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Listen to Gregory Connor Talk.Welcome to the Dublin City Public Libraries and Archive Podcast. In this episode Gregory Connor, Professor of Finance at NUI, Maynooth, talks about the effect of Ireland joining the Euro, and how things may have worked out differently if our banking regulatory system had been stricter. He also addresses the housing situation, mortgage arrears and how Ireland might get out of debt. This talk, one of a series on the Irish Economy, was recorded in front of a live audience at the Central Library in March 2012.Great thanks so much Padraic, thanks for having me, I hope you all get something from this talk and thanks for coming, so I really wanted to cover three things here. I want to talk about the Eurozone that’s the currency we are in, along with 16 other European countries not including the UK and as you know it’s in a bit of a crisis at the moment, so I’ll talk about the Eurozone, what’s wrong with it, how the crisis evolved, then I’m going to talk in particular most of what I want to talk about is the Irish situation in particular, how the Irish banks got Ireland into so much trouble and where things stand at the moment from the perspective of Ireland in the Eurozone crisis and then last thing I’ll talk about the future, is Ireland and is the Eurozone on a path to get out of this and what are the likely outcomes I’ll just briefly discuss on that. So I want to start with a picture of John Kenneth Galbraith, he’s a late 20th Century witty Canadian American economist. Actually coming back into favour now, but he talked a lot about fads, social fads and the influence of social delusions and business fads on the economy and he did a lot of work in particular about how the 1920’s, roaring 20’s led to the Great Depression and it has a lot of resonance now in fact in what happened in the noughties as they call it, the 2000, the 2008 period and how that led to the current crisis, but in particular as I said he was quite witty, one of his witticisms was “The great thing about being an economist is the more you screw up the more they need you” and it’s true the last few years as an economist, you get more and more attention to what you are saying, whereas people always ignored you during the noughties. All of a sudden we are very stylish in giving talks like this okay which is a bad thing okay and maybe that needs to go away. I want to lay my cards on the table and say I’m not one of the economists who’s going to come in here and say I told you this would happen, I missed it okay, I screwed up, in fact I do risk modelling, financial risk modelling so I just say, I am not one of the people who can claim I saw it coming. What I say about the past is with hindsight and I don’t want to pretend otherwise.Okay so first I want to talk about the Euro, okay the Euro is this currency zone, now in seventeen countries which is a locked in set of exchange rates where these basically all the countries are in the same currency and as you know it’s causing enormous dislocation problems in many of the countries, really throughout the zone from Germany to Portugal the Euro is problematic. Why did we do it? What was the reason for the Euro? Okay, let’s look in particular the financial reasons, because there are successes associated with the Euro. This is one of the big reasons for the Euro and if you understand this graph, you will understand not only the reasons for the Euro or one of the reasons for the Euro but the problems in the Euro. This is the relationship between the Italian Lira and the German Deutschmark from 1980 till 2009, throughout that period Italy, the Central Bank in Italy and the Italian Government had one goal with their exchange rate policy, this graph was not to slope downwards, okay that was their goal that was their overriding goal. This line was to be straight okay and that was what they tried to do for 20 years, did they succeed, no they failed and they failed and they failed and they failed and they failed. It just went, it continued to slope down for 20 years as they fought and fought and fought to keep it strong, to keep the Lira strong, a hard money policy and they just couldn’t do it okay. The political system just didn’t allow them to do it. The Union said ah we know they are not credible, we know they are going to relax the exchange rate, so we are going to bid up our wages okay, because we know they won’t go through with it. The pensioners as well said we need more pension money because we know they are going to, they are going to inflate away any gains, everyone the political system, everything worked against what was their key motivation and it failed, except at the end, once they locked into the Euro it worked, okay all of a sudden Italy had a hard currency, note at the end once it’s in the Euro, because they are the same currency as Germany, they now have a hard currency relevant to Germany, so in fact there’s a success, Italy now has a hard currency, as does Ireland, as does Portugal, as does Belgium and even France because France had the same desire and the same though not as dramatic the same failure throughout this period. So all these currencies which wanted hard money now have hard money okay so there’s your success, now there are other issues of course. There’s the issue of trade and the no need to exchange currency as you move across borders, but this is really from the financial side, the key motivation for the Euro and in a sense it worked, we got what we asked for, okay but many people see why did it have to be such a brittle system? Why did this Euro system have to be so inflexible and brittle, that was not a bug in the Euro design, that was a feature you know the term, the joke that programmers say, when you say there’s a bug in your programme, your computer programme that’s not a bug it’s a feature okay, that’s true of the Euro. Its brittleness was intended, it’s a feature of the Euro that it’s brittle, okay that was how the Italian State was able to lock in a hard currency by forcing the system so that it cannot leave. If the Euro were a system where Italy could be in the Euro but it can leave any time it would never have had a hard currency, it would have lasted three months and then the demands of the system for a soft currency would have overwhelmed it, so the locking in is part of the success of the Euro, and this is actually a very old strategy. This is a third century mosaic and that is Odysseus and if you remember the story of Odysseus what does he do, he locks himself onto the ship’s mast and I have a quote here about this is from Homer’s Odyssey okay, okay it says this is Circe telling Odysseus how he can listen to the siren’s, the siren’s are these lovely singing magical creatures on two sides of the straight and they are sailing through the straight and anyone who hears the sirens is so enchanted by the beautiful singing that they are drawn off the straight and narrow path and into the rocks okay so what does Odysseus do? “He must drive straight on past but melt down sweet wax and honey and with it stuff your committed companions ears so none can listen, the rest that is but if you yourself are wanting to hear them, then have them tie you hand and foot on the fast ship standing upright against the mast with the ropes ends lashed around it, so that you can have joy in hearing the song and the sirens but if you suffocate your men and implore them to set you free, then they must tie you fast and even more lashings.” This worked too okay. Odysseus got to hear the sirens and he sailed safely through the straights by locking himself onto the mast okay and that’s what we’ve done, we now have a hard currency, so does Greece, so does Italy. We didn’t matter in that sense but Italy mattered and France mattered, so one of the key motivations is to lock in, create a brittle currency system where we have to have a hard currency system okay. This was not really the key issue for Ireland. For Ireland why did Ireland go along? Well Ireland was very I’m sorry where’s Ireland, okay I want to talk about Germany, then I’ll talk about Ireland, what about Germany? Why did Germany go along with such a system? Okay well you probably remember Fawlty Towers, there’s a running joke on Fawlty Towers, they have German guests come in and Basil Fawlty would say don’t talk about the war okay, don’t talk about the war with the Germans and then of course you would end up talking about the war because he would put his foot in his mouth okay. Well I worked in the city in the late nineties, in the city of London and I used to visit clients, I was selling risk management systems okay, and I’d visit clients and client support would always whisper to me, don’t talk about the Euro as a problem, they are German clients, don’t talk about problems with the Euro, so I’d stand up here and I’d have to make sure I didn’t say anything negative about the Euro, because the Germans just had this emotional commitment. It was really the same thing, it was basically liberal anti-nationalism, the Germans just felt we are good Europeans, we want everyone to be one body, so it’s actually a good thing, but it did make them blind okay, the Belgian’s, the German’s, the Dutch, the hard currency countries were blind to the failures of the Euro, why? Basically for good motivation they believed partly it’s not the whole story but partly, they believed in liberal anti-nationalism, they wanted to take the hard currency, the Deutschmark and share it okay to bring Europe together, so the German’s are partly to blame but partly their blindness was in a sense motivated positively to a good extent okay, so there isn’t really just goodies and baddies, there’s blindness for good motivation, okay that’s another thing that happened. They certainly were blind, the Germans allowed Greece into the Eurozone. Now looking back at that, that was a ridiculous decision, again with hindsight the idea that Greece, Italy coming in is marginal and it seemed to possibly work, but Greece coming in was clearly you know grossly in error, so they clearly were blinded okay by something okay. What about the Irish? Well the Irish didn’t really matter okay they didn’t matter much but they were welcome okay Ireland was welcomed, why did the Irish join? Well it wasn’t so much the hard currency, Ireland did not have the same experience as Italy with a constant depreciation of its currency, it didn’t manage in many cases to keep a peg for instance to the British Pound but Ireland was also enthusiastic. Most financial economists in Ireland and it was basically because they saw it as the chance to lower their cost of investment. This is their cost of investment under a small more peripheral currency like the Punt. Joining a big currency area like the Euro okay was going to lower the cost of investment and that was going to increase investment. This was what many Irish economists, myself among them and someone who is at this point interested in visiting Ireland okay, this is what we believe, we are going to lower our cost of investment and increase investment because the cost of the funds was going to decline when we move from being a small peripheral currency with all the risk associated with that, to a member of a big currency block okay locked in at hard currency rates. What did we get? Well something worse, something that we didn’t really predict which was over investment a credit flood okay, Ireland got a credit flood. In fact looking back we realised there was so much investment for bad reasons, bad business decisions, bad regulatory decisions, that in fact many of the investments were negative in their returns, so we were actually getting, we were throwing money at investment projects okay with negative return. When I see we there, that’s the business interests and the business community in particular the banks and property developers together, were taking German money and poor money and throwing it away because of self managerial, self interest okay. I’m going to look in a little more detail what happened in Ireland but basically this is the key thing, it was essentially a credit flood, we had a flood of foreign credit when we joined this big currency zone and had bad financial regulation, okay let’s look now in more detail of Ireland, sort of work out the steps of where this, how this affected our banks and one in particular happened. This is the asset side of the Irish banking system, keep in mind with banks assets and liabilities, it’s like my right side is your left side, the same with banks, their assets side is your liability side, so you have mortgages you think on them as liabilities, for a bank mortgages are assets. Credit card debt we think of them as liabilities, those are assets to banks. You might have a savings account, to a bank that’s a liability, but that’s an asset to you. You might have a checking account that’s your asset, their liability, so this is their asset side business and individual’s liability side and let’s look at what happened to these banks. The red bar is the key thing here, this is property development. In traditional commercial banking it should be zero. Property development is not considered an appropriate activity for a commercial banks, they are only supposed to lend for property in the traditional view, where they already have the red one locked in, so short term last minute banking otherwise it’s supposed to be equity. And what we can see is that exploded over the noughties period, so the red part just grew enormously okay, so on the asset side you had a big growth of property development which is in fact not even an appropriate activity for banks and as we now know there was some very bad investment decisions. There was also a lot of growth of mortgages okay, so on the asset side way too much property development growth and also quite strong, probably too strong growth in mortgages. What about on the liability side? Where was the money coming from? It was coming from foreign borrowing, the banks were paying for these very risky investments by borrowing from foreign mostly Eurozone banks okay, so they were taking short term money from foreign banks and using it for very speculative investment so this is if you follow kind of you know the entrails of what happened in the crisis this is a little bit old news but that’s the key thing and here again this red area is the key one along with the yellow one this is foreign borrowing okay. Now the yellow one is a little bit less bad because it is not coming out of, it’s all going into foreign lending okay, whereas red is actual foreign borrowing being used recycled back into the domestic lending. Note this borrowing is what’s called “Hot Money”, these are quickly reversed okay and note here you can see it climbing down, this is the hot money drifting out of Ireland okay. A lot of these are very short term institutional deposits and short term bonds that the foreign banks can you know liquidate at their pleasure okay. Well what