House Pricing Bubble and Subsequent Property Crash

There have been many discussions and articles written in recent times as to why the bubble in property prices had not been forecast, and the subsequent crash in the Irish market.

The price of houses and property had been rising steadily since the beginning of the 90’s. The reasons were obvious in that the economy was doing well with the EU structural funds and the incoming investment of the Multinational companies into the country.

This investment created jobs and consequently the pressure came on for more housing, particularly in the Dublin area. The rise in property prices was seen as a good thing by many of the commentators in the media; it had a feel good factor to it. The people who were on the property ladder felt that they had more money as there house went up in value.

When Auctioneers and other commentators in the media were asked was the property market overheating, the answer invariable was that “the fundamentals were sound”, and “this time it is different” and the economy was growing and the need for houses put upward pressure on the property market.

The Government made no effort to cool the property market. Vested interests in the property market lobbied Government Ministers to give tax breaks to developers for Hotels and other infrastructure projects. However, this also put pressure on wages which drove up the price of property even more.

The single biggest influence on property prices was the lending policies of the major Banks and Buildings Societies. The Anglo Irish Bank aggressively targeted developers and other major builders and loaned out the development funds and allowed the developers only pay back the loans when the development property had been sold.

The other Banks started to see the profits and staff bonuses made by Anglo Irish Bank and unfortunately for the country went after this ‘growth area’ and started to put out loans to developers and then the house buyer.

Lending policies were relaxed, and people were given one hundred percent mortgages in order to gain and keep market share. This heated the property prices still further with the result that the price of a house or flat in Ireland were grossly inflated and this was all done on money borrowed on the international money markets.

When the international money markets crashed in 2008, this lead to the collapse of the Irish Banking system and the property market went into freefall. The rest as they say is history.

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