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HOW TO GET THE HOUSING
MARKET MOVING AGAIN
A PERSPECTIVE ON BEHALF OF PROPERTY INDUSTRY IRELAND
November 2011
Executive Summary
A property market in an amplified slump can be just as damaging as a boom market that went
over the top. The purpose of this document is to propose solutions to ensure that this doesn’t
happen.
International Comparisons of Housing Recessions
0.00%
Belgium, 1979-85
Denmark, 1979-82
Italy, 1981-86
Switzerland, 198900
New Zealand, 197480
Sweden, 1979-86
Norway, 1987-93
Ireland, 2006-11
Netherlands, 197886
Finland, 1989-95
-20.00%
Dublin, 2006-11
-10.00%
-30.00%
-40.00%
-50.00%
-60.00%
-70.00%
Moreover, the solutions outlined are supported by analysis of the current state of Consumer
Sentiment and the Housing Market. It is abundantly clear that there are serious issues to be
addressed and that the Government needs to decide what guiding principles it should follow.
The successful, speedy implementation of a housing solution could provide our people with a rich
dividend and ensure a platform for economic and social recovery.
Undoubtedly, economic
recovery will be made a lot easier if we can rely upon a functional and transparent property
market.
Part of the prize will be much welcomed and much needed job creation, the lessening of the
burden of negative equity, the facilitation of inward investment and an inclusive recovery that will
be shared by many and not just by few. Moreover, such a recovery should contribute to repairing
the balance sheets of our banks and to the commercial success of NAMA. This time around,
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when it comes to housing, Ireland needs to get things right. The policies which are adopted
should lead to a sustainable and just society that respects the needs of all our citizens, while at
the same time, recognising the role of the profit motive as part of a responsible and fair market
economy.
Set out hereafter are the main conclusions and recommendations that address the challenges
and meet the opportunities to go forward into the future pursuing a realizable aspiration to have a
housing market that supports a competitive open economy.
1. Confidence:
People need to feel that the Government is in control of the housing
market, has a plan it intends to adhere to, and a conviction that we will, collectively, get
there in the end. The people are looking to the Government for answers to the following
questions:- Has the market reached the bottom? If so, how long is it likely to remain
there? By how much should the Market have corrected? Is any part of the correction an
over-correction? All in all, people are looking for a pathway. If the Market has corrected
by 60%, should it only have corrected by 40-45%? When the Market recovers in the
future – to what level should it recover? What should happen to the Market after that
point? The Government needs to show courage by responding to these queries but, in so
doing, draw on the views of the ESRI and the Central Bank.
Action Point: Government to lead and communicate their interpretation of the
residential property market and its future.
2. Liquidity:
Enhanced liquidity is essential to facilitate a normal market. Volkswagen in
the current year will lend Irish consumers €100million to buy their cars; yet the entire Irish
lending mortgage market is approximately 20 times this figure (€2billion). We need a
target of €4.5billion of mortgage lending in 2012, €6.5billion in 2013, €8.5billion in 2014
and €11billion in 2015. This medium term target of €11billion is based on average house
prices of €200,000, average LTV rates of 70% and historical pre-boom figures of housing
exchanges coupled with the demographic demand for new housing. In respect of this
target each Bank needs to be given its own individual target which should be reviewed
quarterly. Twelve month mortgage loan approval should be granted, rather than the
current six month term.
Moreover, the recent practice of granting mortgage loan approvals that can be withdrawn
at any moment up to drawdown needs to cease immediately. There is also the issue of
the foreign banks wishing to dispose of assets or loans that they hold into the Irish Market
without providing consumer mortgage finance, thereby putting greater strain on our
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Banks. Consideration should be given to how best the Housing Finance Agency can play
a part in assisting recovery and ensuring sustainable future for the Market. If the existing
banks and lending institutions are unable or unwilling to provide the finance in a timely
and appropriate fashion balancing risk with reasonableness then the involvement of the
Housing Finance Agency becomes more of a necessity than a choice.
Action Point: Unlock the credit. The banks to be given individual mortgage lending
targets.
3. Negative Equity: This is a corrosive and social evil. It is likely to be the single greatest
barrier to mobility in the housing market over the next five years. With up to 300,000
households affected to a greater or lesser degree it is essential that a solution is provided
to allow those people who wish to move - and have the financial capacity to continue to
finance their mortgage- be allowed to do so.