we do in economics, to look at policy and sort of understand what went wrong is what’s called counter factual policy analysis. What we do and you know a standard tool is we take a decision in the past and we want to think about was that a good decision or a bad decision, what were the implications of it, we remove it and then we create a new history. We say let’s change an old decision and let’s see how key it was because we know how the decision feeds through the system, let’s change that decision and see what the system would look like okay. It’s just like, I like the picture of Gwyneth Paltrow Sliding Doors okay, that is basically the same idea. There’s this movie where Gwyneth Paltrow is running onto a train and in one reality she makes it onto the train okay and then she gets home and she finds her boyfriend cheating on her with another girl and her life goes one way, okay and the other reality she hesitates and misses her train and her life goes another way okay well that’s basically counterfactual simulations. Now I’m going to do that for a minute this was work with Brian O’Kelly on the Irish banks. What would have happened if we had been slightly more sensible in financial regulation during the bubble period okay, well in fact with a little bit of a change in bank regulation okay most of the Irish problems would have gone away okay. Most of the crash would have gone away and thinking through that reality, so now we are in a different reality, we are in a made up reality, where the Irish Central Bank and the Irish Financial Regulator prevented the banking sector from taking these extremely risky bets on property development funding by net foreign borrowing okay. Just make them more sensible, reasonable regulation it’s called prudent regulation, that little change would have really changed the outcome okay, so here’s the asset side when we enforce the condition that property development cannot be more than ten per cent of stable liabilities which are domestic deposits which are on the other side okay. So you can only have ten per cent property development assets relative to domestic deposits okay and we also put in the condition a note you change the, you drastically reduce this scary red part okay, which caused the problems on the asset side. We do the same thing on the liability side here we forced the net foreign borrowing to be cut. Again this should have been controlled by the financial regulator and it wasn’t, so let’s control it okay, so this is our simulated reality which is allowing the system to be more prudent in its behaviour okay and those things go away, what would happen to the Irish economy? Well you would have much, you know obviously by construction you would come into the 2008 Lehman Brothers cut crash with a much more stable banking system, so you are coming along here, here’s the crash, the system is much more stable, than in that reality in terms of your exposures to property risk and for hot money foreign borrowing okay, you would also have a more stable borrowing okay. This is the borrowing side, so here we have our net foreign borrowing, the GDP that’s both on the asset and liability side a much more stable environment okay. It actually would have after the 2008 crash eliminated a lot of the ... we would be just like most other European countries with just a little bit of a change in our financial regulation, you will see this has implications as we think about whose fault it is and what needs to go, happen going forward okay. With this obviously there would be a big change in net foreign borrowing right, by construction, so we wouldn’t have this big overhang that the banks all of a sudden as you remember in September 2008 the banks all went bust, they effectively all went bust, because all that “Hot Money” all that net foreign borrowing left and the Government was how are we going to replace it? Well first it put in the guarantee, that didn’t work and then it went into an IMF Programme okay, because it had to replace all that “Hot Money” which disappeared in a flash okay. But here’s the interesting thing, it wouldn’t have been such a lovely period for you all okay, you remember those years they were wonderful growth years, why were they wonderful growth years? For false reasons, it was fake income okay, it was generated by imprudent borrowing of the domestic banks from foreign banks, so all that wonderful 2003 to 2007 growth was phony okay and if we eliminate, if we bring in prudent regulation a whole lot of growth disappears okay, so in a sense this was already spent okay and now we have to in a sense pay it back and that’s where the ECB, that’s where the you know European Commission and even IMF were telling us you already had the good times, now you have to pay the cost okay, that’s one way to interpret it. Right in fact if we look here this is your GDP, there’s your extra GDP you got by having bad decisions. Note it’s only negative at the end okay obviously you continue here, it’s got to in a sense if you believe in you know a just universe, all of this has to be balanced on the negative side right, that would be the Greek tragedy solution right. If Homer did this, that would all go away so we would pay it all back right. In fact here it is just graphically, there’s Ireland if we would have done things right. Now again this is a simulated reality and what do we see in the purple line, this purple line here is Ireland without imprudent banking regulation which allows this credit inflow right, a lot less growth and in fact you know it’s sort of you are losing more than you are benefitting so far, so obviously this has to continue for quite a while, right this yellow line to make it equal because the yellow is the reality, the purple is the simulated reality. Well if you are going to get rid of all that growth, that fake growth, you know it’s going to be paid back and it clearly is right because something you know, we are in a sense going to pay all that back one way or the other okay.So that’s sort of a review of the Euro, a little bit about Ireland, now I want to just for my last little bit, I want to talk about the future and where things stand and what it looks like going forward okay, well we had this big party really. Right Ireland had a party based on phony money that was poured in via the Euro currency from foreign banks okay. Now we have to pay it back or some feel we don’t have to but the standard view at least by the ECB and the IMF is we do have to pay it back. Can we pay it back? Is it feasible? That’s the question, well this is the key number okay which is Government debt relative to GDP, if this number is more than about 120 per cent, so you have more debt than you have national income right, annual national income most people feel it can never be paid back. The reason is what happens it grows with interest and your income doesn’t grow and you can never get to equilibrium, you can never get out of debt, you can never get yourself out of debt as a country. Okay so above 120 it’s normally considered not feasible and you can see well Ireland are just about hopefully maybe going to miss that, right we will look at some of the other detail. This is just a generated problem, note this is not the original problem, this debt is generated by poor bank regulation okay, it was not even high when we started back here in 2008 when the problem started the debt wasn’t even high, so this is all coming out of bad decisions in our banking system okay. Let’s look at the banking system it’s just another big problem, when all the net foreign borrowing disappeared it had to be replaced, it had to be paid off with cash. Banks don’t have cash, a lot of people think when you give cash into a bank, they put it in a big you know drawer in the back, that’s not what happens, the cash goes out immediately. You put money into your savings account, the next day or the same day they paid it out into someone’s mortgage okay, your savings account isn’t in the bank, it’s in a mortgage okay, so what happened when all these foreign banks say oh give us our money back, they didn’t have any money, in fact their assets were collapsing at the same time right. They had to get money as extraordinary liquidity support from the Central Banks, that’s one of the roles in the Central Bank, it provides liquidity when banks assets are illiquid okay and an enormous amount right, Irish banks have like 110 billion Euro’s of this emergency liquidity support both from the European Central Bank and in the case where the assets aren’t good enough for the European Central Bank from the Irish Central Bank, okay so these are the assets which aren’t even good enough quality for the ECB to accept them, right and that has to be changed. That’s supposed to be quote “short term”, that’s supposed to be the Central Bank providing short term liquidity, well it’s already been five years, how many more years is it going to be right, probably five or six. These are backed by assets, right these are backed by mortgages, property development assets, business loans but they are illiquid right and some of them are of dodgy value, so this is a big problem too. It isn’t just the Government debt, it’s also the banking system becoming liquid again okay, somehow getting rid of this overhang of emergency liquidity support right. How can it do that? Well it’s pretty hard it has to shrink, it has to shrink its asset size to generate cash as people pay off their mortgages and business loans it has to use the funds to pay off this big overhang, to remove this big overhand of emergency liquidity support from the ECB and that’s a really slow process. You can see here look at how slowly the assets are declining, even though this red line is the stock, the flow of new lending is shrinking drastically, but the stock of outstanding lending is only very slowly inching down and of course it builds on itself as they shrink lending the economy contracts and that feeds back into itself, because of the whole sector you get this aggregate affect. If they all try to shrink, all that happens with the economy shrinks and it’s very hard for them, so it’s really difficult, there is a difficult problem, so I’m not claiming things are easy here okay, obviously property prices which bubbled up have also you know gone down and that hits banks, right now I’m not going to talk too much about that, I know Ronan Lyons talked about that a week or two ago, but we know property prices have gone down sharply and that’s an issue for banks as well. More seriously okay, oh yeah and of course another thing about getting back this big overhang of assets, it’s hard for look at here how they’ve caused ,they’ve shot down and this is affecting property prices, the flow of new housing lending, mortgage lending has collapsed, but that isn’t really affected very strongly the assets of the bank, because it’s hard to make property shrink by not building them, because they last for eighty years okay, so this overhang is a very slowly solvable problem, getting into debt is easy and quick, okay getting out of debt as a sectoral system is slow and difficult okay. Now here’s another really serious problem and again I’m just, at this point I’m speculating about the future, this might sink the banking system, this is the increase in mortgage arrears, right mortgage arrears are continuing up and there’s an enormous supply of mortgages, if you go back to those balance sheets and you look at mortgages and you look at the sliver of banking, equity capital, mortgage arrears coming out of those assets any fall in mortgage payments has to come out of that tidy sliver of equity capital and if it overwhelms it the banking system is broke, right and there is a risk here, so this is a real serious risk going forward. Do I have a solution and do I have an answer? No but it’s certainly something that is trouble okay.Okay what about you know this is something I put here because just as I finish up, Colm McCarthy who isn’t here but would certainly want this slide, what are we paying for with all this debt? And we have this big supply of Government debt, you know we are swimming in Government debt, we are approaching sovereign insolvency, where’s it coming from? Well a lot of it is coming from these bank repayment costs. This grey line, these green slashed lines here, note that huge chunk in 2010, there was also a big chunk in 2009 and another big chunk in 2011, if it weren’t for these bank repayment costs, even though Ireland would have suffered a big recession, the debt overhang wouldn’t be serious, it would be very you know feasible. This is making the system close to or possibly insolvent right. Now this is questionable Colm McCarthy says a lot of that was us paying back foreign banks, it was their fault, they leant us money when they shouldn’t have okay, so it’s partly their fault and we paid them back when we were a State, this is the Irish State, it was private banks, it was Irish Nationwide and Anglo in particular and the other banks making bad decisions, those are private institutions. What are we as Irish tax payers paying them back okay, well partly to help the other European countries because it’s European banks that lent that money, well that’s questionable and Colm McCarthy feels and it’s very much in the news now we don’t have a responsibility as tax payers for those privately taken on debts okay and that’s a lot of the problem, right I’m not going to take a stand there, you can see it’s a mixed case, we spent that money right, we spent it on ourselves, but it was private money, so you can decide what you think is right or wrong about it, Colm McCarthy thinks we shouldn’t pay it back or maybe not all of it, it’s in the news even now we are fighting with the ECB saying a lot of this money should be paid by the ECB indirectly with money creation, because it isn’t really Irish and the Irish are doing their part let’s have some help and there’s talk about pushing big chunks of it out far into the future using ECB money creation. So will we make it? Will Ireland make it as a sovereign through this crisis? Well this is what’s called a fan chart where you have some possibilities right and the answer is maybe okay as an economist right. If things turn out well, if growth is reasonable Ireland is going to muddle through this crisis okay, if things turn out badly and growth is poor and the debt goes up there’s going to be another programme and another restructuring and more difficulty, so I don’t feel I’m strong enough and wise enough to make that call. I do want to finish on an up note, there are good things in Ireland, what’s going to save Ireland if there’s a saviour it’s going to be our export growth, pharma, tech in particular and other export industries. I know a lot of people talk about agri-food industry it’s had very good years but it can’t generate, it doesn’t have the scale potential to deal with 120 billion debt overhang, whereas tech and pharma and the other export sectors which are actually doing very well at