A property crash does not happen overnight. As housing prices are soaring across Ireland and demand is no more matching supply, experts are predicting that in seven years, the next property crash will hit the country. Even if it may seem far away, remember that it is in early summer that the foresighted squirrel amasses nuts to make provisions for the harsh days of winter.
Property crashes are easier to grasp once broken down
Property crashes, also referred to as real estate bubbles, are part of the macrocosmic phenomena that are economic bubbles. The original economic bubble is said to have occurred amidst a flaring Dutch “Tulipmania” – a period during the mid-1630’s, or Dutch Golden Age, where contract prices for the newly introduced bulbs of tulips rose dramatically before crashing spectacularly in February of 1637. From the first ever recorded example of such an occurring, one can easily imply that an economic bubble would, in fact, be a situation where demand exceeds supply, therefore driving prices up, until, as a result of the efforts geared towards remedying to the initial problematic, supply finally exceeds demand, causing prices to collapse tremendously.
According to Karl Deeter, a Compliance Manager who recently covered the topic of property crash for the Irish Examiner, “Property is inherently in disequilibrium, or in plain speak, supply and demand never match up. When the crash comes activity doesn’t slow down, it dies off almost entirely. Then, as the recovery comes about it takes years for the behemoth construction machine to start up again.”
What Deeter describes sounds a lot like a vicious cycle. And actually, an extrapolation of the sort would not actually stray too far away from the truth… Normally, economic bubbles are said to occur on average every 13 years, lasting for about 2.5 years and resulting in an approximate loss of 4 percent in GDP. While real estate bubbles are considered as rarer phenomena, they are often more critical because the general duration of the crashes last twice as long, causing losses that have been surveyed to be twice as consequent.
An analysis of Ireland’s current housing market gives a better idea of what’s next
“That ‘next crash’ is coming. It isn’t here now, it isn’t due soon, but it’s coming,” says Deeter. Ireland would now be surfing the second half of a property cycle wave triggered just a few years ago. 2016 marked the middle of the cycle in question, but many Irishmen are not yet aware of the threat that toys with their socioeconomic fate.
According to experts, there are quite a few factors that one can study to evaluate the stage that the country has now reached. Normally, during such a period, housing prices stall, rise slowly, or even drop unexpectedly. This hazy behaviour would often be caused by the money “exiting” early – something that generally happens when investors sell the assets that they have acquired over the few past months or years. Right after this comes the much-feared doomsday. The realisation that undersupply is still an alarming issue will become even more apparent, the prices of houses will rise way above their ceilings, and the market will finally enter ‘hyper-supply’ mode until the whole thing capsizes and induces an infamous property crash.
The scary thing about a property crash is that, once it happens, little can be done to stop it. Furthermore, recovering from one is quite a lengthy struggle. And often, aftermath overhears people lamenting that they just wanted a home, which, after all, nobody can blame them for…
The damages of property crashes can be mitigated
An ingenious fix would be to tax all land and to use the resulting funds to build through good and bad times. This would allow Ireland to have an adequate or even slightly superfluous real estate supply on a constant basis. Lower taxation on income and higher taxation on assets would indeed help in stabilising the market, but it seems that nobody is willing to implement such a system at the moment. For the most part, as Deeter would put it, “it is unlikely that anybody wants to take the prescribed medicine in advance.”
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- Government urged to stop home repossessions
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