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From Wikipedia, the free encyclopedia

The property bubble in the Republic of Ireland built up from 2000 to 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices.

As elsewhere, prices stabilised in 2007 and the bubble burst during 2008. By the first quarter of 2009, house prices had fallen by 23% compared with the second quarter of 2007, and the number of housing loans approved fell by 73%.[1] The fall in domestic and commercial property prices contributed to the Irish banking crisis.


Current situation

Newspaper articles have provided anecdotal evidence of declining valuations with respect to the guide prices, and the agreed prices for Irish Residential property, since October 2006. This phenomenon was officially vindicated by the last ESRI report, which indicated that for 2007 as a whole, property prices have fallen every month. This has come on the back of annual increases in the cost of residential property every year since 1993.

An IMF report in 2000 contended that Irish property prices were unlikely to continue to grow strongly for long, since it would go against all evidence collated in other countries that had seen rapid price appreciation. House prices went on to triple between 2000 and 2006. Nevertheless, demand for residential property has fallen since the beginning of 2007, and this has resulted in price decreases for March 2007 of 0.6%, and for April 2007 of 0.8%. This has led to an expectation of a drop in house prices on a quarterly basis for the first time since 1994. Houses in the commuter belt around Dublin fell earlier, due to a combination of increased supply within the Dublin Urban area, increasing interest rates and continuing infrastructural issues in rural communities. Prices in large urban areas are static, though demand has dropped noticeably. Construction employment has dropped according to Live Register statistics for May 2007.

Since 2000, approximately 75,000 housing units have been built every year as detailed by the Department of Environment, Heritage and Local Government [2]. However, a significant proportion of these new homes are unoccupied. Economic commentators give a figure of approximately 230,000 vacant properties. Of these up to 115,000 or so may be holiday homes.[3]

Figures exist for completions because the ESB provides information on the number of properties newly connected to the electricity network and from data supplied by Local Authorities and from The Dept of the Environment and the CSO.

Currently (2005) there is enough zoned land to accommodate 460,000 new homes, though as housing density figures continue to rise each year existing land has the potential to provide an even greater number of housing units.[4]

There had also been reported cases of mortgage fraud where borrowers over-estimate their income to enable them to borrow more. There is a worry that these people "could fall into serious debt if Ireland had a property crisis like that in Britain in the late 1980s."[5] This experience has resulted in the "sub-prime residential mortgage fallout" in the United States.

In December 2006, the Irish state-owned broadcasting organization, RTE, broadcast an investigation in a Prime Time documentary which unearthed evidence of financial details of prospective customers were being sold by mortgage brokers to auctioneers. Such information would enable auctioneers to maximize the price attained from prospective buyers. This issue, and further allegations in this area, are currently being investigated by the Irish Office for Data Protection.

As of July 2007, estate agents in Dublin were reported to be offering incentives such as six months worth of mortgage payments to prospective buyers, in an attempt to avoid lowering the recorded sale price.[6]

Contributing factors

Increased prosperity

Since 1994, the Irish economy has benefited from considerable inward investment from the multinational sector. Irish education standards were perceived as high relative to those existing in other English speaking countries. Improvements in the technical education area as a result of EU investment also played a key role in upskilling the Irish workforce. The combination of high education standards, and high capitalization ratios in the investment projects resulted in considerable improvements in labour productivity in the economy as a whole. This has resulted in increased wage levels in the traded sector of the economy.


Ireland's population encountered a boom in the 1960s, and this coupled with a recession in the UK in the 1970s resulted in a baby boom occurring in Ireland from 1965 onwards. This reached its peak in 1979. This boom in the population gradually fed into the labour market from the late 1980s onwards. When unemployment was high, young Irish graduates and labourers worked in neighbouring EU countries, and sometimes illegally in the US. However improving economic prospects at home induced many to return from 1994 onwards. This return migration peaked in 1999. From 2001, migration from other countries has been an increasingly influential factor in the demand for residential housing. From the mid 1990s, increasingly difficult labour markets for graduates in continental Europe, and the requirements of many service companies for graduates with language skills, has resulted in inward migration from Spain, Germany, and France. The accession of new members in Eastern Europe, into the EU resulted in many people from Poland, Lithuania, Latvia, and the Czech Republic also participating in the Irish labour market. However unlike their Western European counterparts, these workers tend to work in jobs that require a wide range of lower level skills, as a result of different standards and proficiency in the English language. Shortages in the health sector has also resulted in a need for qualified personnel from the Philippines, India and South Africa.