the moment okay, can spin off into the domestic sectors and might make a difference, so if we can get growth and this is a picture of a bunch of techie type people, if we can get growth in the key future industries and this is something that Ireland has done well over the last ten years it’s got lucky, it has picked some good industries okay, it picked a lousy industry in the fifties when it went very heavily on agriculture as the key industry, that was the big mistake we now know okay, but now it seems to have picked some good industries so that’s the hope, it’s the export growth and the possibility that might make the difference and making us coming out on the right end of this painful but feasible grab. Okay that’s it so let me see if there are questions or comments? Go ahead.Q & AParticipant 1: My question is multi-pronged, one of them is we know the banks have lent the money and what happens if the banks now have so much mortgages, say for example they have say 20 million mortgages and all of those 20 million, say 10 million comes back and says listen we can’t pay here, how can we pay back, now we have a huge chunk of houses that we can’t offload.Yes okay.Participant 1: So how do they work through that, that is 1, and, 2, if they don’t lend how does liquidity recycle within this?Yeah that’s absolutely, I mentioned that and that’s very true, one of the problems with the banks is they all want to shrink, so how do they want to shrink, oh they want to stop lending, but if they all stop lending house prices fall, no one can buy houses and then their assets which are effectively the houses, also the client who are they going to sell these repossessed houses to, yeah that’s a very difficult circular problem. When one bank is in trouble it can just repossess houses and sell them and the whole banking system is in trouble yeah there is an issue that they can’t all sell the houses and not worth, you know not generate new houses, so that just had to be mulled through and there’s no simple solution to that. Of course there’s no repossessions in Ireland anyway, effectively none, so it’s not a live issue.Participant 1: Finally this is based on the assumption of what if, what is instead of having invested heavily into the mortgage, you know the construction industry, if they had passed the investment onto the production and other sectors, what would it have been like going by the graph?Yeah we didn’t do that, we have put it into business investment and we didn’t do that, I don’t think that was feasible, it was such a flood of credit, it was going to go into, you know it was going to go to speculative property and that’s quite standard if you look around the world, credit flows tend to go into speculative property, because business investment is slow and difficult and you have to establish relationships, it doesn’t tend to have as volatile behaviour that the property development does, so most of the big bubbles generate property related bubbles. Yes a question here…Participant 2: How do you see financial regulation changing your response to events in the last couple of years, especially when for example when the Euro say in the late nineties, we had the example of the Asian crisis which showed that you know if you liberalise financial markets it might lead to a bubble so how come we didn’t see it then and what makes it different now that we might see it again?Yes well financial regulation in Ireland was particularly bad okay, particularly bad, so if you go back to 2003, 2002 in Ireland you know it wasn’t even at the state as it should have been at that point. Now of course you know it’s going much, obviously we’ve learned from that mistake and where everyone is tightening including Ireland. Others made mistakes, the US made huge, you know more globally, more damaging errors in their financial regulation, so there were many errors and the Greek situation which was not on the financial regulation side, rather a national income fraud okay, where they actually fraudulently created their Government debt accounts. There was a whole another situation, where do I see the financial regulation going? Well I think probably there will still be problems as there always has been, you know people will find ways around the rules and create problems so that will never disappear. There will always be smart operators who sneak around the system and create occasional crises, but I don’t think in my lifetime, you know my working life or even my mortal life that will see another financial crisis of this type, however another side which is the regulation of Government borrowing, now that’s changing fundamentally as you know and now we have this fiscal compact that’s just absolutely changing, you’ve heard the word austerity, it’s absolutely the rules are going to change fundamentally, in ways which are not all good alright there’s no one who is going to be flexibility about ah we really ought to have a new anti-poverty programme and build some new hospitals this year and even if it costs a little more than we have, we will borrow it, that is going to go away okay, it’s going to be a very tight rein on Government spending in the Eurozone. That’s part of the brittle system, we have locked ourselves on the mast and we made that decision and now we’ve realised part of that decision is we can no longer spend money unless we have it and that’s just locked in now and my opinion.Participant 3: Is that not a good thing fundamentally for us, I mean we needed to grow up?Yes I think a lot of the economists are now thinking yeah in the long run probably we actually maybe in our mindset, we think about the German’s back you know when they were not talking about the Euro, Germans to characterise them unfairly but you know they do have a little bit of a mindset, a, b, we go this way, we are making, we are walking this way okay and I think they realised that was part of the deal. The part of the hard currency zone was also you know fiscal austerity that you don’t spend what you don’t have, so that’s what we bought into. We didn’t know we bought into it but now yes that’s what we bought into okay.Participant 3: Can I just ask you that wasn’t my question, it’s just I haven’t had the time to read the paper yet, the other day and Mr. Osborne or somebody like that said in England announced that because the banks were not doing their part of the bargain and they were not lending to the small and the medium sized business over there even and we are crying out for that here even more probably, they were going to do a Government level a kind of scheme that they are putting millions in that can be lent to bypass the banks and get this money out to the businesses that need it to run. We obviously do need our small businesses to get going again to get, if we are to get any to do that curve that they are talking about. Could we borrow the same thing here?Again we have no funds.Participant 3: But how are they doing it?Well see they have funds because they are an accountant and they control, they can borrow freely to some extent, I mean there are limits even for the British but we have locked ourselves in now to this hard currency system, which means that we don’t really have borrowing opportunities. The ECB though there is in fact, you know potential the ECB still has flexibility and they have, the ECB to give them credit have recently generated a lot of new credit flows to the banking system, but the banking system is still in an unstable situation, a lot of that has just been transferred effectively to Germany where there’s no need for new credit, so it’s still not flowing properly but the ECB has forced money, forced credit into the banking system through this long term refinancing operation so that and a lot of money like a trillion Euro’s worth of credit over the last few, you know in their programmes will be forced into the Eurozone banking system, but it isn’t a solution a Government programme, no Ireland cannot do that under the fiscal, I don’t think it’s feasible. Question here.Participant 4: A consequence of the austerity that is sweeping through the Eurozone and the world it seems to me is huge unemployment and can that be countered?Well that you know that’s part, you’re right and a lot of people Paul Condron is a major commentator in the US is very against austerity because of that, it does cut back your budget deficit but at the same time in recessionary times it forces up unemployment. No there’s no you know, you can Paul Condron thinks we should just go ahead and continue borrowing and there’s a probably a middle ground, I don’t have a solution for you but no they are linked, you can’t spend money to raise employment and at the same time lower your budget deficit, no you can’t get both, you can’t have your cake and eat it too question.Participant 5: I was under the impression that the Celtic Tiger era began roughly around 1996, 1997 and finished around 2007. When you were speaking about credit flood you focused on the years 2003 to 2008.Correct, yes there’s the good credit, there’s the good Celtic Tiger and the bad Celtic Tiger, there’s phase one and phase two and Morgan Kelly has a good paper on that. The first phase was based on productivity growth, so 1997 to 2000, he says 2000 but it might be 2002 okay, 2002 is the date when the Central Bank actually became more liberal in its policies but maybe he claims it’s about 2000, so there was a good Celtic Tiger and a bad Celtic Tiger. The first one was based on real productivity gain and the second one was based on hard credit influx and you might look at Morgan Kelly’s straight forward paper you know.Participant 6: They always said before the “R” word was admitted or used there would be jobless recovery, not just in Ireland and America, everywhere they said. Is that the case?In recessions the jobs of the last thing to come.Participant 6: But will they come eventually, nothing like they were obviously?No I am a financial economist and you really need to ask a labour guy you know, so I won’t answer that question because if someone found out I was claiming I knew about employment you know trends I’d get in trouble yeah.Participant 1: In relation to what you said about unemployment now, I know countries like Japan, China and even Germany at a certain time had to say okay we are in this mess now, what if we just look inwards instead of having to say okay we actually have ... because yeah I understand this metric thing and the Eurozone policies but if Ireland as a nation is also looking within these walls, shut the doors and let’s see what we can make from home here.Small open is Ireland’s solution, I really think small and open, if we are small and open and small open is the future, in fact that’s the future small and open. I mean what are these guys doing you know, they are selling around the world that’s the key thing. Little technologies that are not particularly hot, not particularly fancy sold everywhere.Participant 1: Reduce the imports.Reduce the what?Participant 1: Imports rather than...Oh no because they need imports, no, no I don’t think that’s the solution for Ireland, no I have to say, I’d say absolutely not, absolutely not yes.Participant 7: Just there recently, you know a couple of months ago you had the Government basically calling the banks to reduce the interest rates, you know for the lending like, how can the banks get the money to lend, to try and increase their profits, if they are brought in and say look you can’t do that.Yeah that’s true, yeah that was a very, you know they want bank profits because how are you going to get the banks back to decent situation by having them generate profits, but at the same time you want lending and you don’t want it to be too high cost, yeah you know this whole system is nothing but a balancing act of difficult interlinked problems, that’s what debt, you know unravelling the debt problem is a difficult but when it’s aggregate in this whole economy is a difficult and slow process and whether we will get there is you know, going back to your point you know unemployment Government debt, we have a huge Government debt problem and we have an unemployment problem, how do you solve an unemployment problem? Government expenditures. How do you solve a debt problem? Not having Government expenditures, you know what do you need to get your debt low, you need growth. How do you get growth? Spend more but that’s also how you get debt, so yeah there’s all these difficult decisions at the margin, right that’s where we have to hope these guys, you know do a good job selling whatever they are selling. Go ahead, I better just take two more and we’ve got to stop go ahead.Participant 3: Tell me you said part of the problem is a kind of what they call a political class, do you see younger political groupings coming up of people in their thirties or forties who are ready to take power or are they all just leaving? I don’t see anybody new in the media that seem ready to go into Government and replace but when our present crop retire as they will have to eventually and are there people there, are they coming in? Are there people there who could give leadership? Are they coming in? Do you meet people...?That question is beyond me, I do, I didn’t mention but the political class in the noughties, in the second half of the Celtic Tiger did fail in a really spectacular way in financial regulation and property, I mean the Mahon Tribunal issues they are also related to property, so there was a very corrupt system for a developed western economy in the early years of the 21st Century, but how can we replace, sorry I’ve only lived in this country 20 years I’m not old enough, go ahead.Participant 8: Actually similar to what this gentlemen was talking about, I’m just wondering about competitiveness, I mean isn’t that a big issue in terms of the price of everything went up in Ireland and we became less competitive.Correct in the second part of the Celtic Tiger.Participant 8: Tied back into vested interests and the political class is the sense that there’s still like doctor’s fees, like dentist’s, professional fees are still much higher than they are in the rest of Europe and this is still obviously an issue in terms we obviously have to pay for it, professional fees and we ... the Government has to pay for them. So I mean it’s tackling that problem.Yes absolutely, I think that absolutely is really you know one of the things to get the economy continuing to, it has had a big improvement in competitiveness over this terrible five year period, but at the same time that has to not stop, but that’s something where they are making progress, there is some slow progress I think on that one, you know. Okay so thanks very much and I hope you enjoyed and got something. Thank you. (clapping) Thank-you for listening to the Dublin City Public Libraries and Archive Podcast. To hear more, please subscribe on iTunes or SoundCloud. You can also visit our website - dublincitypubliclibraries.ie and follow us on Twitter and Facebook.
