will plunge property prices further into depression? I sincerely wonder about the guy at times…
A shortage of mortgage finance will actually help first time buyers, you heard me say it, a shortage of finance in the short term is a good thing, you know why? Because an overflow of finance is what got us here to begin with! A shortage will mean that houses will only sell at the level that first time buyers can afford them at! Which will force what our firm has believed ever since the downturn began – a short sharp correction.
If finance is readily available then people can afford to pay through the nose, if it is restricted they can only borrow/pay that which they qualify for and that means it will help property prices drop to the level they need to be at in order to be bought/move, building more houses and creating finance via the Government is a concept that will keep prices artificially high, that might be great for developers but it’s not so great for the first time buyers who will pay thousands more over the life of the loan! It won’t be great for tax payers who will ultimately shoulder the burden of the state debt created in doing so. If anybody is sincere about wanting to help first time buyers then they must be on the side of ‘no government intervention that keeps prices artificially high’.
I’m actually disappointed that the Sunday Business Post give Tom a platform (he wrote the article himself!) and they continue to make cover stories of every hair-brained and newfangled idea he comes up with. Personally I’m not willing to mortgage the future generations just yet and I’m in the trenches of the finance/property business, I’d rather take my cuts and bruises as earned and get over it, rather than trying to put it off at the risk of being beheaded instead!