I had a look this morning at a report from the Economic and Social Research Institute, the independent body that gets paid by the government to do research. The report is titled ‘Bubble, Bubble Toil and Trouble? An Assessment of the Current State of the Irish Housing Market’. (‘With apologies to Mr. William Shakespeare.’ O teh lulz)
I was drawn to the report via a headline in the Irish Times concerning the report ‘ESRI says house prices 27% below real value’. According to the headline, price isn’t an indicator of true value. The true value here, mind you, isn’t the object’s use value as opposed to its exchange value; it’s just the value that the object ought to have if things were different. And things ought to be different, not because I want them to be so, but because things really are different! The real state of things is not reflected in prices. The falcon of house prices cannot hear the falconer of the economy. Is this the real life? Is this just fantasy?
This ‘real value’ touted by the Irish Times is a tantalising prospect for those who might be inclined to buy a paper with a property supplement, or use the Irish Times-owned myHome.ie to buy a house. This idea of ‘real value’ could have a transformative effect on the perceptions of your dilapidated abode, turning shit into gold.
To be fair, the precise measurement used by the ESRI is not the “real house price” but the “fundamental house price”. This isn’t a ‘real’ value at all; it’s a notional value, an indicator of something. Nothing wrong with that per se. The “fundamental house price” ‘constitutes the price which would be suggested by fundamental economic variables in the economy such as interest rates, unemployment rates, demography and housing supply’.
The thing is, these fundamental economic variables have no fundament of their own: interest rates, unemployment rates, demography and housing supply are all determined by politics, not natural law. You could come up with a “fundamental interest rate” or a “fundamental unemployment rate”, based on your own criteria of the gap between what is and what certain other fundamentals you identify ought to suggest.
You could say, OK, these are the actual interest rates, but given a planet of finite resources, the prospect of ecological catastrophe, the class war orientation of the European Central Bank, the way Mario Draghi combs his hair, the “fundamental interest rate” is in fact x.
None of this is to say that the ESRI data is wrong, but that the data rests upon subjective political judgements that have been normalised as established objective facts. Certain things have been identified as important, and others have been marginalised.
To put it another way, there are fundamental political assumptions behind the selection of fundamental economic variables. These political assumptions include that we are concerned here with a capitalist economy where housing is, above all a commodity, and that State policymakers must fulfil the needs of a nation of property owners in keeping with the logic of the market, and in the interests of that fetish object par excellence, ‘the economy’.
It isn’t in the report’s scope to address questions about who is doing the buying: to what degree are people buying houses to meet their own housing needs, and to what degree are they buying them as investment opportunities? Are they buying them on their own, or as part of consortia? Rising income per capita may well cause house prices to rise, but the distribution of that income; the distribution in the proportion of income spent on accommodation; and the source of that income, all determine who drives those house prices upward, and for what purpose.
The ESRI uses real house prices (that is, house prices adjusted for inflation, not the price of real houses as opposed to imaginary ones), unemployment, income per capita and population to create a forecast house price model. Its report discerns credit constraints operating on banks in the Irish market, and hints that what is happening now, in terms of house price inflation, is the response to ‘movements in fundamental variables’.
So, if unemployment and interest rates fall, if incomes rise and the population goes up, the demand for houses will rise and this will cause the price to rise. This, according to the report, is roughly what is happening now, and is separate in the ESRI’s mind from the phenomenon of excessive lending, which in their view has to do with ‘financial market liberalisation’.
Whilst media outlets that derive income from property sales and from stimulating the sensibilities and appetites of an owner-occupier demographic might be cock-a-hoop about the prospect of house price rises based on the correctness of fundamentals and the proper functioning of the housing market, the ESRI report itself is not so sanguine.
It soberly counsels that increasing house prices are not necessarily inevitable or desirable. It claims that keeping housing affordable is ‘imperative‘. But the imperative isn’t down to the fact that high accommodation costs have an impact on living conditions, or that being forced into debt in order to keep a decent roof over your head is a form of exploitation.
Rather, the imperative is on account of the need to ‘maintain the competitiveness advantage that has been gained in recent years’. I’m not sure what this means. Maybe it means that a housing bubble could produce wage inflation. Or maybe it means that workers in your Googles and your Facebooks won’t come and live here if they’re paying through the nose for a shared toilet without a window. Whatever it means, the ESRI’s solution to this problem is supply. But not just any kind of supply: ‘significant increases in housing supply in the locations where there is market demand’.
Where there is market demand‘: but market demand is a function of ability to pay. Those unable to pay remain outside the equation. That includes, ceteris paribus, some 90,000 households in need of social housing. One could argue, I suppose, if pressed, that 90,000 households in need of social housing are part of the imperative in maintaining Ireland’s competitiveness advantage: as a signal of what happens when you’re not competitive enough yet to be an owner-occupier.
Of course, the State can actively determine the nature of market demand, but there is no mention of this in the report.
Rather, key challenges for policymakers presented in the report have to do with aligning ‘key housing indicators’ with ‘market fundamentals’, and ‘smoothing the cycle in the market’: it may all sound wonkish and bland, but it’s music to the ears of people who want a properly functioning stream of profits arising from property sales and speculation, and economics and politics kept safely away from each other.