Listen to Ronan Lyons talk.Welcome to the Dublin City Public Libraries and Archive Podcast. In this episode economist Ronan Lyons talks about the Irish property market, the changes over time to house prices in Ireland and what might happen in the future. This talk, one of a series on the Irish Economy, was recorded in front of a live audience in the Central Library on 15 March 2012.Thanks very much. I’ve got a good bit to get through and because obviously it’s a topic we are all very interested in, but I also am conscious that it’s a topic that everyone has a lot of opinions about. So what I might suggest is that if you have questions do put up your hand. I’ll try and avoid getting into very detailed discussions during the talk, but I do want to let you guide the talk as well as obviously my own thoughts on Ireland’s property market, and how we got here and where to next. In terms of what I hope to cover today, really there’s just a few simple rules that I want to get out into sort of the general discourse when we think about the property market. And this is from the point of view of buyers or sellers of property, or renters of property, but also from the point of view of policy makers. If we can get these types of rules or stylised facts as the social scientists like to say, if we can get them in to government thinking, it’s unlikely we’ll find ourselves in the similar situation again. So the four stylised facts that I’m going to base the talk around, the first is that real estate is a bad investment. The second is that the property market is imperfect. Third is that a combination is a service and we need to remember that. And then the last is that governments actually can have a proactive role in managing the housing, the property market. But it needs to view itself as an organisation or a regulator that is managing a market rather than I suppose, intervening for the sake of intervening, or not intervening for ideological reasons. The context of this, given that it’s the Dublin City Libraries, the context of this is that we’ve seen it all before. If you look at the price of a Mountjoy Square townhouse after it was built in the 1790’s, in all its grandeur before the Act of Union, it would have sold for around 8,000 pounds, back in the day. Less than a lifetime later, it had fallen by 94 per cent, to 500 pounds. So, we’re not living in unprecedented times from the point of view of the property market. Certainly the crash that we’re seeing in Ireland now is among the biggest in the developed world at a national level, and it’s certainly in the top tier, the premier league of property market crashes if you start counting for example, cities or states within US as their own economies comparable to Ireland. Ireland is certainly mixing it among the countries that have had the most violent bubble and crash. But certainly if you keep your perspective long enough, this is not something that is unprecedented. Property prices rise and property prices fall, and we’ve seen pretty dramatic episodes of that in Ireland in the past. So going back to the, sort of the four, this will be the sort of an outline of the talk as well. So real estate is a bad investment. It’s sort of odd and particularly if you associate me with a sort of a daft.ie hat on and for me to be coming up here saying, you know, don’t get your hands on property, it’s not a very good asset to have. And particularly when you see the conventional wisdom if you go online you’ll see either Mark Twain said this buy land they’re not making any more, or occasionally you’ll see either attributed to a Don at an Oxford college or a Cambridge college, saying well we’ve done pretty well, they’re not making any more land, let’s just hold that. So that’s the sort of conventional wisdom around property and around real estate, is they’re not making any more of it, grab it now because the price is going to go up. But I suppose an economist would say, well if everyone knows that, then surely the price would already reflect that rather than nobody realising this and you’re sort of ahead of the curve. And in fact, we can have a look at it over the long run, I’ve already mentioned something from the 1800s and this is the Herengracht which I think means the gentleman’s canal in Amsterdam. And this was built just in the heyday of the Netherlands, I suppose the early heyday of the Netherlands in the 1620’s, just after it had broken with Spain and it was the global financial centre. And they built this canal and one of the reason that I mention it is, that they have every transaction ever on the Herengracht, they have recorded in the archives. All the way from 1628 right through to 2012. And in the 1990’s an economist did a study of transactions on this one street, so you know you’re not comparing sort of, different cities or you know you’re not comparing different house types. You’re actually looking at sort of 50 properties traded over and over again for hundreds of years. And at first glance you could make the case that you know, property prices seem to go up and there’s ups and downs there, but definitely if you look and this is indexed so, the price when it was built, when these houses were built is set to 100, and you can see that it goes up and it seems to go up albeit with a wild swing, it seems to go up there towards the end of the period. And if you actually extend that a little bit, that goes to 1962. If you extend it a little bit more to 1972 you’ve to reset the scale and you can see, well actually you know, those final twenty years prices did seem to rise dramatically. So what am I here saying that you know, property prices don’t go up over time, it’s not a good asset to have. Well, this guy who did the study, what he also included was, this is nominal prices and this is just what you see on the accounting ledger. But he also included real prices, so controlling for inflation. And obviously general inflation comes and goes, and it’s also sort of swings and roundabouts. But when you adjust for inflation this is property prices in the Herengracht in Amsterdam over almost, well certainly 350 years. And soon when they update this it will be nearly 400 years. And you can see there’s certainly ups and downs and there was a long period there where it was above the average and then there was a long period, that’s about a lifetime, this is about a lifetime as well, but it was below the average. But certainly that red line is the average for the whole period and as of 1972 you can’t really see any difference from the long run average. There’s a little bit but not a lot. And in fact if you were to just take a simple trend and say what’s the trend in this? the trend is actually down. And the real price of property goes down. Now clearly it’s not a line, there’s sort of peaks and troughs. So there are property market cycles. There’s certainly no evidence from this one street in Amsterdam for which we’ve really just information that real property prices, once you’ve accounted for inflation are that they go up.Participant 1: Sorry Ronan, a very quick question. Are you including rent in that?That is property prices relative to the cost of living. Now the cost of living as you measure it going back into the 1600’s it is probably going to be based off a simple basket of goods. I don’t think rent is in that.Participant 1: No, no, no what I mean is, this is an investment on which somebody was getting a rental return on.Oh yeah, let me come to that a bit later on, yeah, yeah. So this is, this is just the conventional wisdom that if you buy your own property that you can make lots of money out of that. And that when you die your property will be worth an awful lot more than when you bought it. And what this is saying is that, well certainly you can make the case that house prices match inflation. So your house is a good store of value. So if you were to get all your savings now, let’s say you have 100,000 in savings and you put it all into property now, what this is saying is that at any given point in the future, we don’t know what’s going to happen in the future, but our expectation is that in 20 years time or in 50 years time or 100 years time, that 100,000 would have kept its value. So if we’ve switched to the new Irish punt or if we’re in a Euro 2 or if we’re in the Euro or whatever happens that property will more or less keep its value. But it certainly won’t increase its real value. And if you look at the literature, there’s not a big literature on this. Studies like the one for Amsterdam are kind of rare. And one of my research ambitions is to construct something similar fore Ireland over the same period. But certainly there’s evidence from the US over a shorter period, say 100, 150 years that the same thing happened. If you look at, there’s one on commercial real estate in New York and there’s one on house prices in Boston. And again and again on these studies, you find that property is very good at matching inflation but never really beats inflation. And by contrast, if you have a savings account that will typically beat inflation. Now this is obviously not taking into account any explicit rents. If you’re a landlord rather than an owner/occupier, a landlord will get rents and that might change the calculus. But certainly if you’re just looking at it for capital gain, you’re unlikely to get it in property. But surely Ireland is different? And this is, you know, what if this would be the slide I would have shown in 2007. You know, is Ireland going to be any different? And it looks there, you’ve got this very nice sort of expediential curve of house prices. This is based off the, I should have put the source at the bottom, this is based off the Department of the Environment statistics, merged with later data points like the Daft index and the CSO index. So that gives us one index going from 1975 to 2007. But again, this is just without correcting for inflation. And also, it’s ignoring what happened after 2007, which we’re obviously all very familiar. So if you do both those adjustments, if you add in the extra couple of years, but more importantly if you correct for changes in just everyday crises, what you see is a very different picture emerges. This is in current euro terms. So the figures there are what, 100,000 euro is now or what 400,000 euro is now today. And you can see that the average house price was about 100,000 euro in 1975, got up to sort of 375,000, and has fallen right back down to about 175,000, as of the last quarter of 2011. And what’s particularly interesting in this graph, we can come back to this bit later on, is the first bit. That looks a bit familiar, doesn’t it? That looks exactly like the Amsterdam picture. Up to 1995 you had sort of bubbles and crashes, or booms and busts maybe if we want to have a boom to be a small increase and a bubble to be a big increase. We had sort of booms and busts here. But certainly the overall trend is flat. So again, I don’t want to be too repetitive on this, but from a policy maker point of view and from our everyday lives point of view, we shouldn’t be expecting anything more than house prices to match inflation. And this has big implications if you bought during the bubble. If you bought in 2004, 2005, 2006, what is your expectation about the value of your property in 10 years time or in 20 years time or in 50 years time. Typically, certainly up to 2006, 2007 people would have said well property sort of increases at 5 per cent a year, we’re a bit above that now, but that’s what we think property prices do. That’s sort of the conventional wisdom. But what I’m saying to you is really we should be thinking more like 2 per cent a year. Because that’s what the rate of inflation is, well that’s what we’re targeting as the rate of inflation. So that’s what we should be targeting as the rate of increase in house prices. It also has an impact for everyone in Ireland in some sense. If you bailed out a bank, which we all have, and if you took over some of these loans, and if you now manage these loans, as we do through NAMA, what is our expectation for the value of property in 10 or 15 or 20 years time. What’s our expectation about long term economic value which is NAMA’s watchword. Well, really you know, if we’re thinking 2 per cent a year growth in property prices, that’s very different to perhaps what Brian Lenihan envisaged originally when he introduced the NAMA legislation. I think he had, sort of a 5 per cent a year model in his head. And this graph just takes a scenario where property prices fall by about 60 per cent to 150,000, in next year, and then increase by 2 per cent the year after that, nice and smoothly. Now obviously we know there’ll be future bubbles and future busts, but we don’t know when they’re going to be. So without knowing them, let’s just say okay 2 per cent a year. And it’s a useful exercise because it tells us when we might see property prices reaching their peak level again. And they reached their peak in 2007 and by this stage I will be hopefully retired in the 2050’s. We don’t know how long people my generation will have to work before we get to retire. But I hope to be retired by the time we see prices reach the same level again. And that’s important for policy, as well as important for our own everyday lives, when we buy property. That’s the first sort of bullet point. The second one is that the property market is imperfect. And here I’ll talk a little bit about, sort of economic theory. In a way I was implicitly giving out about policy makers, for the last few minutes, saying what their plans were about NAMA, and so on. Now I get to give out about economists. So economics is about assumptions in a way. That might sound like a bad thing, but obviously we need to make assumptions. If we want to make any sort of model of the world around us. If we want to understand how the economy works, without actually just replicating it completely, we need to make some sort of assumptions. The issue around assumptions is that, some assumptions are made just to simplify, to strip out unnecessary detail we don’t need to know every last little bit of, so we’ll just simplify and assume that, whatever it might be. The other category of assumption is made not out of simplification, but out of necessity. We actually don’t know how something works, so in the absence of knowing how it works, we’ll just assume that this happens. And the danger in economics is when you mistake one for the other. When you say for example, that oh well there’s no mark-up that producers when they sell their goods don’t enjoy any mark-up. You might think that’s just stripping away unnecessary detail and there is going to be some mark-up, but let’s say it’s 10 per cent, but that 10 per cent doesn’t matter. When we want to understand markets, we’ll just assume that there is no mark-up that producers enjoy. Well maybe the mark-up matters in a way that affects the outcome. So if we’re looking at equilibrium or if we’re looking at disequilibrium or a market in flux, maybe these things matter. And, I think a lot of what went wrong in economics was this mistake. Mistaking a simplification out of necessity