Action Point: Consumers to be allowed move their mortgages.
4. Market Information: With four different indices (CSO, Sherry FitzGerald, MyHome and
Daft) which provide analysis of the Market and come up with different results at different
times, it is not surprising that the average consumer is confused.
The Public are likely to respond positively to a trait of curiosity and a command of detail
from key Ministers connected to the Economy and the House Market. The Government
should engage the ESRI to give a succinct and easily understandable market explanation
as to the meaning of all the indices. In relation to the National House Price Database, it
is important that this register is accurate and understandable, thus providing people with
clear information, (prices and square meterage etc) that can be referenced to local
property transactions.
Action Point: ESRI to be retained by the Government to explain the housing market
to consumers. National House Price Database only to be launched with all the
relevant information, not just some of it.
5. Housing Policy, Communication and Qualitative Research:
Qualitative research
shows that the people have placed great faith in the new Government. In the area of
Housing, the Government should respond by having a coherent policy (part of a National
Property Strategy – see below).
This will contribute to a sense of national purpose
emanating from the political establishment. Key Ministers, bodies such as the IDA and
Irish embassies abroad should receive a monthly briefing on the Market which could be
coordinated by the ESRI. Demonstrating an up to date grasp of trends and analyses in
the Market (e.g. international visitors to MyHome.ie up 20% in the last 3 months) and an
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ability to communicate a coherent message by key Government Ministers will help
engender a feeling of confidence in the public that somebody is in charge.
Action Point: Government to display purpose by having a Housing Policy as part
of the National Property Strategy and ensuring that all relevant arms of the
Government, both domestically and internationally, are properly briefed on the
evidential data about the market.
6. Taxation:
The public will accept pain, provided it is fair and doesn’t engender
uncertainty. Maintaining existing levels of income tax over the next 3 to 4 years while
introducing fair and reasonable property taxes that are transparent and known in advance
will help to harness the incentive to work as well as help to manage property house price
rises on recovery.
Action Point: The Government needs to encourage the incentive to work and give a
commitment as to the amount of property tax it intends to collect. This involves a
commitment that by the end of 3 years the average house will attract a tax of a
specific amount.
7. Leadership and Purpose:
While understanding the justifiable concerns of the
consumer, the Government must show leadership to its people and to those who work
directly for it. In particular, those in the Public Service who interact with the Housing
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Market need to make more speedy decisions and not be over sensitive to criticism when
doing the right thing.
There also needs to be a clearly enunciated policy from the
Government that public service is indeed about doing the right thing rather than avoiding
doing the wrong thing. Equally, the private sector needs to acknowledge fundamental
risk and governance failings from the Celtic Tiger period and ensure that there are new
standards for a new era.
Action Point: For the next 2 years hold, for the Minister for the Environment, an
annual one day National Property Forum designed to increase cooperation and
understanding between the public and private sector in the area of housing policy
implementation. Part of this forum will be workshops involving both private and
public sector participation.
Resolution of Upwardly Only Rent Reviews:
The Government’s plan for new
legislation in this area does not directly impact on the Housing Market but it has had the
indirect consequence of increasing uncertainty in the overall Market by leading to lack of
interest by International investors.
Housing Policy should all be about Certainty,
Certainty and Certainty.
Action Point: A definitive announcement on the issue before Christmas is required.
8. The Planning System: It is a widely held view that the Planning System has failed our
Country. A simpler, speedier and evidentially based planning process would contribute to
the perception that the Government is in charge and things that should happen are
beginning to happen. More flexibility should be allowed in the usage of existing buildings
e.g. the Georgian Squares of Dublin where residential occupation should be encouraged.
There is also a need to standardize documentation around planning applications and
procedures adopted in pre-planning consultations.
Action Point: These new planning structures, processes and protocols should be
announced and enacted before June 2012.
9. National Property Strategy: To provide a vision for the Market over the next 20 years
that would give all the stakeholders involved a clear and coherent focus of their functions
and also help manage future Market cycles.
A permanent Property Advisory group
drawn from the best brains in the Public and Private Sector and chaired by the Secretary
General to the Department of the Taoiseach should be set up to formulate, review and
update, when required, the National Property Strategy.
While actively managing the
current Market difficulties, the Government cannot afford to postpone planning for the
future. People are expecting, not only, a legacy of competence but an expectation of well
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thought out change. Many shared in the downturn – few will share in the upturn if it is not
planned for properly.
