Truly Depressing

David McWilliams has a truly depressing column today about the government and its banks approach to the property market. I was surprised, too, to see the return of various “economists” and “experts” who work for banks and estate agents. Having got things so badly wrong the first time around you would think they would have the decency to either apologise or keep quiet. Instead, there appears to be a full-court press to talk up the market despite its underlying problems. McWilliams says:

Buying a house now makes absolutely no economic, financial or social sense because prices are condemned to fall much further and anyone who buys now will be suckered into the false rally, known as a ‘dead cat bounce’. Given what we now know about the boom, it’s hard to feel sorry for someone who believes the hype-property brigade.

Given the level of:

  • Unemployment, officially at 13.5% but maybe at 16.5%,
  • Across-the-board wage cuts — except for our “betters,” of course,
  • Emigration, which is both a national scandal and on the rise again, and
  • The likelihood of further pay cuts and additional taxes (water, property, more levies)

the notion that we can afford more expensive houses is an absolute joke. One other reason should be mentioned that is particularly relevant to these “economists,” and something they don’t seem to consider very often: Supply & Demand! There is still a massive oversupply of housing with an estimated 300,000 unsold units on the market.

McWilliams estimates that a property valued on a rental yield of 7% at current average rents in worth €135,620 rather than the average asking price of €250,000. That is still some way to fall. We cannot have bubble-price houses on 1950 wages. Competitiveness is more than slashing pay packets — except those of our “betters,” of course. The recently issued Global Competitiveness Report, which didn’t get a whole lot of coverage in Ireland, talks about 12 pillars of competitiveness. I’ve summarised them below with some comments from the report itself.

1. Institutions
” Government attitudes toward markets and freedoms, and the efficiency of its operations, are also very important: excessive bureaucracy and red tape,  overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, and the political dependence of the judicial system impose significant economic costs to businesses and slow the process of economic development.”

2. Infrastructure
’nuff said

3. Macroeconomic Stability
“Although it is certainly true that macroeconomic stability alone cannot increase the productivity of a nation, it is also recognized that macroeconomic disarray harms the economy.The government cannot provide services efficiently if it has to make high-interest payments on its past debts.”

4. Health and primary education

5. Higher education and training

6. Goods market efficiency
“For cultural reasons, customers in some countries may be more demanding than in others.This can create an important competitive advantage, as it forces companies to be more innovative and customer oriented and thus imposes the discipline necessary for efficiency to be achieved in the market.”

7. Labor market efficiency

8. Financial market sophistication
“An efficient financial sector allocates the resources saved by a nation’s citizens as well as those entering the economy from abroad to their most productive uses. It channels resources to those entrepreneurial or investment projects with the highest expected rates of return, rather than to the politically connected.”

9. Technological readiness

10. Market size

11. Business sophistication

12. Innovation

2 thoughts on “Truly Depressing

  1. Sad but true!

    There is only so much that is worth doing in a shipwreck. Concentrating on saving lives ahead of property? The only way to ensure this does not recur is to sort out the ethics at the “top”!

  2. Pingback: Innovation in Ireland: Are We Up To The Challenge? « John P. Muldoon

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