Interest rate policy

Property valuations were rising before Ireland joined in the initial launch of the Euro in 2002. This was mainly due to a very buoyant traded sector, and increasing state expenditure. The fact that the Euro interest rates were lower than the interest rates caused Irish property values to increase further. Over time, the scale of residential mortgage debt reached proportions that was of concern to the Irish Central Bank.

The increasing cost of property and the willingness to borrow money to acquire Irish property has resulted in substantial increases in the total level of private sector debt, due to property investment in the Irish economy. This has become of increasing concern to the Irish Central Bank, which has issued many warnings, in an effort to affect consumer behaviour.

The Austrian School of Economics proposes that the crisis is an excellent example of the Austrian Business Cycle Theory, in which credit created through the policies of central banking gives rise to an artificial boom, which is inevitably followed by a bust. This perspective argues that the monetary policy of central banks creates excessive quantities of cheap credit by setting interest rates below where they would be set by a free market. This easy availability of credit inspires a bundle of malinvestments, particularly on long term projects such as housing and capital assets, and also spurs a consumption boom as incentives to save are diminished. Thus an unsustainable boom arises, characterized by malinvestments and overconsumption.

Feel good factor

The fact that property valuations were steadily increasing tended to create a systematic feedback loop, where rising prices affected the psychology of market participants, causing further increases in prices. Public sector pay deals like the benchmarking program, tended to spread the feel good factor to the state sector, causing further competition in the market, with people in state jobs competing with workers from the private sector, whose long term job prospects were not as secure.

Rising property values in Ireland, and prosperity acquired from property trading, has been a strong factor influencing Irish people, to invest in overseas property. The main focus of such activity has been the newly admitted members of the European Union. Irish corporate concerns have also become substantial investors in London, Berlin, Paris and American cities.

Planning Policy

Irish planning policy has been the subject of much debate between academics and political parties. A critique of Irish Planning Policy would include references to the lack of systematic planning, insufficient 'joined up thinking', and considerable pandering to vested interests and local concerns. Property valuations have been inconsistent across the state. The most influential factors are often the performance of the local labour market and the availability of sufficient quantities of serviced development land. The largest urban areas have experienced the most growth, with the property boom more pronounced in Dublin than elsewhere, especially in the areas beside Dublin Bay, where planning is most restricted and the amount of accumulated wealth is highest. Irish Planning Policy has failed to create high density residential housing schemes near transport infrastructure, with the exception of the Adamstown and Ashtown proposals in the Western suburbs of Dublin. The fact that Dublin occupies a footprint the same as Berlin, with one third the population, and both have equal space devoted to parkland is an example of how low density housing dominates. This causes problems in providing justification for heavy usage public transport infrastructure.

The increase in property prices has also resulted in high prices being paid for development land. Irish property valuations are highest in Dublin, where the valuations are being driven by confidence, the highest salary rates in the Irish economy, and heavy US private sector direct investment. Valuations are most pronounced in locations that are perceived as the fashionable residential locations. This has resulted in the redevelopment of many sites to build apartment complexes in the Dublin 4 district. The valuations in this district have become the most expensive in Ireland. The sale of the Veterinary Surgeon site, in Dublin 4 by University College Dublin (UCD) for a price of €171.56 Million occurred in 2005. This accounted to a cost of almost €85 Million per acre, or €212 Million per hectare. This record was beaten in 2006, by the sale of another site, again in Dublin 4, also owned by UCD, in 2006, for €36 Million. This equates to €95 Million per acre, or almost €240 Million per hectare. There were several sites in the same district which made similar prices. In many cases, the developer has to face down local objections, which delays the planning process for redevelopment substantially. These proposed development projects will prove difficult, if not impossible to initiate.

Another side-effect of high urban housing valuations is a drift into rural hinterlands to live in lower cost housing. This has happened on a substantial scale in the greater Dublin area, in counties Wicklow, Kildare, Meath, Louth, and Carlow. This results in development in rural villages, and provincial towns as residential developments exceed the pace of infrastructural development, and services for urban population. This may create social and environmental problems in rural areas. It also leads to locals being unable to live in their own area, due to prices rising at a rate greatly in excess of local wages. Another effect is this development of increased commuting times for people living in locations that are distant from the large employment centres. This has increased demands on the transport infrastructure, with the Irish public transport company CIE being asked to upgrade capacity in a short time. Ireland's increasing carbon dioxide emissions due to increased road traffic are also causing Ireland to breach previously agreed commitments contained in the Kyoto Accord. These breaches will result in direct cost to the Irish exchequer. The Irish state budget for the fiscal year 2007 contains a number of initiatives and incentives to improve energy efficiency in other areas and reduce the overall cost of this measure in the future.