for one out of luxury. We don’t need to worry about this detail, but actually if was detail that was crucially important, we just don’t understand it. And an obvious example of that in sort of very big macro models is that most models, this is going to sound funny, but most models in economics, most macro economics models don’t have any money in them. Because money is regarded as an unnecessary detail. And that you can express prices in something else. Money is just a form of wealth or a unit of account. Let’s just say there’s something over here called wealth, and we know how to express the price of goods and services anyway, so we don’t need money. That’s all well and good until you’ve got a crisis in your financial system, until banks stop lending to each other and to households and to businesses. In which case, understanding how money works is very important. And that was a classic mistake that macroeconomics in particular made, over the sort of period up to 2007. And it’s really just sort of getting on top of all this now. Realising, one guy in Oxford has a paper called, putting Goldman Sachs into a model of the economy, you know it’s this idea about how do you put investment banking, how do you put liquidity crunches and liquidity traps in credit crises, when do you put these into a model of the economy? That’s all very highfalutin. How does this relate to the Irish property market? Well, one of these expectations that economists like to make is called rational expectations. And rational expectations means that people aren’t stupid. That’s its motivation and that sounds like a reasonable assumption to make. But de facto what it means is that consumers and firms, but in particular consumers can process all the information that’s out there, and come up with a completely balanced judgement out the other side. And this might be the case 30 years from now when we’ve got super computers that can take all these market signals and give us an answer whether to buy or sell. But certainly now and definitely 30, 40 years ago people didn’t have little models in their head that were crunching these types of regressions and coming up with out with coefficients, we just don’t do that. And the question is do we not do this to an extent that affects the outcomes? And the argument that I would make is that in property, yes. In property what we tend to do, not just in Ireland but generally in property is take the last 5 years, or maybe a longer period, but certainly the last 5 years, and use that as the basis of our expectation for the future. And this obviously gives the property market some sort of like, it’s an extrapolative path. That because we buy now, based on what we think prices are going to be in the future, that has an impact in terms of the prices today. So if you think property prices are going to go up by 5 or 10 per cent a year, over the next 5, 10 years, you’re going to pay a lot more now than if you think prices are even going to maybe stable or even fall. So our expectations are hugely important in the property market. And if our expectations aren’t rational in that economic sense of the word, if they’re adaptive that has a big implication for boom and bust cycles. Boom and bust cycles will tend to be amplified if we have rational expectations. That’s really just that point there in the headline. In terms of, I suppose one of the questions in the title was how did we get where we are? We got where we are, we got such a vicious bubble and crash cycle by managing to tick every box in the sort of theoretical bubble. There’s a book by a guy called Kindleberger (Manias, panics, and crashes: A history of financial crises), I presume there’s copies in the library and it’s a classic text and it’s reissued every sort of 5, 10 years to update with the latest bubbles. And the start it outlines what is in a crash, what’s in a bubble and what’s in a crash. And one of the first things that happens in a bubble cycle is something comes along, some shock comes along. It could be, traditionally it was you know, a new king is put on the throne or maybe a new government is elected. More recently we tend to think of technological shocks that we discover something we didn’t know before and this changes peoples’ expectations about the future. Ireland’s sort of favourable change in conditions was moving from 1980’s stagnation to 1990’s growth. This sort of changed the path of the economy. If you asked people in 1987 what they thought the economy would be like now in 2012, they would have had a very different answer than if you asked people in 1997 what they thought 2012 would be like. So that was an initial change and that gave us an initial momentum in the mid 1990’s both in terms of economic growth and employment, but also in the property market. Now, that in and of itself is not enough to cause a bubble. To sustain a bubble you need an increase in the supply of whatever you’re having the bubble in, be it tulips or property or shares of a particular company. And you also need some way of getting credit. Because really prices only get crazy when people can borrow, otherwise there’s only a limited amount of income. If people are borrowing and leveraging up, so that they’ve got savings of 20,000 and they can borrow 200,000. That’s really what adds fuel to the fire of a bubble. And in Ireland we managed to tick both those boxes really, really well. So entering the Eurozone gave Irish banks which had a history of never really being able to get credit on international capital markets. They found it very difficult to borrow because Ireland was a small economy and was quite volatile and susceptible to attack by speculators or the markets in general. All of a sudden these Irish banks are in the Eurozone and had access to, in particular German savings, but just generally access to credit. So that was the accelerant and then to really seal the deal, to suck everyone into the bubble you needed a fresh supply of houses because if there was only a set amount of houses then not everyone would have been able to take part in the bubble. It might have been bad in a price way, but wouldn’t have been bad in terms of sucking in as many people. So they suck in as many people as possible you need an increase in supply. Typically bubbles are about shares, so the company issues new shares. What we did in Ireland was we managed to have a huge increase in the supply of property. And that brought a lot more people in, and when that ran out we just brought property abroad. So there were all these factors, there were all these boxes we were ticking about the stereotypical bubble and crash cycle, but as of 2005, 2006, 2007 all these factors were here - that’s not the clearest is it? there’s three different shades of grey there - but it’s analysis of the ESRI and IIB, which is now KBC. They did consumer sentiment surveys. And they did them every month. But in January they asked them, what were their expectations about the property market. And you can see it doesn’t really matter which group you look at, long term owners, recent owners, people who want to but, people who are looking to invest, people who aren’t in any way interested in buying property. They all didn’t see the end of the bubble. They saw a slowdown, particularly optimistic were the people who wanted to buy. They said no I think property prices are going to increase by just 3 per cent rather than 7 or 8 per cent. But all of these factors that I mentioned on that slide, they were there throughout this period, and yet people just looked at the last five years and said, what happened over the last five years is the best guess for what will happen over the next five years. Participant 2: Sorry could I just ...Sure.Participant 2: ... is there one factor that might be left out, an important factor. Because of the sort of hierarchical or inequitable nature of the society, that a lot of people both in the media and in the economics area had a vested interest also in speaking up the market. And sorry I don’t want to mention because taxes and, you know, everybody’s getting cut.Yeah. I think the weakness there is not so much that they wanted to talk up the market knowing that they were talking up the market, I think it was a blind spot. So they were talking up the market because they honestly believed it. I think if you were ... let’s say you’ve got the sort of, when things go wrong, it’s either because people were evil or people were stupid. So either we didn’t see something coming, or we saw it coming but still went that way anyway despite knowing the consequences. And I think of it as a stupidity rather than the evil. Yes there was a vested interest, but I think it was blindness, that the people who were or had a vested interest couldn’t see any weakness. And if they were able to see the weakness, they would have got out of it. They would have kept talking it up but they would have got out of it. But all these people, and you still meet them. I meet people now and they, some of them saw a bubble in property but sold their house and bought bank shares. So instead of seeing a 60 per cent fall they saw a 99.9 per cent fall. You know, it wasn’t that, and it wasn’t that no one saw it, Morgan Kelly turned his attention in 2006, but David McWilliams had been saying it since 2001. The people who were talking it up honestly believed it. Otherwise they would have sold out and they didn’t sell out.Participant 2: So that seems, you know, there were so many could believe so strongly in it, where does that come from? It sounded like a mania, a madness or fanaticism attached to a particular idea.Yeah, and maybe that’s a bullet point that’s left out of there. I don’t know if it’s fourth on that list or if it’s just a separate point that needs to be made, but part of what makes a bubble and a crash so bad, is its intoxication. Is that if everyone is seen to be making money then everyone does start believing that this time it is actually different. And the best example I can come up with for that is Isaac Newton wrote about this bubble, I think it was the South Sea bubble in the 1720’s. My timing could be all off, he could have been long dead by that stage. No, but I think it was the South Sea bubble of the 1720’s. And he wrote about how stupid it was in 1721 and said he couldn’t believe that everyone was being sucked in by the South Sea bubble. And in 1724 he took his life savings and invested in the South Sea because he thought maybe he was wrong. And in 1725 he lost all his money and for the rest of his life you weren’t allowed mention it in his presence. So if it can turn really, really smart people stupid that just shows the power of the bubble. And it also shows why we should be so vigilant in doing the best we can to prevent, as bad a bubble from happening again. And a lot of that was at an EU level, but also at a domestic, regulatory level it was about getting used to life within the Eurozone. We prepared for entering the Eurozone, but we never prepared for life in the Eurozone. And what it would mean for our Irish banks to have access to practically infinite credit. And what would it mean for the Eurozone, for all these banks to be able to deal with each other without any currency risk. Nobody really prepared for that. And certainly if you could have tackled that, you could definitely have tackled this. And you would have taken the sting for the last five years out of the bubble. You wouldn’t have been able to prevent the bubble entirely. That was, there was always going to be some element of increasing credit, increasing property and increasing growth that would have led to a, some sort of bubble. But perhaps maybe no more than, sort of this kind of bubble. Maybe a little bit bigger, but that kind of bubble and crash. Participant 3: Sorry, there didn’t seem to be an analysis or study of the situation that had changed, like they didn’t go in and analyse the situation, the people, say government?Yeah, so government should have been aware of Kindleberger’s book for example and should have been saying rather than, obviously Bertie has his famous quote about how he doesn’t know how people don’t go off and commit suicide. But there was another quote where he, in 2006 said because of all these experts telling us house prices are going to fall people didn’t buy in 2005 and now house prices are even more expensive in 2006, and I hope those experts you know are ashamed of themselves, basically. You don’t want that kind of attitude among your elite. You don’t want them for whatever reason, to be just picking some bizarre, arbitrarily picking some asset and telling people to buy it. And that’s not the kind of country you want. You want a country where if there’s dissent, that dissent is factored into policy making decision. And that wasn’t the case and, if not for this talk but a broader talk about public service reform would be getting dissent into the system. If someone disagrees, get them in, get them to explain why they disagree and see if you need to strengthen your policy proposal on the basis of their disagreement. So people didn’t see the end of the bubble and currently people find it hard to see the end of the crash. So recently, this is with my Daft hat on, we surveyed 2000 users of the site about their expectations of the property market. And they perhaps correctly, feel that average prices are going to fall by about 10 per cent in 2012. But then you ask them about the next 5 years, what do they think, where will house prices be in 2017 relative to now. And only about 1 in 6 saw house prices being any way higher in 2017 than now. And that’s only slightly bigger than the proportion of people who thought house prices would be at least 35 per cent lower in 2017 than today whereas than January when they were doing the survey. So there’s a, that works on the upside and the downside. As prices are increasing people find it hard to see the end of prices increasing. And when prices fall, people find it hard to see the end of property prices falling. And we are going to, we’re going to turn around one day and realise that the crash is long over. We won’t turn around and realise the crash ended yesterday. It’ll be a situation where only after a year or 18 months do you realise, do you know what actually, the crash ended about 18 months ago. And that’s the way it works because the statistics are murky. It’s difficult to know exactly when things turn. And also because of adaptive expectations people find it difficult to change their sentiment towards the market. So a combination is a service. So I’ve said that, you know, when we think about the property market in our day to day lives, don’t think of it as investing in real estate, think of it as buying accommodation and accommodation is a service. This is, for those of you who know your national accounts, we calculate our GDP by adding up consumption, investment, government and trade so leave out the government and trade for the moment, housing is consumption it’s not investment. Building houses is investment, that’s fine. But we need to think of property as a service not as an investment. And I would caution against, you