Thursday, September 2, 2010

The €1 House - Why Sticking Our Head in the Sand is a National Pastime

Much has been written on the Irish obsession with property, and how difficult it has now become for us to wean ourselves from the smack-like pull of planning permissions, buy-to-lets and doer-uppers. However, if the delusional madness of the early noughties bricks and mortar addiction was disturbing, I find our failure to recognise how expensive property is inherently a bad thing even more worrying for the nation's collective state of mind. Ireland is now the equivalent of the junkie on enforced cold-turkey; nauseous, sweating and shivering, but still refusing to recognise that his addiction to drugs has brought him to this point.

The best illustration of this comes today in the story of the €1 house in Moylough, Co. Galway. From the outset, owner Michael Dempsey should be lauded for facing up to the fact that he has to sell the house at a considerable loss, and that he can only get what people are willing to pay for it (quite possibly nothing in today's environment). Nonetheless, Mr. Dempsey's comments do betray some of the psychoses that still plague us when it comes to recognising how the property market (or indeed any market) actually works - and that disengagement from reality is only hampering Ireland's efforts to get its economy back on track.

Mr. Dempsey "built the bungalow partly as a hobby and partly to provide himself with an income in retirement" - so he was an investor. This was not a house to live in, this was a house to make money from. Yet, in the radio coverage of this case at least, Mr. Dempsey has certainly earned considerable sympathy, as if he is the victim of some evil capitalist plot. Such victimhood is underlined by his claim that
"When I decided to build it banks were giving out money all over the place. I went in at one stage looking for e25,000 and came out with €50,000.
"They ended up lending me 10 times my income, but it seems they were doing that to everyone."
Now, I feel sorry for Mr. Dempsey, as a substantial investment of his has gone bad. But personal responsibility requires that he face up to the fact that building this house was his decision - the bank manager didn't put a gun to his head and force him to take the money. And while Mr. Dempsey, at least, while griping about the banks is acting now in a responsible manner -i.e. trying to sell the house for whatever he can get - many Irish people cannot face up to the fact that housing is an investment; you cannot blame the banks for your poor choice.

No one should lose their home - but there equally should be no bail-out for those who are merely in negative equity. If they can service the mortgage, then they can continue living in the house - no problem. They do not need support because they have lost money on their investment - just as if they would not be handing the state a share of their profits had the investment made a return.

We need to move away from the idea that property prices now are unusual - the prices of the boom period were freakish, not normal. Houses are now approaching what they are actually worth. And trying to artificially re-inflate the bubble through schemes like NAMA, or through talk of a deal for those in "negative equity", is merely putting a massively over-inflated cost base under productive and necessary industries in the export sector - the sector that will get Ireland out of this hole. Cheaper housing will help lead to a more cost-effective economy, allowing us to compete in the international economy.

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