To address a perceived lack of planning on the part of Irish state bodies, and to develop poles of growth in the regions, the Irish government initiated the National Spatial Strategy. This was initiated to spread urban development to region centres. However, this contained many promises that were not feasible. It also resulted in standstill due to disputes over local concerns.

The Irish government's Decentralisation Plan for the Civil Service was created in 2004 and was based loosely on the model previously implemented in Denmark. One of the expected results of this move is to reduce the share of Irish state investment in Dublin, and thereby alleviate the difficulties experienced by first time house buyers in the city. Because the age profile of civil servants is older than people employed in Ireland's private sector, this would effectively result in older people making way for younger people in Dublin. This would also result in an overall reduction in the cost of doing business in Dublin, and thereby preserve its attractiveness as a location for direct investment. However this was only partially successful with the first location to fill its allocated quota being the one nearest to Dublin, Trim. Many civil servants have expressed a wish to reside in other urban centres with sufficient third level institutions, for example Galway. Implementation of the Decentralisation plan is considerably behind schedule, and it remains to be seen how this will eventually completed.

Growth background

Interest rates set by the ECB are only guided by low inflation targets in the Eurozone. Some feel this too narrow an objective, leading to decisions on interest rates that are inappropriate, eg. in a country with record levels of employment, rising house prices and consumer spending. The Irish economy has fallen down the global competitiveness table from fourth to thirtieth in the past three years due to the rising costs of doing business.

The housing boom is responsible for the employment of approximately 20-30% of the working population. The independently produced Review of the Construction Industry, commissioned by the Department for Environment, estimates that 12% of the workforce are employed directly in the construction industry.[7]

Crash predictions

  • The Economist weekly magazine says that a large bubble exists in the Irish market.[8]
  • The IMF says that residential property in Ireland is overvalued.[10]
  • The OECD and certain senior Irish officials of the Central Bank and Financial Services Authority of Ireland agreed in November 2005 that Irish Property is overvalued by 15%. However this was only released to the public by The Irish Times shortly afterwards[11]. The Central Bank denied that they had deliberately withheld this information to avoid triggering a crash, and in April 2006 said the housing boom may be "unsustainable" and poses a "significant risk" to the economy.
  • Most economists think that property prices are unsustainable because rental yields have fallen below the risk free rate of over 3.5% offered by Government bonds.[12]
An advertisement for 100% mortgages seen outside Dublin (17 July 2007)".
  • Many estate agents and banks continued to offer and promote 100% mortgages in the market until recently.

The Crash of 2009

As predicted in earlier reports dating from 2006 and 2007, a property price crash hit Ireland by the first half of 2009. It coincided with the 2009 recession, and both had started to develop in late 2008 following the global economic slowdown and credit control tightening. By June 2009, it was reported that around 40% of the price escalation that had occurred during the property boom years ("Celtic Tiger Part 2") of 2001-2007 had been lost [13].

There were several groups and organisations that were blamed and that also accused others of causing the crash. Some of the more notable ones were:

  • The Construction Industry Federation: blamed part-time builders for the bubble [14]
  • The Financial Services Consultative Consumer Panel, which is tasked with monitoring the performance of the Financial Regulator, said that most consumers have lost “significant amounts of money” due to the inadequacies of the financial regulatory structure. It also criticised the “deficient” response of the regulator to threats to consumers, including the property bubble.[15] In response they said “It is clear that the actions we took were insufficient and were not taken early enough,”[16][17][18] Following the failure of existing regulatory structures to prevent excessive lending to the property sector,[19] consultants which were brought in to review their operations said that "regulatory expertise was lacking in some areas."[20]Former Taoiseach,Bertie Ahern said his decision in 2001 to create the Financial Regulator was one of the main reasons for the collapse of the Irish banking sector and“if I had a chance again I wouldn’t do it”.[21]
  • The Central Bank admitted in November 2005 that they had estimates of overvaluation of 0% to 60% in the Irish residential property market. The Irish Times has revealed minutes of a meeting with the OECD where they indicated that property was overvalued but was fearful of precipitating a crash by "putting a number on it".Their 2009 Annual Report had virtually nothing to say about how and why the Irish banking system was brought to the brink of collapse.There were four Central Bank directors on the board of the Financial Regulator, yet the Central Bank maintains it had no powers to intervene in the market.[22] The Central Bank had the power to issue directives to the Financial Regulator if it thought it was conducting its business in a way that was contrary to overall Central Bank policy aims.None were issued.[23] The Central Bank told the Oireachtas Enterprise Committee that shareholders who lost their money in the banking collapse are to blame for their fate and got what was coming to them for not keeping bank chiefs in check, but did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developers.[24]
  • The Banks: were accused of too loose lending practices, contributing not just to property prices spiralling out of control but also increasing the debt burden of the average citizen as they were to be later bailed out [25]