know, sort of we talked about Newton there a few minutes ago, I’d caution against Newton style economics, what goes up must come down, it seems appealing but in terms of what we should expect in terms of house prices I’m not saying that real house prices necessarily have to go back to 100,000, that’s what we did see in Amsterdam and that’s what the literature generally points to but we shouldn’t just think that is always going to happen. If we go back to that Amsterdam graph there were periods when the average was higher and periods when the average was lower. So economics is not what goes up must come down economics is supply and demand and we can pretty much take supply as fixed. The sort of urban economists and housing economists tend to do this anyway, the supply of housing is quite slow to move, even if people start building now it takes a number of quarters, maybe even a number of years, to get a real change in the supply of housing but specifically in relation to Ireland there’s so little construction activity at the moment and that’s unlikely to change any time soon that we pretty much know the supply of housing in Ireland for the next 5 years. So if supply is fixed then we need to look at demand and typically people look at sort of the income to house price ratio, that’s the easiest for an individual household to do because they know their income and then they just multiply out and say okay well let’s say four times our income and then we get a house price and that’s our budget for housing. And that’s about affordability and if we look at house prices relative to incomes we can go back to 1988, I haven’t yet found good income data before 1988, but if you look at 1980 to ’95 and ’95 is sort of that cut off before things changed the average house price was about 3½ times household income. And household income is different to the average industrial wage, household income is if you’ve got let’s say 12 jobs for every household that means every fifth household has two people working in it you need to factor that in and that did change a bit, we went from sort of every sixth house having a second income to every third house having a second income, a second full income, between 1990 and 2005. Now that’s sort of a ... that’s just for your own ... that’s more sort of like a postscript or a footnote that when you’re calculating your household income we’re looking at the country you don’t get sidetracked by the average industrial wage, you do actually know that you’ve to multiply it up by something. Anyway that’s for the mathematicians among you. The point of this slide was that up to ’95 you were talking about 3½ times household income was the relationship between the average house price and the average income. In 2005/2007 we’d gone to twice that, we’d gone to about 7½ times the average household income. And what you can do is you can actually do a nice exercise and say well if we had never gone above sort of this long run average what would house prices have been in Ireland. And that’s the dotted line in here. So how should house prices have evolved if you believe that this income ratio is the best way of calculating house prices? And you can see that it was roughly right up until about 1996 and then house prices increased a lot faster than they should have but the fall has been a lot greater because the fall of income hasn’t been as large as the ... even taking into account unemployment, it hasn’t been as large as the fall in house prices and perhaps optimistically we can see that the gap here in 2011 quarter 4 is actually quite small. Now if you believe this house price to income ratio is what matters. What I would say is that we need to be careful with the income ratio, it’s a symptom, as I say its affordability, it’s not actually the route of what gives a property a value, it’s not the cause it’s the symptom. And some of the increase in house prices may actually be due to the fact that Ireland went from a high interest rate environment to a low interest rate environment. Suppose incomes never changed but we went from Ireland having an average interest rate, as you can see there of, say 12 per cent to Ireland having an average interest rate of let’s say 6 per cent, 12 per cent and 6 per cent, then you would expect house prices to possibly double because the affordability ... banks ultimately go by what you can afford on a month-to-month basis and if the interest rate is half of what it was then those first few mortgage repayments are going to be, roughly speaking, half, not quite but something like that. So maybe some of the increase we saw in house prices is just to do with the fact that we’ve gone from being our own economy battling against all the odds to being a bit like one of the US States safe in the comfort of the Eurozone, of course we all know it’s not as straightforward as that, but let’s say safe inside the comfort of the Eurozone. And really when we think about the value of property ultimately it comes from rents, it comes from the value of the service that someone is enjoying. So, for example, income multiples won’t tell you why two houses next door to each other are very different in terms of price or why one city is more expensive than another city. So when we’re calculating the GDP figures and we’re adding up consumption and investment and government and trade one of the most important services is what’s called imputed rent and this is what owner occupiers enjoy as they hold some of their wealth in property. They enjoy a rent that they never have to pay. But what is that rent? Can we understand what that rent is? How much it would be if you were to try and rent out the same accommodation you currently own, if you own accommodation. And in that sense the ratio of rents to house prices is much more fundamental to what property is worth than the ratio of incomes to house prices. This is just a summary of some of the academic research I’m doing, it’s trying to figure out what gets capitalised into house prices and there’s all these different services that we have that are reflected in the price of houses but how to read this is if this is going from one kilometre away from a particular property to 100 metres away so if you move a property from a kilometre away from the coast to a 100 metres away from the coast the effect is about 10 per cent, you increase the value of the property by 10 per cent. These are the different services. Coast is one. If you’re close to a polluting factory or facility you get like a 1 or 2 percentage point penalty for being close to a polluter. Being close to a primary school seems to have a big negative impact which is about counterintuitive, you know, why would being close to a primary school be ... it’s noise, it’s congestion, it’s the lack of parking spaces. These things get factored in. Part of my next phase of research is to separate out small schools and big schools and with secondary schools progression rates to third level education, see if people are willing to pay for good schools rather than schools which have a poor record or which are maybe large classes or whatever it might be.Participant 4: What’s the second one the list?That’s bathing, that’s actually beaches and bathing facilities, so being close to a beach rather than the coast or in addition to the coast has a huge impact especially in the bubble but also in the crash. And then there’s a comparison of urban versus rural and then prices versus rents as well. So as I say a lot of the detail here is superfluous in today’s talk but the point of this slide is to show that an awful lot of things get factored into house prices and into rents because these are services that we’re paying for and the value of a property is the number of bedrooms, it’s the type of property it is, it’s the size of the garden, it’s the amenities that it has access to and that’s, if we can think in those terms we’re much less likely to ever get caught out with bubbles and crashes in the future. We will never be able to prevent them entirely but we certainly won’t accelerate them as we did in the past. So this is maybe if there are any potential first time buyers in the crowd this is maybe the most important slide, think like an investor. If you have a property that rent for 800 euro a month that’s annual rental cost or annual rental income, if you’re the tenant or the landlord, of about 10,000 euro and what’s happening in the fire sale auctions at the moment is people are looking at these 10,000 euro rental income apartments or houses and saying right okay that gets me 10,000 a year I will give you ten times that, I’ll give you a 100,000. In a healthy property market they may say I’ll give you fifteen times that. I’ll give you 150,000. But they work it out as a multiple of the annual rent and that’s a very sensible way for a first time buyer to think. It’s easier to think in terms of your own income because you know what your own income is and you can multiple that by four pretty easily but if you lose your job how much is someone else going to be prepared to pay for that property, it’s nothing to do with your income it’s to do with how much it would rent for, the services that that property offers you. Yeah?Participant 5: What about the effect of Rent Allowance on it?Yeah, yeah that is ... it was the ... if I had an hour and a half I would have gone into Rent Allowance. So the Rent Supplement Scheme is potentially keeping rents higher than they otherwise would be in most parts of the country with the sort of honourable exception of Dublin, south of the Liffey it seems, if you look at the thresholds for Rent Supplement and you look at prevailing rents they seem very close and Minister Joan Burton is actually reducing the thresholds for Rent Supplement and the idea there is to try and let rents determine themselves naturally. Find out what people are willing to pay and then give people assistance based on what the natural price is rather than the tax payer footing the bill and keeping rents higher than they otherwise would be. And that obviously has an impact of competitiveness as well if accommodation costs are higher than they need to be. But it’s a very good point; it’s something to be aware of. If you are looking at a particular property is Rent Supplement keeping the rent higher than it otherwise would be? We should find out in the next 6 months. But, I don’t know where I’m going with this, is that you can also look over the last sort of 50 ... not 50, would it be 35/40 years and see well what is this relationship between rents and house prices look like and does that tell us anything about the bubble. So this is the ... the yield is just the annual rent for the average property relative to the house price, the purchase price, that’s the blue line. And the interest rate is the prevailing interest rate for mortgage borrowing in Ireland and these go from 1978 so that’s why we start then. And you can see there seems to be, I don’t know, something weird happening in 1978, the CSO is just getting on top of its various indices, I wouldn’t worry too much about that, but what you can see is generally speaking particularly the crucial period, comparing say the 80s and the early 90s with the late 90s and noughties, you can see that the yield is very closely related to the interest rate and in fact maybe rising house prices in 1996 were actually justified by Ireland being in now instead of this 12 per cent interest rate country by being something like a 6 per cent interest rate country and that’s what you’re seeing here. Interest rates go down significantly and house prices rise but you can see there with ... you can’t really see it easily with the yield but we know from the last graph that house prices start rising in ‘96/’97. The damage was probably done, in my own opinion, when interest rates were kept lower than would normally have been the case because the German and French and Italian economies were anaemic when Ireland was booming. So this, I would argue, the 6 per cent is where interest rates will probably be in the Eurozone in the long run but we had interest rates of sort of 4 per cent rather than 6 per cent and that lured the yield down from where it seems to have been quite comfortable, down for at least a couple of years. But then people said well hang on a second it looks like we’re going to have really low interest rates, not 6 per cent we’re going to have 4 per cent interest rates, so that then sucked the yield further down. And the problem is as soon as interest rates when back up to normal levels, this is the green line going up here, the property market was hugely exposed because prices had increased relative to rents far more than they should have. And you can do a ... you can add in a third column, not just the income ratio and actual prices, you can add in a third column which says what should house prices have been sort of since 1978 or whatever, what should they have been, and you can track that and you can see that yes quite a good bit of the good bubble mightn’t actually ... certainly when you think back to should they be at 100,000, quite a good bit of the bubble was probably just Ireland changing from a high interest rate environment to a low interest rate environment but certainly there was a substantial chunk of the bubble left over that was pure bubble, it was nothing to do with incomes, it was nothing to do with rents. I could go ... if anyone is interested in the mechanics of exactly how it’s worked out I can do that, it’s probably well beyond what we’ve got time for today. Okay so this is maybe why you’re here, some crystal ball gazing, I don’t know, when is it all going to end in terms of price falls ? Well asking prices are down by 52 per cent certainly they were down by 52 per cent on average by the end of 2011 from their peak in mid 2007. And that sort of hides an average of ... it masks difference between Dublin and the rest of the country, Dublin is something like 56 per cent and the rest of the country is something like 48 per cent and there will be a Daft report actually - get the plug in - a new Daft report in the first week of April which will have the figures for January, February and March. But let’s say that house prices have fallen by a further 5 per cent since the end of 2011 and let’s say that when people actually trade, when you go and you buy a house, now you don’t go ‘I’ll give you your asking price’, you say ‘I’ll give you your asking price less 10 per cent’ and there is some research that I’ve been doing with the Central Bank that says this is roughly accurate and certainly up to the end of 2010 the average discount between the asking price and the closing price is about 10 per cent. I mean if those two things are the case then the average price is down actually 58 per cent and this, for those of you who were avidly watching our news yesterday, Brendan McDonagh the Chief Executive of NAMA was in to an Oireachtas Committee and he used the same figure, he said 57/58 per cent is what he thinks house prices are actually down, property prices are actually down at the moment. I know there was another report that said more but that