PREDICTIONS FAIL WHEN THEY
One day people will not worry about future worth of their property. Instead, they will be occupied by other concerns, writes
‘Self-harm is seldom factored into predictions’
‘Towns and villages offer unparalleled quality of life’
‘PREDICTION,” goes an old Danish proverb, “is hazardous, especially about the future.” Despite this warning we seem to be addicted to it, causing media and commentators to crave predictions.
The publications of the ESRI’s Quarterly Economic Commentary, replete with predictions for the following year, are always well reported. There is not as much coverage given to looking back at previous prediction — like the one in 2007 that fatefully and fatally predicted wrongly: “The adjustments in the housing market, both in terms of building activity and price, are part of a process of returning the Irish economy to a sustainable growth path.” Within 12 months the Irish economy had commenced one of the worst collapses experienced by a western economy — all driven by a failing housing market.
One of the main reasons that econometric predictions can be so wrong is because of failure to take account of forces that arise because of sentiment, local circumstances and events. Yet these game-changing factors keep recurring. It is instructive to consider a few of the big non-economic game-changers that are all potentially around the next corner.
Changing values — such as expectations of entitlement — evidenced by the extraordinary way in which hitherto conventional issues of housing waiting lists and rough sleeping have suddenly morphed into a vocal, emotional and rapidly politicising movement.
History takes unexpected and sudden swerves when demands for entitlement change — witness how land agitation in Ireland led to the breakup of centuries-old systems of large estates and landlords. Changes that were once unthinkable — overthrown monarchies and income tax, were game-changing at their time of introduction, yet are unquestioned norms today.
A seldom discussed aspect of economic predictions is the way in which they assume that fundamental structures of wealth and ownership will continue. They don’t.
Changing expectations and entitlements to housing may require dramatic changes in public finances — and associated taxation because what was acceptable in the past may not be so in future.
Other game-changers that can confound economic predictions are inflation and interest rates. We have lived in a period of remarkably low interest rates and inflation that are likely to end in the near future — despite An Post’s market-entry promise of low interests. Low interest rates alone do not affect prices — so long as these are balanced by prudent credit control — such as is currently exercised by our Central Bank.
Strong Irish growth and low unemployment — as well as the unexpected return of trade wars and tariff together with unsustainable public debts in many of the world’s economies are already setting the stage for an unwelcome and unexpected return of inflation.
These factors will all affect affordability. Many people are unpleasantly surprised at how much a small increase in interest rates can make a difference in monthly mortgage repayments. How many readers have ever experienced either high interest rates or high inflation rates — or both?
Congestion is the other game-changer that can badly skew economic predictions — because it can act as a severe constraint on access to land and labour supply. Congestion is an issue that, globally, plagues every urban success story. In less than 18 months it will begin to dramatically overtake housing as the ‘problem de jour’.
Transport planning requires joined-up and grownup thinking and leadership — requiring hard choices, avoidance of clientism and big-picture thinking — things that we seem to sorely lack if recent intervention by the Taoiseach on Metro North and Shane Ross on Bus Connect are anything to go by.
Self-harm is the other game-changer that is seldom factored into future predictions — mainly because it is so illogical — yet it is a persistent thing that ushers in or accelerates every major property crisis in Ireland. Have we already forgotten that it was government “adjustments in the housing market” that ruined our economy?
Before trying to make predictions it is wise to first look at the three main existing trends in different locations that are already evident. Future economic circumstances will accelerate or dampen these trends — but rarely cause them in the first instance.
Firstly and for the first time, in and near major city centres, especially in Dublin as Ireland’s only city of global scale or visibility, there will be an emerging demand by the international community that will create enclaves of extreme wealth and associated pricing. Property associated with this market will have high and stable prices that will track international premium locations. The most likely locations will be the scarce historical and heritage ‘Georgian’ and coastal areas in Dublin as well as parts of the Wild Atlantic Way — the ‘Switzerland of the Atlantic’.
Secondly, the country’s main economic engine — the Greater Dublin Area — will contain extensive areas of high-value commercial and retail lands, though in small concentrated areas, that will service a growing international finances services sector as well as continued multinational hi-tech, high-value manufacturing facilities. These will have a number of different and separated locations — the most prestigious being in down-town Dublin — but the rest, especially larger ones, strongly concentrated along major transport routes, particularly around the M50.
The associated residential areas for these new uses will also favour historic red-brick areas, as well as historic village and small-towns on rivers and canal locations in east Leinster, as well as coastal properties — especially the many coastal villages north of Dublin.
Dublin prices will remain high and relatively stable compared to the rest of Ireland, due to a combination of continuing demand as well as the artificial scarcity of developable land caused by the foolishness of the National Planning Framework.
Within this area, congestion will begin to become a major determinant of property prices, with well-connected and less-congested areas being much more highly prized. This will favour coastal areas as well as north Dublin and south Meath where airport proximity and excellent commuter rail service will become a strong price differentiator.
The third distinctive area with a different property trajectory will be ‘RoI’ [Rest of Ireland] — the termed used by demographers and economists making plans for the future. These areas will continue to exhibit an extremely varied mixture of fortunes and considerable volatility. The latter is caused by a persistent pattern of well-intentioned, but unwise and unsustainable policy interventions that continually create ‘boom and bust’ cycles — usually driven by policy-led oversupply in sectors such as housing, tourism, agriculture and energy.
The fate of these parts of Ireland depend, more than the other two, on domestic policy and governance. Un- wise, centrist, self-serving “one-for-everyone in the audience” approach will continue to suppress the unique latent potential of these areas. This will require an abandonment of unquestioned assumptions about the entitlements of an ever-dwindling farming community and a beginning of a commitment to creating the conditions for the rural towns and villages that increasingly hold the majority of the populations of even our most rural of counties.
So, in the medium-to-near future, the things that will matter most, to most people, will be the percentage of their income that is spent on their choice of home. For the majority of people, this cost will
consist of the price of the rent, the price of the transport, plus the cost of the time wasted in congestion or inconvenience. For rural people, it will be the cost of providing the services required to sustain the vibrancy of our rapidly expanding and vibrant smaller towns and villages as places that can offer unparalleled quality of life.
The answer to today’s most commonly sought prediction — “What will property be worth in the future?” — will simply be “nobody will care as much about property price in the future — because they will understand that other things matter much more”. Conor Skehan is a DIT Lecturer in Planning and Housing