Action Point: This new Property Advisory Group should be appointed by the
Government prior to February 2012.
7
The Residential Property Market – A Background Analysis
Five years into this recession, there is little evidence that the pace of price deflation has abated
significantly. The combination of price deflation and the low interest rate environment means that
the affordability of property has been significantly enhanced.
The stock of available property for sale is relatively tight by either historical or international
standards. From the peak in the market in 2006, the average price of property in Ireland has now
1
fallen by up to 62.3% , making the Irish property recession the worst recession in post-war
Europe.
Barriers to Stability
As participants in the market we believe there are three principal barriers to stability namely, low
consumer confidence, limited liquidity and finally negative equity which is in effect a barrier to
mobility.
Confidence: Confidence in a market is a difficult entity to harness. Despite the incredible value
in the market place at the moment consumers fear further price deflation. In response they delay
their decision to purchase and in doing so their fears become reality. Furthermore there is so
much uncertainty around the general economy – job security etc. - that consumers are very
reluctant to take any major decisions in relation to property.
A full detailed report on consumer confidence is set out further on in this report.
Liquidity: In the first six months of 2011, the Irish Banking Federation (IBF) data reveals that a
total of €1.2bn of residential mortgages was drawn down in the Irish market. This compared to
€40bn in the calendar year of 2006.
The latest census data shows that there are currently 1.7million residential housing units in
Ireland. If we assume that approximately 2.5% would sell in a normal market – such as the
market of the late 1990s- then that equates to 43,000 units. If we further assume an average
value of €200,000, and an average LTV of 70%, this translates to annual mortgage draw downs
of €5.98bn in respect of second hand properties alone. Furthermore, if we assume an annual
demand for 30,000 new homes and a loan to value ratio of 80% combined with an estimated
1
Sherry FitzGerald index of second-hand properties reveals Dublin house prices have fallen in real terms by 62.3%, while
the national market has corrected by 57.5%.
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value of €200,000, this equates to a further €4.8bn of mortgage draw downs in a new homes
market.
An annual mortgage lending target for all banks based in Ireland would certainly crystallise the
issue. Clearly the market will not rebound overnight to a requirement for €11billion, however a
reasonable annual uplift over a 4 year period would be an essential ingredient in allowing normal
transactions to resume.
At present in Dublin, 30% of houses are being purchased by cash
buyers at very low prices. This could lead to a consolidation of residential property ownership in
fewer hands which would be regressive, particularly in light of the fact that the cost of the
recession is being shared by so many.
Clarity needs to be brought to the area of mortgage approvals. It cannot be taken for granted that
financial institutions will respond with mortgage credit as soon as the market reaches a theoretical
bottom. In fact, given the current state of the Irish financial system, it is more likely that they will
not respond and continue to hoard credit. The recently published Consumer Protection Code
2012 imposes more stringent suitability measures that banks must adhere to when issuing a
mortgage. Whilst the long term intention of these proposals is to promote sensible lending and
the creation of good loans, a short term consequence could be the rationing of credit as banks
use these principles as reasons to refuse mortgage applications.
The quarterly publication by the IBF and PwC is welcome in this regard but the publication does
not go far enough. The publication is deliberately misleading to the general public in that “new
mortgage lending” is always presented as the headline figure in the report. Representatives of the
banking industry frequently cite this “new mortgage lending” figure as a sign that the banks are
active in the current market. The market at large is not aware that this figure includes re-financed
mortgages and top up mortgages.
It is essential that this publication is expanded to provide real insight into the mortgage credit
market. Publishing average LTV rates and mortgage application numbers/approval ratings alone
would be hugely beneficial. The IBF should also be directed to alter the presentation of their
figures so relevant data is more easily accessible to the general public.
Unlocking Credit. The issue of forbearance and its widespread use by the banks in the current
environment is discussed at length in the Keane report. Unless a change in Irish bankruptcy
legislation together with a reform of the Mortgage Interest Supplement (MIS) is introduced, banks
will continue to adopt a wait and see approach to the detriment of new lending. Banks must be
provided with the tools to encourage proper borrower behaviour and stem the trend of borrowers
falling into arrears because no viable alternative is available to them. Similarly, banks need to be
incentivised by government to pro-actively deal with their problems rather than just availing of
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MIS as a long term solution. These are sensible recommendations of the Keane report in an area
where reform is necessary in order to resume mortgage lending.
