Ben Lowry: The last Northern Ireland housing boom was disaster, and we need to beware a repeat of it

House prices in Northern Ireland plunged 50% from their 2007 peak to their lowest point in 2013.

Saturday, 31st July 2021, 9:20 am
Updated Thursday, 5th August 2021, 4:19 pm
House prices in NI soared in 2006 and 2007 before plunging. Ben Lowry says: "As prices fell, I wrote a lot about it and was accused of being negative. I feel that, on the contrary, politicians and civic leaders had failed to speak out about the boom"

Since then they have slowly risen by 50%.

That takes them back to where they were, right?

Well not quite, as anyone who was keen on maths at school might remember.

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The percentage changes relate to two very different baseline figures.

Thus a fall of 50% from 100 units takes you down to 50 units and a rise of 50% from 50 units takes you to 75 units. In other words, you are still 25 units or 25% down.

That is more or less what has happened to property prices in the Province (it is a little bit more complicated than that and the web version of this article has some more statistics on what has happened, see below).

The key thing to know is that Ireland — both sides of the border — had one of the biggest house price collapses in recorded economic history.

The boom of 2006 and 2007 was a disaster, yet most of society colluded in it.

Young people who borrowed ruinous amounts of money to get on the housing ladder were told by the elders and betters: ‘You can’t go wrong with property.’

Many of those people are still in negative equity, 14 years later.

In many respects those young buyers were given bad advice for good reasons — older folk wanted to reassure the younger generation that owning your home is a good and safe thing to do, which it had been for generations of people.

But there is also a lot of stupidity and greed when it comes to housing booms.

Soaring prices become like a pyramid scheme in which the people at the top get the gains, and the people at the bottom are left with a huge bill when it all collapses — as it inevitably will.

Northern Ireland had never had a house price crash prior to 2007 so our failure to see disaster was all the more understandable.

But I had moved into a flat in London in 1995, at the bottom of the then housing market in the capital, which was worth 30% less than it had been when the owner had purchased the property in the 1988 boom.

When I moved out in 1998 it had still not recovered its value, a decade after it had been bought. I never forgot that lesson.

In June 2007 I wrote an article warning that Northern Ireland house prices were dangerously over valued compared to average incomes. I mentioned what had happened in Tokyo after its boom of 1989, where prices had not fully recovered 18 years later.

Sure enough prices in NI plunged, ruining many people and businesses.

Some of those who lost out had been greedy, and had speculated on buying many rental properties in the hope of making ever expanding gains.

It is not good for society if such speculators always win, because it means that a large percentage of the housing stock falls into a small number of owners, and thus it makes it harder for younger people on modest incomes to own their own home, and so to feel that they have a stake in their community.

Even so, few people deserve financial ruin, however grasping they might have been.

As house prices fell and fell and fell between 2008 and 2013, I wrote extensively about it. I was accused of being ‘negative’ about the housing market and of talking prices down.

But I feel that, on the contrary, politicians and civic leaders failed to speak out about the boom when it happened, and failed to warn people of the dangers. I felt that they also failed to talk candidly about the bust, and so to learn lessons from it.

We are now in the grip of very significant house price rises, but we are still well short of the 2007 peak. In any event, if prices returned to 2007 levels they would still be 40% down in real terms, because of general inflation since then.

Also, we can take comfort from the fact that we are not alone. Places such as Canada and southern England are also booming. Covid has made people think about their priorities, which include having a nice home.

But we should not forget that almost no-one benefits from housing booms. Childless people who can downsize do, as do mass property investors, as do people who can sell up and move abroad to a country that is still cheap.

But almost no-one else does. Fist time buyers suffer, as mentioned above, as do people moving up the ladder, who have to pay more because the gap between their home and the one they want to buy costs more than it did.

Older parents whose home has soared in value might think they gain but don’t if they have to help their grown up offspring to buy a house.

I do not want to sound too righteous about people who do well out of property. After all, it would be a very unusual person who bought a house at a very good time, made a fortune out of it, and then felt bad about such gains.

But I am struck by something the estate agent and RICS spokesman Samuel Dickey says in our paper today: “We don’t want to get into a situation again where there is a peak then a trough.”

Estate agents were often accused of talking up the market before the 2007 boom, and there is no doubt that many of them did. But they were very badly bruised by the subsequent collapse.

We are not, as explained above and below, in 2007 territory. And the significant rises in recent years have given some belated comfort to people who made a disastrous home purchase at the peak, and few people would begrudge that.

But southern England, and indeed Vancouver, where an old school pal of mine lives, show the problems with sustained housing booms, where prices never fall.

People, like my teacher friend, are shut out of ownership and many of them can become upset about it, and that can manifest itself in support for radical political change, that — at its mildest — seeks to heavily tax existing homeowners.

• Some basic statistics as to what has happened

When I wrote about the house price crash between 2008 and 2014, I kept a running average of a number of key house price surveys, including Nationwide, Halifax and the University of Ulster. By that measurement, prices fell a staggering 58% from a peak in mid 2007 to a low five or so years later (different surveys give different dates for the lowest point).

Since then prices have risen by about 50%, or perhaps now closer to 60%, but as explained above, that does not mean we have returned to 2007 levels — far from it.

According to the Land Registry, house prices in Northern Ireland peaked at £224,670 in the third quarter (summer) of 2007, fell 57% to their lowest point of £97,428 in the first quarter (winter) of 2013, and had risen by 53% to £149,178 in the first quarter of this year.

However, that most recent survey finding is before the spring and summer of this year, when there has been sharp bidding for many properties. The average price might well be closer to £160,000 than £150,000.

That suggests that prices are still around 30% below 2007 levels.

However, even if prices returned to nominal 2007 levels, they would still be sharply down. According to the Bank of England inflation calculator, general prices rose by 42% between 2007 and last year, the most recent year for which there is data.

In other words, if you bought a house in 2007 for £200,000, say, and sold it today for £200,000, you would still be out of pocket, because it would have had to rise to £284,000 to have kept pace with general inflation (as opposed to house price inflation).

The point is this: not only can you ‘go wrong’ with property, if you buy at the height of a housing boom you might have to wait decades to get your full money back, if indeed you ever do.

Ben Lowry (@Benlowry2) is News Letter acting editor

Other articles by Ben Lowry below, and beneath that information on how to subscribe to the News Letter:

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