was based only of cash sales and mortgages are still an important part of the market. So that means based off the ...Participant 6: Was the transaction price in 2007 not actually higher than the asking price? And wasn’t there a trend in ’05, ’06, ’07 auctioneers put houses in the paper at 250,000 ...And got more.Participant 6: ... and then people starting bidding 260,000, 270,000, 280,000. That would suggest the fall is even bigger.Yeah that is certainly ... certainly in 2005/2006 that was the case. 2007 you have period where you’ve got the transaction prices started to fall but asking prices don’t realise this and asking prices go up to where transaction prices were and stay there for a while and then come down.Participant 6: So in 2007 there was a 10 per cent.Yeah, so, sorry so as of ... really asking prices were completely static throughout 2007, technically the peak was the middle of 2007 but you’re really talking about very small differences throughout the whole calendar year but transaction prices had already got to that level and had started to fall so it was taking time for sellers to realise that buyers weren’t paying as much. So there may be a small element of that but I’d argue that, you know, 58 per cent is roughly right. So that means the average transaction price which has as you can see peaked there, at whatever, 365,000, so it’s down at about 155,000 now, so now meaning April, May, June this year maybe. Well 155,000 doesn’t look too bad at all relative to these income multiples or if you don’t like income multiples rental multiples, both of those would suggest that we should be in or around that. So am I saying that, you know, house prices are going to level off as early as April, May or June? Well I think I’ll give the typical economist answer the two hands, on the one hand I think yes, I think prices are quite close to the fundamental level, there’s a caveat there about Rent Supplement, if rents go down a lot that will affect this red line here and there’s obviously a caveat about incomes. Yeah?Participant 7: Just with prices stabilising, if you’re looking at say just the best job security and then in the public sector where there is job security there’s no income security. Almost everybody expects to be earning less in 2 years time than they are now one way or the other. Surely it’s going fall due to that.Yeah. So it comes down to statically we don’t look like we’re too far away from fundamental property values. There’s a caveat about Rent Supplement and that would affect the red line and then there are people’s perceptions of what their income is going to be and that affects the dotted line here, so if you feel that your income, if you feel that incomes in general are going to be maybe 10 or 20 per cent lower then that’s the correction we still need from where we are. Or if you feel that rents are going to fall, for example due to Rent Supplement revisions by 10 or 20 per cent, well then there’s further downside. Perhaps the more important thing that whatever happens say on incomes, I actually don’t think incomes are going to fall, I don’t think this figure, the dotted line, is going to change by too much. I think on average like we are where we are, you know, on average I think incomes are going to be roughly the same, they’re going to maybe plus or minus 2 or 3 per cent on the average but I don’t think they’re going to change dramatically. I think the big correction in incomes has already happened. I think there is scope for rents to fall and that will probably have an impact but I think much more important than that is that whenever we get to ... I think we’re there now and we may have to move as the fundamentals move, but I think we’re close to fundamental value. But the problem with housing markets is they’re boom and bust and they overshoot on the way up and they overshoot on the way down. I would never recommend trying to gain on market and find out when it’s overshooting on the way down and buy really low in the hope that you’ve got quick gains, I’d recommend looking at the fundamentals but I do think we are going to have a situation where property prices overshoot relative to the fundamentals, they go down just because of that momentum because people look at the market now and say I couldn’t possibly see prices increasing over the next 5 years so I’m going to hold off and that has an impact. So in terms of the crystal ball gazing, you know, are we close to fundamental value? Yes. Does that mean property prices have bottomed out? Probably not.Participant 8: Isn’t there some rational in the sense that there’s no great confidence in the economy because of the debt, money being taken out of the economy and the state of the banks, you know, so there’s no great sense of, you know, that you could base that, you know, because if there’s money taken out it’s probably there’s going to be less jobs and, you know, they’re going to be cut back in spending power which is a vicious circle.Yeah and that’s ... yeah, and that is sort of affecting these fundamentals. If people’s income is cut it will actually be reflected in the red line as well, that rents fall when incomes fall, and it will also obviously affect this line here and the more you believe or anyone believes that our fundamentals are going to be affected, it’s not just a cyclical thing, that we are actually going to have to step down then that is going to get reflected in the property market. So just because I think they’re close to fundamentals doesn’t mean that anyone has to, the fundamentals can easily move, as things get worse the fundamentals obviously are getting worse.Participant 9: I think there’s a big difference between rural and the city in Dublin, urban, like people say that in Dublin they seem to be getting help from their parents like with mortgages, down the country there’s not as much money there, prices are probably half of what they are in Dublin.The interesting thing is that when you look at how far they’ve fallen from the peak prices in Dublin have fallen by a lot more than prices in say Tipperary. Prices in Tipperary and in Limerick and Mayo and Kerry I think are the most reluctant to fall, they have fallen by perhaps 48 to 50 per cent, whereas ... no sorry, 40 to 42 per cent, whereas prices in some parts of Dublin are down by 60 per cent.Participant 9: But perhaps on a bigger figure is it, no?Yeah now I actually would be of the view that the cities are going to recover first for a number of reasons, (a) they seem to be further down the adjustment process but more importantly over supply is tiny in a relative sense in the cities compared to some counties.Participant 9: That would be true yeah.Yeah and that’s going to have an impact on the supply obviously and an impact on the price.Participant 9: Yeah.The other side of the demand, people want to live in cities because cities are better job creators than small towns and villages so if you are young now and you’re looking at setting up your future you’re unlikely as you were ... we’ve sort of got a buy, we got like a 10 year pass on the economic laws of gravity about cities, cities suck people in. During the sort of last 10 years of the Celtic Tiger we got a reprieve and people were able to live wherever they wanted and work but that’s not going to be the case over the next 10 years and that’s going to mean that demand in the cities is greater than demand rurally. And supply is worse, the oversupply is worse rurally. So I actually think if I were to map it out I would see Dublin and Cork city levelling out first and remember recovery is levelling out not increasing, if you go back to the very start. I’ll just go over to the ... yeah go to that slide and then we can ...Participant 10: Can you clarify on your income graph there a lot of people that work their salaries are frozen at the ’07 level and so in absolute terms they’re still receiving the same amount but in inflation terms they are short by about 4½ per cent, how is that income graph factored and is it absolute or is it inflated?I was aware of this point and the short answer is one of them (laughs) ... the first graph was actually inflation adjusted but the second one wasn’t because it’s harder to do when you’ve got rents in there as well. So for ease and comparability I ... so you can see that it doesn’t really matter when we’re looking at 2011, the gap doesn’t really change, the inflation thing is certainly relevant when you’re looking at the past and it might be relevant in the future depending on your belief about inflation. But it doesn’t really change the conclusion too much about where we are now if you use nominal or inflation adjusted. I know I’m pushing quite close on time so I’ll ... I mean you’ve got a sense of my overall view on, you know, getting these ideas into the policymaking system so this doesn’t happen again. Very briefly, in terms of quick ideas for what the government can do proactively, one thing is to be aware that intervention was part of the problem and the Irish property market was one of the most intervened property markets as of 2006. The tax incentives were so skewed that’s not what that’s ... intervention for the sake of intervention is not a solution but you can do things. The market does need to be managed because it’s not a very good market, it’s got boom and bust cycles because of adapted expectations. Sensible land use you can promote via site value tax, that penalised people leaving land banks empty, penalising bad or inefficient or socially unrewarding use of sites and it encourages people to use the land as best as possible. You could encourage sensible lending by requiring banks to do covered bonds, this is what the Danish system does, if you want to lend over 30 years you’ve got to go out and borrow over 30 years and when you go out and borrow over 30 years you find out pretty quickly what people believe the interest rate over that period is going to be and therefore you pass that on to your consumers and it means that we’d be a lot less susceptible to what happens in the ECB in terms of month-to-month decisions. And the last one is sensible borrowing, and this is softer, this is about sort of the information infrastructure that people have but the publicly available house price register will be a large part of that, giving people the information to make the decisions. So that’s where I’ll leave it because we’ve used up all our hour but I’m happy to deal with questions as well but I know some people may have to get back to work.Participant 11: Just one question, it’s not mentioned in any of your slides, but do you not think our problems really began in 1977 when rates were abolished? Local councils had no money, they did build houses.Yeah.Participant 11: Now I know there’s a lot of people saying they couldn’t get a house but if we had continued the way we were going they wouldn’t have been forced onto a market so inflating the price of houses. I know I worked in the bank and I was told before I left, thanks be to God, I thought that the way they were managing the thing was wrong and I was told politely from my boss if you don’t want to do it Teresa there’s 1,500 out there who will and I was telling them that it’s wrong to add that into somebody’s ... they tried to bring them up to the mortgage rate, they were bringing in their bonus and overtime and every little ha’penny they could get, and I fundamentally disagreed and I was told very politely if you don’t want to do it somebody else will. Well I was leaving so it didn’t matter but to me I think back in 1977 was when we made the first mistake because then they took no taxes on any house even.Yeah.Participant 11: We’d no rates. The local economy had none and now we’re complaining about 100 euro tax on houses or the thing, which is minimal. And it’s just to keep our roads clean, the grass cut in our parks and keeping libraries open and I’m quite sure the 100 won’t cover it.Yeah I completely agree and it comes back to the second last slide there about intervention and one of the interventions, one of the worst interventions was removing any form of taxation.Participant 11: Yeah.Because then it became a vote winner. You could get elected by saying ‘I’ll abolish whatever last tax there is in the property market’ we saw that right through to 2007. If you go back to the ... there was the table with all the different amenities, other research has shown that if you’re close to a park your property price is higher. But if you have a tax, like a site value tax, that reflects the value of your land you’ve got a direct way of funding local authorities to maintain parks, to build new homes, to do whatever it might be to maintain the amenities that they have. Yeah?Participant 12: Ronan, an excellent presentation. Thank you very much, I really enjoyed it and learned a lot from it.Thank you very much.Participant 12: I agree with you generally but I don’t think you should be making a bald statement in its own silo investing in property is a bad investment, I think you have to say property compares to cash bonds and equities as follows.Yeah. No that’s fair enough yeah.Participant 12: I think you have to look at the two of them. I mean you said for example that cash has kept up with inflation but you didn’t apparently but in the rent of property so if I had 20,000 which I think was the average price of a house in 1975, in a house, today it’s worth 150,000, if I had 20,000 of a deposit it’s still worth 20,000 in nominal terms so ...Yeah, no that’s a fair comment.Participant 12: ... I think and, you know, I defer to you but I think property has outperformed cash over the last 30 or 40 years and I would say historically it has outperformed cash as well. I don’t know what a few Dutch Guilders were worth in 1640, you know, but I would imagine it’s the same over there. I would imagine whatever price you could buy a house on the Herrenstrasse or whatever it would be a lot higher now.Yeah, no that’s ... I mean that’s a fair comment and really the point I was making was it was trying to bring some contrast to the sort of stylised idea that people have. As you say it is true that if you bought a property in 1970 and it was whatever it might have been, 20,000, and now it’s 150,000 or 200,000, you know, that is true but I am ... I guess the point of my slides was that don’t expect that to happen again. It might happen if inflation does it so they were real ... well they weren’t even real values but let’s say you go to real values and you say you’ve got an increase in the real value of housing that mightn’t ... we shouldn’t be expecting that to happen again but I complete take it, I’m going to ... if I give this I’m going to be adjusting and in fact I wanted to include a point about equities but I had a data source but I didn’t have the time to crunch the numbers.Facilitator: Folks maybe we’ll finish up there. So thanks very much to Ronan for coming along. (clapping) Thank-you for listening to the Dublin City Public Libraries and Archive Podcast. To hear more, please subscribe on iTunes or SoundCloud. You can also visit our website - dublincitypubliclibraries.ie and follow us on Twitter and Facebook.