The second issue that we feel needs to be addressed in relation to the banks is that of
deleveraging. A key component of the Financial Measure Programme (FMP) published in March
of this year by the Central Bank of Ireland was to outline a framework to reduce the Irish banking
system to a manageable size. As at 31 Dec 2010, there were €255.6bn of loans in AIB, BOI, EBS
& ILP and €142.1bn of deposits – meaning an unsustainable loan to deposit ratio (LDR) of 180%.
In the past, this gap was met with wholesale funding however the loss of confidence in the Irish
banks means that this is unlikely to be the case going forward. The cumulative outflow of deposits
from Irish banks over the 11 months to August is €316 billion.
Irish banks were provided with deleveraging targets through the FMP where all banks had to
meet certain disposal targets by 2013. Unfortunately, we have seen very little success on this
front and most disposal programmes remain outstanding. If banks are to resume lending to the
Irish market, they must shrink their respective loan books. Banks will continue to compete
aggressively for retail deposits while their LDR is too high. The longer it takes banks to shed
loans and lower their LDR, the longer it will be before they resume lending. This is true for all
forms of credit, not just mortgage credit.
Where possible, banks should be encouraged to prioritise the disposal of non-core residential
portfolios (such as buy-to-let portfolios). This will ensure that their books are not heavily weighted
to residential mortgages after the deleveraging programme has been implemented as this could
curtail mortgage lending from a corporate risk perspective.
Negative Equity: Negative equity is likely to be the single greatest barrier to mobility in the
housing market in the next five years. With up to 300,000 households affected in the Irish market
to a greater or lesser degree, it is essential that a solution is provided to allow those households
how may wish to move and who have the financial capability to continue to finance their mortgage
to be allowed to do so.
Market information: With four different indices all analysing the market and coming up with
different results at different times, it is not surprising that the average consumer is confused.
Furthermore, the current data protection legislation which prohibits estate agents from providing
information on selling prices to consumers has been one of the single greatest frustrations for
consumers in a challenging marketplace.
In many instances, asking prices are significantly
greater than achieved prices and as such consumers are not fully aware of the market conditions.
Access to market data is essential for consumers to gain confidence in the market conditions. As
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such it is absolutely critical that an easily searchable property transactions database with live
market data is supplied. We understand that plans are advanced to publish the actual price of
houses.
This information, in abstract, without accompanying information on the size and condition of the
property is of little use in terms of proper evidential analysis. This is a prime example of where
the Public and Private Sectors should be cooperating. The State has the address and the price
of the properties and MyHome and Daft, by and large, have the information on accommodation,
condition and size of the properties.
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Current Market conditions – Price performance indicators
The Irish residential property market is now in the fifth year of recession. Property prices, as
determined by the Sherry FitzGerald barometer of house prices, first began falling in 2006. From
that point to the end of the third quarter of 2011 property prices in Ireland have fallen by 57.5% in
real terms, while prices in Dublin have fallen by 62.3% in real terms, making the Irish property
recession the worst in the post-war era.
International Comparisons of Housing Recessions
0.00%
Belgium, 1979-85
Denmark, 1979-82
Italy, 1981-86
Switzerland, 198900
New Zealand, 197480
Sweden, 1979-86
Norway, 1987-93
Ireland, 2006-11
Netherlands, 197886
Finland, 1989-95
-20.00%
Dublin, 2006-11
-10.00%
-30.00%
-40.00%
-50.00%
-60.00%
-70.00%
These figures do exceed estimates on price deflation by the CSO residential property index. The
recent CSO monthly analysis of the market shows that prices in Dublin are down 53% from peak
and prices in national index down 45% to the end of September 2011.
It should be noted that the CSO Residential Property Price Index analyses transaction prices of
dwellings based on mortgage drawdowns. The strength of the new CSO index over all other
indices obviously lies in the breadth of its coverage and the fact that it is analysing prices actually
achieved.
However, there are challenges to the methodology used by the CSO index particularly during a
period of time when the market is dysfunctional. When one is analysing transaction activity in a
12
normal market, one is probably analysing a proportionate representation of the entire market.
The same however may not be true of a malfunctioning market.
