First timers likely to buy, or property sector’s pipe dream?

“Investors, first-timers likely to buy“, so says the headline in the property section of today’s Irish Times in response to the recent Budget.  It goes onto to say, “the Budget’s concessions to first-time buyers are designed to get potential residential property buyers off the fence.”  It is a little way into the article before one of the elephant’s in the room is revealed: “banks will have to start lending on bricks and mortar again before many first-time buyers can get into the housing market.”  The other elephants are, of course, that changing the mortgage interest rate will make no difference to the wider economy, or the unemployment or Live Register rate, or that because of the wider budgetary measures everyone will be worse off and are more likely to be cautious on consumption (this was after all an austerity budget).

All of the people quoted in the piece are of course representatives of the property sector who have a vested interest in talking the market up.  No surprise then that they would like to see first time buyers plunge into the market.  The budget has not led me, however, to revise my assessment of the long term prospects for the residential property market one iota.  Spin is a wonderful thing, but is unlikely to make much difference to consumer confidence, and even if it did, many people are not in the position to enter the market.

The piece finishes with the ‘get in quick before it all disappears’ soundbite.  “Ironically, first-time buyers who are tempted to dip their toe in the market by Budget 2012 might realize it’s hard to get what they’re looking for.  Michael Grehan says that there is a shortage of the three and four-bedroom houses in traditional inner suburbs in northside and southside Dublin – the kind of properties its clients are looking for – on the market.” Only the Irish Times would think that everyone in the country wants to live inside the inner ring road of Dublin.  Even if property is tight there, and I’d want to see some evidence of this, not just the assertion of an estate agent, there is a massive oversupply everywhere else in the country.  Buyers have the pick of whatever type of property they want; assuming they can afford it and can access credit.

Rob Kitchin

 

 

 

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Cutting back on babies?

The disproportionate burden that yesterday’s budget placed on the structures of care in our society – family relationships, health and education – will no doubt receive much justified critique in the coming days.  As the recent report from the ‘Growing Up in Ireland’ study revealed – consistent with evidence from the ‘New Urban Living’ study – throughout the boom Irish people continued to rely on extended family relationships to provide care, in the context of comparatively weak state investment in social infrastructure.  In the new era of austerity – with high levels of unemployment and even fewer public resources for the elderly, disabled and sick – those family relationships will be stretched further.

In this context, I was puzzled to note an odd whiff of anti-natalism in yesterday’s announcements, specifically in the decision to remove the additional level of child benefit to third children, and to reduce maternity benefit.  Now many commentators from across the political spectrum think increasing women’s labour force participation is a good idea.  Over on Irish Economy, Richard Tol has argued that increasing women’s economic opportunities would contribute to economic recovery by increasing productivity.   Sociologist Lane Kenworthy has argued that increasing female employment can form part of a strategy to reduce social inequality – not just between men and women, but across the social class hierarchy.

It is true that caring for young children can act as a barrier to women’s employment.  It is also true that, despite the substantial increase in women’s labour force participation, a sizable minority of Irish women continue to withdraw from paid work following the birth of children, to a greater extent, perhaps, than  in some European countries.  But as our European partners must know, dis-incentivizing people from having children is a self-defeating response to the problem of balancing work and family responsibilities.

In fact, our comparatively high fertility rate is one big advantage Ireland has over the other troubled peripheral Eurozone economies, where underdeveloped welfare states have contributed to plummeting fertility in the context of rising female employment.  Ireland got away with rising levels of female employment in the context of an economic boom because of the availability of part-time employment and informal support from grandparents and other extended family members.

During the first phase of the ‘Celtic Tiger’ (when our economic growth rates reflected real increases in economic activity) researchers in the ESRI noted the importance of our ‘demographic dividend’ in making it all possible.  That same demographic dividend has ensured that the problems associated with ageing societies are not nearly as pressing in Ireland as elsewhere in Europe, such that we can raid the National Pension Reserve Fund with some regret, but with relative equanimity.  I can understand that Scandinavian-style investment in supports for working parents may seem out of the question in the current economic climate – although I think an argument could be made that such investments would foster sustained economic recovery and a more equitable society.  I don’t know if removing these small supports in the form of child benefit and maternity leave will have a material effect on Irish fertility levels.  But I do think the decision to do so is bizarre and unprecedented in Ireland.

Jane Gray

 

Will stamp duty changes get the property market moving?

Rates of stamp duty are presently zero on values below €125,000, 7% on the next €875,000 and 9% on the balance above €1m.  In today’s budget, it was announced that the rate of stamp duty on residential property will be reduced to 1% on all properties valued up to €1 million, and 2% on the balance above €1m.  All stamp duty reliefs and exemptions on residential property are to be abolished with immediate effect (I can’t see anything on stamp duty on land, so assume these remain as is).  Abolitions include:

• First time buyer relief
• Exemption for new houses under 125 sq m in size
• Relief on new houses over 125 sq m in size
• Exemption for residential property transfers valued under €127,000

New and secondhand properties, regardless of size and price, are now liable to stamp duty for all buyers.

For first time buyers a new barrier to entry has been put in place.  On a property costing €250,000 they will have to pay €2,500 stamp duty.  Not an insignificant sum given they will also need a need a minimum of a €25,000 deposit given no lender is offering above a 90% mortgage, plus solicitor and other fees (this is more than off-set by the drop in the value of the property they are purchasing, the issue though is immediate cash in hand for a new additional expense).  For developers seeking to sell brand new properties, stamp duty is also now liable, again also potentially placing an additional barrier to sale (though again drops in prices off-set this).

For secondhand sellers and buyers the situation is a little different, with a significant reduction in the amount of stamp duty liable.  For a house valued at €250,000, stamp duty drops from €8,750 to €2,500, a significant saving.

Is this likely to get the housing market moving?  For those looking at trading up or down then the changes may well get things moving, especially at properties valued at over half a million where stamp duty costs were prohibitive (for example, a house costing €1m incurred €61,250 stamp duty; it’ll now cost €10,000).  The big issue for this group is whether they are in negative equity and therefore feel able to trade down if desired in order to reduce their overall level of debt.  For those outside of negative equity, with prices falling the price gap for trading up might remain relative in percentage terms but lowers in real terms and thus becomes more affordable.  For example, a household’s own house might have fallen 40% in value from 300K to 180K, but the house they are interested in buying has fallen 40% from 500K to 300K, with the difference dropping from 200K+26K stamp duty to 120K+3K.

The stamp duty changes then will potentially get some of the market moving into both new and secondhand homes – those that are already home owners and are not in negative equity – it will potentially slow down, however, first time buyers from entering the market (despite the increased affordability of property overall).  The big question and uncertainty for buyers, however, is the forthcoming site-property tax and how trading up might be affect household expenditure on an annualised basis, rather than a one-off payment.  For the property market to really get going – other than the economy starting to recover, people returning to work, and credit starting to flow – potential buyers will need to know where they stand with respect to future property tax payments.

Rob Kitchin