Not only school uniforms are new in September.
Throughout history, the month has been the most common “turning point,” the time when people begin to notice big changes — particularly in the economy.
And this September we will see the beginning of some extraordinarily big changes – changes that will dominate the news and people’s lives for the rest of the decade.
The main drivers will be rising inflation, followed by rising interest rates – and a gradually deepening recession that will cause business closures and rising unemployment in most, but not all, countries.
These changes will, in turn, fuel a new breed of political activism – often populist in nature – aimed at taxing wealth and income to make up emerging deficits.
In such times of social unrest, people inevitably try to protect themselves by protecting their income and wealth. For most people, their home is their greatest asset.
In fact, much of the wealth of large companies is also found in real estate.
During a crisis, households’ attention is focused on the price of real estate – buy or rent – and the availability and cost of mortgages.
Housing affordability is severely impacted by rising interest rates as they make mortgage repayments more expensive. Such increases feel even more painful when purchasing power and disposable income are simultaneously reduced by inflationary costs of energy, food and services.
As recessionary pressures mount, corporate and stock earnings fall while corporate failures increase, eventually leading to rising unemployment. These further fuel uncertainty about how to protect profits.
The desire for security and stability, coupled with concern for the general economy, is driving a complicated and conflicting set of calculations – particularly when it comes to property. Seasoned investors know that real estate assets are tricky because they require management and are conspicuous targets for taxation.
Brexit means FDI investment will most likely try to come to Ireland
They also know that real estate is a notoriously “illiquid” asset that often proves very difficult to sell profitably exactly when it is needed most.
To make matters worse, the political instability that follows inflationary recessions almost inevitably produces left-leaning governments – and left-leaning governments have a pronounced bias towards interventionist policies that favor a populist approach.
These left-leaning governments typically try to increase wealth transfers, usually by raising taxes and offering grants, supports and entitlements.
Intervention, new taxation and market distortions (such as rent freezes, changes in ownership and frequent rule changes) act as strong barriers to real estate ventures such as new construction or rental.
These forces are already emerging in Ireland, where housing construction is beginning to stagnate and landlords – particularly under 45s – are beginning to exit the market in steady numbers.
Beyond the residential markets, there is also significant volatility in commercial, retail and office real estate, largely due to dramatically changing work, shopping and entertainment patterns accelerated by Covid.
This volatility is likely to continue to depress actual prices for zoned and developed lands, as well as the ‘hope value’ for other lands.
Now for the big “but”…
Ireland is a fast growing country with a high and unmet need for housing. The country is also experiencing significant and growing labor and skills shortages, which are attracting increased levels of immigration. These combine with refugee flows to further boost population numbers.
New settlement patterns through home office also mean that the demand for housing extends far beyond the larger centers in the east. Sooner or later the pressure on the construction sector has to be shamed to start building on a large scale.
Additionally, Brexit has meant that internationally mobile domestic investment into the EU will most likely seek to come to Ireland in search of an English speaking, educated and technologically advanced economy.
The more things change, the more they stay the same
Meanwhile, large office units appear to be rethinking their space needs and are beginning to sublet office space. Large retail developments are also being restructured to offer more leisure and even residential space.
Some industrial areas are beginning to reconfigure to meet the drastically increasing demand for large warehouses near major city roads to meet the new delivery systems demanded by online retailers.
All of these changes can be called negative changes – but maybe they are just changes. Not better or worse. Changes only.
It is important not to lose sight of the big picture. With all this change and all this uncertainty, it seems that Ireland will likely continue to have a market with high demand in key sectors and disposable income – albeit a very different market.
The more things change, the more they stay the same.
Despite the extraordinary technological, social and financial upheavals of the past century, an estimated 68 percent of all global wealth is stored in old-fashioned real estate.
Despite all the booms and busts on the horizon, ownership is still the least bad option in the long run. However, ownership will not be for the faint of heart or the squeamish for the next 10 years.
https://www.independent.ie/opinion/comment/global-downturn-draws-near-but-ireland-might-yet-dodge-the-bullet-41925960.html The global downturn is drawing closer, but Ireland could still dodge the bullet