It’s not every day I worry about the welfare of estate agents. This tribe doesn’t immediately spring to mind as an oppressed minority worthy of our protection – but these days, the main street’s estate agent is living off scraps.
Speak to any member of this embattled caste and they will tell you that although new housing developments are springing up across the country, few of these homes are being sold to punters via the traditional estate agent channels.
So who is buying the new homes? And why does it matter?
It matters because houses prices are continuing to soar. The latest data shows prices are up 7.8 per cent in the year to June, twice the rate of the increase in the average wage. Whoever is buying the houses is driving up their prices, so who could it be?
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Published housing numbers tend to be opaque because they are spun by every political interest group as either a badge of honour or a signal of failure. One way of seeing what’s really going on in the housing market is to poke around the accounts of big home builders. After a bit of digging into the published numbers of one of the largest home builders in the country, Cairn Homes, it turns out that the State is buying the lion’s share of all new homes and, more importantly, the last two years have seen a marked shift in government behaviour.
Without going into too much boring accounting detail, Cairn’s results reveal that something called “a forward sales order book” almost doubled from €534 million in 2023 to €946 million last year. Given that the total revenue of the firm last year was €895 million, it means that this trade, called “forward sales”, is actually bigger than total revenue. What does this mean to the layman?
It means that the State, which is placing these “forward orders”, is buying – through its various housing agencies – a huge amount of the homes built by one of the largest home-builders in the country. Cairn Homes is a fine company and is entitled to sell to whoever it wants, but the fact that the State is dominating the new home market raises lots of questions about the nature of the housing market in Ireland, who gets to compete in the market, who is ultimately responsible for house price inflation, and why so many people, who are saving and scrimping every month, are locked out of the housing market.
Forward sales is an accounting term to describe how a buyer – in this case the State – acquires land directly from a builder and then contracts the same builder to build all the units, which the State has contracted to buy entirely. For the builders this is an amazing trade, because they don’t have to worry about flogging and marketing the homes, and their risk in the project disappears because they are selling to the State, which will not default.
In addition, the builder can borrow more cheaply to finish building the estate than would be the case if they had to flog, say, 200 of them to first-time buyers. In essence, they are getting home builder profits for doing a subcontractor’s job – possibly explaining their juicy 21 per cent profit margins. It’s a manna-from-heaven moment for builders and their shareholders. But what about the rest of us?
Here’s where we need to stand back a bit.
Normally a bulk buyer uses their position to negotiate prices downwards. Today, in Ireland, the biggest buyer in town, the State, is pushing prices up, handing home-builders a jackpot
There have been three broad phases in the Irish housing market since the crash. The first phase was immediately after the crash, up to about 2015. Having made a hames of the boom, being asleep at the wheel and missing the whole thing, the Central Bank got all macho and tightened up lending rules for buyers, excluding, in effect, tens of thousands of first-time buyers precisely at a time when prices were low and those buyers might have got on the ladder and built equity.
Most of the local house builders were bust, and building barely recovered. The opportunity for Irish people to buy cheaply was lost.
The second phase, between about 2015 and 2020 was the so-called “vulture fund phase”, when practically all new developments were sold to foreign funds in big blocks. This forced young Irish people who wanted to buy to become “reluctant renters”, while the rent money left the State and ended up in the hands of American property players in the Hamptons.
Following intense political pressure and an election or two, rules limiting foreign ownership were introduced, signalling an end to the foreign bonanza.
When the foreign moneymen scarpered, something odd happened. After the pandemic and in the face of rapid immigration, the political ground shifted once more, leading to a third phase. Rather than cede the property market back to local first-time buyers, which might have allowed the property market to reframe itself and allowed young people to own a home, the State swooped in to become the buyer of first, not last resort, elbowing out potential buyers again.
The Central Statistics Office (CSO) claims that the State is buying about 43 per cent of new builds right now, but I believe, from poking around in the published accounts of home-builders, that it could be a lot more.
What chance does a young buyer have when they are competing in the market against their own Government? Prices are rising because the biggest buyer in the market is pushing those prices up. Deploying the same cavalier attitude to other people’s money that we have seen in the case of the National Children’s Hospital or the Metro North debacle, the State, so desperate to show that new home building is rising, is throwing money at home builders to build at any cost.
Normally a bulk buyer uses their position to negotiate prices downwards. Today, in Ireland, the biggest buyer in town, the State, is pushing prices up, handing home builders a jackpot.
Why is it doing this? Because it can. Last week’s column explained how US multinational money – all €29 billion of it this year – is distorting the economy in a variety of unpleasant ways. The housing market is a specific example of what is happening across the board. The tax spigot from corporation tax goes directly into the public sector. It has no notion of cost control, and this money goes to housing agencies which buy up houses at inflated prices directly from home builders, squeezing out average first-time buyers, many of whom emigrate in relative despair.
Who gains? The shareholders of home builders who are mainly foreign institutions. Once again, the serious cash passes through the Irish economy like a dose of salts. You couldn’t make this stuff up.
What does Irish society get? Probably the most expensive council houses on Earth, resulting in what could be termed “the housing list-isation” of the Irish property market, where new homes go to the people who queue the longest, not to those who save the most. The market becomes increasingly dysfunctional as potential young buyers compete with the very State they pay their taxes to. Prices go ever upwards, precisely because the Government is driving them up, and the multinational tax bonanza which is supposed to make things easier for the average worker makes things harder.
Meanwhile, the poor estate agents twiddle their thumbs and remember their salad days.