Of all the wonderful shops in the city I love the bookshops best. In the past they congregated in Skinner Row, but now, since the mid 1770s, they have more visible presences on Dame Street and in the little courts off it. I love the way they display their new publications outside the front door or pinned to the door post. You can smell the fresh ink and feel the lovely texture of the new paper. I love the leisurely atmosphere as readers slowly work their way around the shop examining all the exciting new books and pamphlets. Crampton Court is the ideal place to browse, hidden away from the bustle of Dame Street, you have the peace and quiet to peruse all the latest books. Luke White’s bookshop at Number 6 is the best. He stocks all the fashionable books and magazines. He imports his books from France and Switzerland so you can be sure of having the most up-to-date reading matter; my favourites are Jean-Jacques Rousseau (link to the catalogue for Rousseau) and Madame de Genlis (link to the catalogue for Madame de Genlis). It’s great when his new catalogue of French and Italian literature comes out, you can browse it from the comfort of your home, and then go to the shop and touch and feel the exotic object that has made its way across the sea from Paris or Venice. In case you find these too expensive he prints a Dublin edition of the best sellers, which are much better value, even if they lack the cachet of the imported editions. (Check the catalogue for Luke White's publications) You can have a little flutter here as well because he sells lottery tickets. He has just moved out to Dame Street to a more high profile location and John Archer has moved into White’s old bookshop in the court at Number 18. This is another of my favourites. Archer’s has a great range of stock too and it’s quite different from Luke White’s because he imports his books and pamphlets from different places. He has all the best sellers of course, but he’s good on London publications, as well as imports from Paris, Venice and the Netherlands. (Check the catalogue for John Archer's publications) In a room upstairs some of the intellectuals meet to read the newspapers and discuss literature, science and politics. Richard Kirwan, the chemist, is talking about forming a library society so that they can have a shared library for members. Archer issues catalogues also, they’re always crammed with the most exciting new publications, but using the catalogue does not compare with the joy of visiting the shop in person.
I feel at home in the 18th century. I’ve no desire to live here permanently, without 21st-century comforts and modern medicine, but to come as a visitor to a beloved destination. I am acquainted with many of Dublin’s citizens through their writings and through newspaper reports of their actions and concerns. I feel I know them well, I know their wives or husbands, and their children, and I know what they enjoyed to read, which gives me an insight into their minds and hearts. The layout of the city is also familiar to me and I can make my way around without getting lost, or feeling like an alien.Crossing the Liffey from the north side you come over Essex Bridge. Rebuilt in 1755, it’s now a good wide roadway, which allows two coaches to pass safely and ample footpaths that allow street traders to sell their wares. They have got rid of the equestrian statue of George 1 in the centre of the bridge as it was causing an obstruction in the river. (View the Rocque Map in our online catalogue)Click thumbnails to view larger images.I love to stand on the bridge and watch the ships tied up at the Custom House unloading their cargoes. The crane is working steadily lifting the heavy loads. Tea, spices, wine, sugar, paper and books are all unloaded here and sent off around the city in trundling carts. The city’s merchants bustle around all day looking important with clipboards and anxious frowns. Their new Royal Exchange building, just opened last year, is looking very fine at the top of Parliament Street. I believe there is a new coffee room running the length of the north front of the building upstairs where they can carry on business in comfort. I still like the old exchange in Crampton Court and I know lots of the merchants say that the new building is an expense that they cannot afford, although we all know that most of the money was raised through lottery schemes. (See Views of Dublin from 1780).Parliament Street is our newest street, forged through the old tangle of lanes and streets on the recommendation of the Wide Streets Commissioners. The street is wide and airy, its proportions taken from width of Essex Bridge. Its purpose was to give a grand view of Dublin Castle from the river, but now the view focuses on the classical façade of the Exchange.Into Skinner Row you can stop for coffee and a look at the day’s newspapers in Dick’s Coffee House. Upstairs to the drawing room, or first floor, of Carbery House, with its lovely wainscoting and large windows letting in plenty of light, you can sit by the fire, sip your coffee, glance at the papers, and listen to the conversations all around you. I have heard that this fine old timber-framed building is due for demolition. What a loss that will be!
The Irish Texts Society was founded in London in 1898. The initiative to establish the Irish Texts Society came from another Irish organisation based in London, the Irish Literary Society (ILS), founded in 1892. According to the 1895-6 annual report of the ILS “preliminary steps have been taken to form an Irish Texts Society for the publication of modern Irish works”. As a result a provisional sub-committee was appointed to investigate the project.
Yesterday saw the shortlist announcement for the 2012 Orange Prize for Fiction, the UK's annual book award for fiction written by a woman. In its 17th year, the Prize 'celebrates excellence, originality and accessibility in women's writing throughout the world' (quote).Included on the shortlist is 'The Forgotten Waltz', the story of an adulterous affair and the fifth novel by Irish writer Anne Enright. Enright, who has been nominated three times for the Orange award, won the Man Booker Prize in 2007 for her novel 'The Gathering'.Other books on the shortlist include 'Half Blood Blues' by Canadian writer Esi Edugyan, 'Painter of Silence' by Britain's Georgina Harding, and three works by American authors - 'The Song of Achilles' by Madeline Miller, 'Foreign Bodies' by Cynthia Ozick and 'State of Wonder' by Ann Patchett.The award ceremony takes place in London on the 30th May.You can read the full shortlist announcement on the award website.Reviews of The Forgotten Waltz"The Forgotten Waltz, teeming with credible characters that are difficult to empathise with, forces us to look in the mirror. It reveals human beings as capable of empathy, but not empathetic; capable of self-awareness, but constantly fleeing from it. It is a discomfiting public examination of conscience, an exposé of our national shortcomings so recently in the limelight." Irish Independent, April 2012."Cloaked in a novel about a love affair is a ferocious indictment of the self-involved material girls our era has produced." New York Times, Sept 2011."Less important than the momentum of the affair is Enright's playful and beautifully expressed examination of how it feels to cross the line." The Independent, March 2012."Enright has established herself as one of the most grown-up of contemporary novelists, one of the few to pay attention to the messiness of ordinary lives... Anne Enright has taken a great risk in writing this book, but she has brought it off superbly." The Telegraph, April 2011.
101 things you thought you knew about the Titanic.
The book "101 things you thought you knew about the Titanic.... but didn't" is a fascinating study of some of the myths and half-truths that have arisen since that fateful morning of April 15th 1912. (Growing up in Cobh, I reckon I've heard 99 of them!) Author Tim Matlin dispels many of these popular legends using primary sources such as the US Inquiry and the British Inquiry, both of 1912. He also shows that many of these stories are indeed true. The myths are neatly separated into categories such as: The Ship, Omens, Passengers, Collision, S.O.S etc.Below are a few examples to whet your appetite:Titanic was genuinely believed to be unsinkable. This is true as she was designed to stay afloat with any of her two watertight compartments flooded. The glancing blow Titanic received from the iceberg was not foreseen, as it had never happened before according to maritime records.Titanic was filled to capacity on her maiden voyage. False; she was about half full carrying 1,308 passengers out of a total capacity of 2,603.If Titanic had struck the iceberg head-on, she would not have sunk. This is true according to evidence given by Edward Wilding, one of Titanic's designers. He cited the case of the Arizona, which 34 years previously hit an iceberg head-on and survived. Titanic's bows would have been crushed in for 80 or 100 feet but she would have remained afloat according to Wilding. Titanic broke in half as she sank. Yes. This was not discovered until 1985 when her wreck was found on the seabed. Her bow section lay 650 metres North of her stern section.More women were saved from the Titanic than men. False. 338 men were saved and 316 women. This is because only about 25% of the people (passengers and crew) were women.You can find more books on the Titanic in our catalogue.
Travellers: Images of Labre Park, Ballyfermot, 1968 and 1969
Labre Park was the first site built specifically for Travellers by a Local Authority in Ireland. It was opened in September 1967 at a cost of £50,000 and consisted of 39 concrete 'tigíns' in a row off Kylemore Road. Each 'tigín' was composed of a living room with a stove, a lavatory, and a place to wash. Residents of Labre Park slept in their caravans which were parked beside or behind each 'tigín'. Rents at Labre Park ranged from ten to thirty shillings per week.
James Joyce's Dubliners (1914) presents a raw and uncompromising portrait of his native city in a book he described as 'my nicely polished looking glass'.These images from the Dublin City Council Photographic Collection show Dublin as it was over fifty years later. They illustrate how the city had changed and yet, in some respects, stayed the same.
Dublin is a city of churches, chapels, and meeting houses. This image gallery depicts some of them. Some remain, some have changed use, and some have vanished but all live on in our collective memory.