Jim Power: ‘Lost decade’ hasn’t been recovered yet

Housing and public services must be fixed first, writes Jim Power.

Goodbody Stockbrokers issued a very positive assessment of where the Irish economy is at the moment and, more importantly, what the future might hold.

Interestingly, it suggested that Ireland’s lost decade is finally over.

This assertion proved a little bit controversial in some quarters, particularly amongst the purveyors of doom and gloom who revel in bad economic news.

The truth is that in terms of key economic metrics such as employment, unemployment, and GDP, this is very definitely the case.

However, it is still a wee bit premature to suggest that the lost decade is over. There are still a lot of legacy issues from the crash that are very onerous and challenging and which will take some years yet to work out of the system.

These issues include the severe shortage of housing; the quality of public services following significant expenditure retrenchment in the wake of the economic collapse; high levels of personal indebtedness; and serious under-investment in the country’s broadband infrastructure, hospitals, schools, the water network and other public infrastructure.

On top of this, the fiscal situation is still very challenging, particularly if one accepts GDP actually exaggerates the size of the real economy by around 30%.

In my view, it will not be correct to conclude that the lost decade is over until the housing situation is resolved; until the quality of public services, particularly health, is of a level that one would be entitled to expect in a modern developed economy; until the IT infrastructure is up to international standards; and until issues such as road access to the north-west and the Cork-to-Limerick road are brought up to acceptable standard.

The growing waiting lists in our health system should alone be enough to convince any rational person that the lost decade is not quite over and that there is still a lot of work to do to claw back what was lost during a very difficult and challenging decade for the country.

The housing situation is arguably the most pressing issue at the moment.

A resolution of the housing crisis could be described as having an adequate supply of housing for both those who want to buy or rent, at prices that would not condemn purchasers to a level of mortgage indebtedness that would cripple them for decades, or for those who want to rent, a crippling monthly rental payment. In other words, an adequate supply of rental and owner-occupier properties at an affordable cost.

The latest residential housing data from the CSO do not give much cause for comfort and highlight the ongoing dangerous escalation of house prices. National average house prices in June were 11.6% higher than a year earlier. They have increased by 4.9% in the first six months of 2017 and have increased by 60.6% since the low point of the market in March 2013.

In the rest of Ireland (excluding Dublin), average house prices in June were 11.8% higher than a year earlier. Prices have increased by 4.2% since the beginning of the year and are now 51.4% higher than the low point of the market in May 2013.

In Dublin, average house prices increased by 11.1% in the year to June.

These price increases are occurring against a background of modest income growth at best and reflect a basic lack of supply to satisfy the actual and pent-up demand that is evident in the market.

Escalating house prices are of no economic benefit as they fuel indebtedness and undermine the overall competitiveness of the economy. They also soak up resources that could be put to better uses.

Hopefully Budget 2018 will contain measures that might boost the supply of housing, but the problem with supply is that it takes some time to come on stream. The reality is that the situation will continue to worsen.

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