Because of a variety of factors, in particular, though not exclusively, the limited liquidity in the
market place, there is a concentration of activity around a certain type of property and a reduction
in activity in other property types.
National Residential Index - CSO & Sherry FitzGerald
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
20
05
M
20 03
05
M
20 06
05
M
20 09
05
M
20 12
06
M
20 03
06
M
20 06
06
M
20 09
06
M
20 12
07
M
20 03
07
M
20 06
07
M
20 09
07
M
20 12
08
M
20 03
08
M
20 06
08
M
20 09
08
M
20 12
09
M
20 03
09
M
20 06
09
M
20 09
09
M
20 12
10
M
20 03
10
M
20 06
10
M
20 09
10
M
20 12
11
M
20 03
11
M
20 06
11
M
09
0.0
CSO Index
Sherry FitzGerald Index
Demand for smaller units and in particular apartments is particularly subdued. These would have
largely been the property of choice of investors whose presence in the market is now significantly
reduced.
Also there has been a notable shift in general consumer sentiment away from
apartment living of late.
Secondly, the upper end of the market - properties valued over €750,000 - and, perhaps, in
particular the premium, upper end properties valued at more than €1 million is also less active.
The properties at both the upper and starter end of the market are unlikely to be proportionally
represented in an analysis of transactions at the moment.
By that very fact, deflation levels in those markets are greater than overall averages. This is
borne out by findings by the CSO in relation to the apartment market which is showing an above
average level of deflation. As such, overall levels of deflation determined through an analysis of
transactions may not truly reflect the full extent of the market correction.
13
Sherry FitzGerald has been producing an index of the second hand market since 1996 for Dublin
and since 1999 for the national market. Its analysis is based on a repeat valuation method and
analyses trends in this market only, based on an analysis of a basket of properties in all Sherry
FitzGerald locations nationwide. Each basket of properties is chosen based on a weighted profile
of properties in each location. The basket extends to over 1,500 properties.
Because of the nature of this analysis, the Sherry FitzGerald Index does provide live up to date
market analysis, without any lag to which an analysis of mortgage draw downs is subject. It also
facilitates an analysis of both the active and inactive elements of the market, thereby giving a
fuller picture of market deflation.
Housing Stock Analysis
Housing supply is a much debated topic, with much discussion on the overhang of property in the
market.
To begin with, it is important to understand the relatively low stock of housing in Ireland relative to
international standards.
Houses per '000 of Population - International Comparisons
600
544
500
509
400
488
435
373
345
300
200
100
0
Ireland (2011)
UK (2010)
France (2006)
Germany (2009)
Spain (2009)
Poland (2009)
Moreover, it is relevant to understand the quantum of stock overhanging the market.
14
The key findings of the updated 2011 National Housing Development Survey undertaken by the
Department of the Environment reveals that there are a total of 2,876 housing development sites
in the country, of which 2,066 are unfinished housing developments.
An analysis of the vacant housing element reveals that the proportion of new complete and
vacant dwellings totalled 18,638, representing a 20% reduction on the corresponding level in
2010. A further 8,794 dwellings were recorded as near complete. This brings the total quantity of
new vacant dwellings complete or nearly complete 27,432. The corresponding figure in 2010 was
33,226 dwellings.
Furthermore, approximately 17,872 dwellings are at various stages of construction.
The 2011 survey also provides a useful breakdown of the house type, for example an apartment
or house. Nationally, the proportion of houses that are “complete and vacant” and “near
complete” comprises 59%, the remaining 41% consist of apartments.
In Dublin, there are approximately 6,520 dwellings that are “complete and vacant” and “near
complete”, however the proportion of houses is significantly lower at 18%.
Interestingly, the proportion of vacant houses in Dun Laoghaire Rathdown County Council stands
2
at just 5% .
To get a full understanding of the total stock of available properties in the market, Sherry
FitzGerald Research undertakes a bi-annual census of stock of available property for sale in the
second hand market. The latest results reveal a relatively tight supply of property in most
locations nationwide.
In July, the total stock of available property for sale in the second hand market nationwide stood
3
at 54,392 units , of which 8,049 were located in Dublin City and County, representing 2.9% and
1.7% of estimated private housing stock respectively.
Combining the new and second hand stock together reveals that there are closer to 80,000 units
both new and second-hand available for sale in Ireland, and not 300,000 as previously
anticipated. This represents a housing stock market availability of 4.2% of our overall private
housing stock.