In general, it was assumed to be a combination of factors that were both external and internal that affected the country. Further revelations of the corruption within the banking sector, particularly Anglo Irish Bank, have continued to affect the credibility of Ireland's presence within the international finance and business community.[26]

During the property boom, a disproportionate number of people were employed in the construction industry. As that has contracted and other manufacturing moved offshore, unemployment by May 2009 was at 11.4% [27], although the Ireland-based ESRI (Economic and Social Research Institute) estimates it will reach around 17% [28].

Facts and Figures

  • 12.6% of the Irish workforce is employed by the construction industry.[29]
  • 9.4% of Irish GNP is dependent on construction. Of this new residential housing construction makes up nearly 7% of GNP.[30]
  • There is no true shortage of land, only a shortage of planning permission. Even in Dublin, Cork, Limerick etc. there is no shortage of land.[31]
  • The P/E ratio (Total Price divided by annual earnings) for private housing is at an all time high. A Davy Stockbrokers report (Mar 06) suggests that for prosperous Dublin suburbs the ratio could be approaching 100 times. Davy states that these ratios can only be justified if investors are extremely bullish about rental growth. Given the plentiful supply of rental properties in these areas however, Davy suggests that it will be an adjustment in property prices, rather than rents that will eventually bring valuations down to more realistic levels.[32]
  • A very high proportion of new houses in Ireland remain unoccupied.[33]
  • Although housing indicators like price to income ratio and rental yields are worse in many other countries, high price per square meter and unsustainable Irish economy indicates the bubble.[34]

See also


  1. ^,20776,en.pdf
  2. ^ "Housing Statistics". Department of Environment, Heritage and Local Government.  
  3. ^ "How many houses do we need to build?" (PDF). Davy Stockbrokers.  
  4. ^ "Construction and Housing in Ireland?" (PDF). Central Statistics Office.  
  5. ^ "Mortgage brokers feel the heat from regulator". Sunday Business Post.  
  6. ^ Clarke, Jody. Can you bag a property bargain in Ireland?, MoneyWeek, July 5, 2007
  7. ^ "Review of the Construction Industry 2004 and Outlook 2005-2007" (PDF). Department of the Environment.$FILE/R&O+2005+Final.pdf.  
  8. ^ "The global housing boom". The Economist.  
  9. ^ "Quarterly Economic Commentary Spring 2006 - 25/04/2006". ESRI Press Releases.  
  10. ^ "IMF warns house prices may have risen too high". Irish Times.  
  11. ^ "OECD believes Irish property market overvalued by 15%". Irish Times.  
  12. ^ "Dublin house prices heading for 100 times rent earned - 29 March 2006" (PDF). Davy Stockbrokers.  
  13. ^ "The (28th May, 2009)".  
  14. ^ "Sunday Business Post, 31st May 2009".  
  15. ^
  16. ^
  17. ^ " Business & Finance Portal, 26th May 2009".  
  18. ^
  19. ^
  20. ^
  21. ^
  22. ^
  23. ^
  24. ^
  25. ^ "Sunday Business Post, 19th October 2008".  
  26. ^ "Banking Business Review, 31st May 2009: Anglo-Irish posts massive loss of €4.1 billion".  
  27. ^ "Irish National Organisation for the Unemployed (".  
  28. ^ "Irish Times, 29th April 2009".  
  29. ^ "Vol. 13 No. 3, July 2006". Migration News.  
  30. ^ "CSO-Quarterly National Accounts" (PDF). Central Statistics Office.  
  31. ^ "DOE Housing Statistics". Minister for the Environment, Heritage and Local Government.  
  32. ^ "Dublin house prices heading for 100 times rent earned" (PDF). Davy Stockbrokers.  
  33. ^ "How may houses do we need to build?" (PDF). Davy Stockbrokers.  
  34. ^ "Property Investment Index By Country". Numbeo.  

There were 50,000 properties for sale ( in August 2007, compared to 10,000( in August 2006 due to unsold properties. See

External links

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