2
Data from the National Housing Survey reveals that there are just 75 new and vacant houses in DLR CC , representing 5% of the
total 1,525 vacant dwellings – complete and near complete.
3
Data collated from Sherry FitzGerald Research/DOE/MyHome/Daft.ie
15
As such the overall stock of available property is not excessive. The difficulty is represented by
the location and type of units available. There is a large quantity of starter home units all around
the country which are simply not in demand in the current climate. The greatest difficulty lies in
the north west region - in counties such as Leitrim, Cavan and Longford - where the quantity of
property on the markets are greater than 7% of private stock.
Supply and Demand for New Property
Latest figures from the Department of the Environment point to further deterioration in supply
levels with the level of annual house completions at levels not seen since the late 1980’s. In
particular, data on completions for the first nine months of the year reveals that approximately
7,917 units completed construction. This represents a reduction of 26% from an already low
base of approximately 10,763 units built during the same period in 2010.
On a monthly basis, just 915 units completed construction in September, this compares to almost
9,900 units at the height of the market in 2006, thus highlighting the extent of the depressed
nature of the residential construction industry.
16
Housing Statistics 2011
12,000
10,000
Units
8,000
6,000
4,000
2,000
n06
p06
D
ec
-0
6
M
ar
-0
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Ju
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Se 7
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-0
6
0
Commencements
Registrations
Completions
It is important to note that approximately 4,774 (60%) of the units that were completed in the year
to date, comprised once off housing, this compares to 25% during the height of construction in
2006. Furthermore, apartments accounted for just 14% of the total built in the first nine months of
the year.
Looking to the future, the latest available preliminary figures from Census 2011 is a useful
benchmark. The recently published data shows a surprising strength in population growth above
all expectations. The data shows a population growth of 341,421 in the period since the 2006
Census, with preliminary estimates showing a population of 4.58 million. This translates into an
average annual percentage growth of 1.6%.
In terms of housing, the preliminary data shows the total housing stock has increased to 2 million
units, this includes private housing, local authority housing, vacant and occupied dwellings.
The strength of population growth, in particular, suggests that estimates in relation to net inflow of
migrants did not fully capture the strong immigration levels during the late days of the Celtic Tiger,
a factor which must be borne in mind in terms of current interpretation of net outflows.
The latest demand analysis by Sherry FitzGerald research looks at both the immediate and more
medium term outlook for the market. Given the volatility in both the Irish and indeed global
17
economic conditions it is perhaps prudent to consider the short terms prospects for the market in
greater detail.
The results of this study suggest a growth in the population to 4.7 million by 2016 and 5 million by
2021. This translates into a gross demand for housing of approximately 299,000 units over the
period 2012-2021 inclusive or approximately 30,000 units per annum.
It should be noted that this forecast is preliminary as full details on the housing supply have not
yet been released from the CSO. It will also need to be adjusted to a net forecast once greater
clarity is supplied around the overhang of property in the market in the autumn.
Consumer Sentiment
Consumer sentiment is a critical ingredient in performance of the entire economy as a whole and
in particular of the property market.
Consumer behaviour around major purchases, such as
property, is dependant on two factors, the ability to purchase and the willingness so to do. This is
directly related to confidence in the property market allied with confidence in personal future
prospects.
The recent ESRI/KBC sentiment index shows a surprising lift in sentiment in October 2011 which
has yet to be translated into an increase in people’s willingness to invest in major purchases such
as houses. The reasons for this lift in sentiment is thought to be due to a number of factors such
as strong Irish growth data, hopes for an ECB rate cut and perhaps even sporting success may
have contributed. Also the recent Presidential Election supplanting daily reports of the Recession
probably also helped.
A Behaviour & Attitudes (B&A) report from September, which is attached as an appendix to this
report, illustrates the journey that consumers have taken and identifies the stages as follows:
In late 2006/2007 – Shock and panic at the speed and severity of the recession and its impact
particularly on confidence initially.
This turned to anger in 2008 / 2009 mainly directed at the Government, Banks and Developers
and also to fear as the implications of the downturn started to impact personally on everyone.
At the end of 2009, a gradual acceptance of some sense of ‘life goes on’ creeping in.
18
However, in November 2010, when the Bailout happened, emotions went back to “shock and
panic” and added to that of “despair”. The prevailing emotion, according to this B&A paper, is
now despondency and people are feeling worn out and exhausted by the length and severity
of the recession. More importantly, people are not seeing any route to substantial recovery.
The impact of the recession has impacted more on some sections of the population than
others.
By July of this year, lowest levels of confidence were seen amongst those aged 35-49 years
and 50-64 years.
It is notable that the social grouping C2DE, express lowest levels of confidence with regard to
the general economy, personal income levels and future purchase intentions.
ABC1s are the most pessimistic about the future value of their personal assets.
This report also shows that, from the average consumer’s point of view, the current economic
crisis was due to:
Reckless Lending Behaviour by ‘the Banks’.

Incompetent Governance and Regulation.

The Global Economic Downturn.

Consumers Themselves – ‘we had some part to play’.
In the absence of a reliable ‘compass’ by which they can gauge the true state of the economy,
consumers have settled on a number of indicators to help them ascertain whether the economy
has reached the bottom, how long it is likely to remain there, and how confident or not they can
be in relation to their personal finances.

Unemployment Levels. Fear around job security undoubtedly is one of biggest challenges
to unlocking consumer spending.

Economic Growth Levels. Confusion about whether the economy is shrinking or growing at
the moment.

Consumer Credit. Consumers do not believe, for a moment, that Irish banks are ‘open for
business’ with regard to consumer credit.
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
Business Credit. Many believe that the survival of businesses is under threat from a lack of
business credit from the banks.

Property Prices. Reluctance to make a home purchase until they can be satisfied that house
prices will not drop further.
This B&A report outlines the reassurance that consumers need in order to influence sentiment
and inspire enough confidence to get them spending again.

Personal/Household income levels. Bring on the Budget! Consumers need to know as
soon as possible any likely percentage drop in net take-home pay following December’s
budget.

Retirement Fund Value. Consumers need a clear view as to how much they will have to live
on during retirement.

EU/ECB/IMF Timescales. Consumers need reassurance in relation to any move by the
Troika in terms of spending cuts/tax increases.

Implications of most recent changes to bailout terms. Consumers need some idea,
however, as to how savings will benefit the country in practical terms, even at a top line level.

Property. Consumers saving for a deposit, and parents considering contributing, are loathe
to make a house purchase until they feel that house prices will not drop further
Recent RED C research conducted October 2011 concludes that the situation in Greece/Europe
is causing great concern among Irish consumers with the worst expectations for the World
economy recorded since February 2009. This has led to decreased spending and increased
concerns over job security and the housing market. Yet, expectations for the Irish economy
remain relatively unchanged – perhaps indicating a cautious optimism for the Irish situation.
There is potential for increased spending on socialising and consumer goods if consumers can be
assured that the European debt problem will not affect them personally.
Property Sentiment
There is a lot of confusion as to the level of price correction in the market. The lack of accurate
information regarding prices achieved for properties is an issue which is very much to the fore in
any Focus Group on property over the last number of years. There is also a lot of confusion
among consumers as to whether the figures published refer to apartments or second hand
homes. Another issue mentioned is the lack of properties due to shortage of ‘suitable’ stock (i.e.
the shortage of starter 2/3 bedroom homes).
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All our indicators are that sentiment is a key factor holding up many potential purchasers from
buying a property. Lack of availability of finance and prices of houses are the critical issues.
Another issue mentioned is the lack of suitable properties due to shortage of stock.
Focus group research shows that first time buyers are looking for 2/3 bed houses now instead of
apartments as they ‘have lived in apartments for long enough’. MyHome.ie’s recent (Nov 2011)
sentiment survey research also shows long term renting at one address still hasn’t become the
norm (unlike in Europe) and 80% of tenants intend purchasing a home and 97.7% of them will be
first time buyers.
Overall, an enormous amount of hope has been vested in the current Government following years
of perceived drift and confusion. No matter how difficult the decisions ahead might be, they must
be spelt out so that the consumer can understand the personal implications of these decisions.
Above all, people need to feel that the government is in control of the situation, has a plan to
which it intends to adhere and a conviction that we will, collectively, get there in the end.
There is no doubt that an increase in consumer confidence and sentiment and some assurance
that prices are not going to fall much further will help greatly in getting purchasers, particularly
those with cash, to make the decisions – which will in turn help property sentiment in general.
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