Construction industry the only ones to learn lesson from last crash

Business week: also in the news was Tullow’s share price collapse and fossil fuels

Property prices  are rising at a rate of 0.9 per cent a year, the slowest rate of increase since December 2007. Photograph: Chris Ratcliffe/Bloomberg

Property prices are rising at a rate of 0.9 per cent a year, the slowest rate of increase since December 2007. Photograph: Chris Ratcliffe/Bloomberg

 

With the theatre of Brexit on the backburner while the the UK general election played out, attention this week turned to housing.

It appears as though we’ve got a collective fondness for instability in the property market, something illustrated by a Central Bank letter released earlier this week. It said that 34,000 homes will have to be built each year for the next decade just to meet demand. This year, we’re expecting to build just 21,000.

The madness of our property market becomes ever clearer when you learn that we built about 60,000 houses annually in the run up to the crash on average, a figure that fell to just 10,500 a year between 2009 and 2018.

You might expect that property prices would be rising, so significant is demand and so lacking is supply. Not so, however, the Central Statistics Office said on Thursday. Prices are rising at a rate of 0.9 per cent a year, the slowest rate of increase since December 2007. In Dún Laoghaire-Rathdown, seen as a bellwether for the wider economy, prices were down 7.5 per cent over the past year, an increase on the previous month.

On Wednesday, the Economic and Social Research Institute (ESRI) said that prices in the State are “as high as they can possibly go given affordability in the domestic economy”. It also flagged that the cost of supply is one factor that needs to be addressed, music to the ears of the State’s construction lobby group, the Construction Industry Federation.

The CIF was quick to point out that about 41 per cent of the cost of delivering an apartment is related to taxes, levies, the cost of finance and land costs. Unless something is done, it warned, the industry will struggle to meet the requirement to build 34,000 houses a year.

Mind you, the extent to which the industry could meet the requirement even if taxes, levies and costs are reduced is unclear.

The Government might have been expected to step in with a more impressive programme of social and affordable housing by this point. Instead, it has primarily been left to the market to sort out our housing woes. We can all judge for ourselves how well that’s working.

Tullow’s share price takes a dive

Oil explorers with roots in Ireland would never have been expected to be global players. Quite a coup, then, that Tullow Oil rose to the extent that it did. But its success unravelled in the space of a few hours on Monday when its share price slid 72 per cent to levels not seen since 1999.

Tullow’s poor share price performance was clearly some time in the offing. This year alone, the company has downgraded its full-year production target three times. Last month, Tullow said oil discovered off the coast of Guyana was heavy and high in sulphur. In the oil world, this means it is more costly, and possibly commercially unviable, to extract.

The issues at the oil and gas explorer claimed two heads with chief executive Paul McDade and exploration director Angus McCoss stepping down.

Analysts at RBC Capital Markets said they would “not rule out an opportunistic approach that takes advantage of the share-price weakness and shareholders’ ill will”.

For founding chief executive Aidan Heavey – who has retired from Tullow and is in the process of starting a new exploration business – the share slump has impacted on his wealth. His 8.79 million shares dropped in value from April highs of £18.5 million to as low as £3.51 million.

Tullow’s finance chief Les Wood insisted that the company is well within its banking covenants, quelling speculation that it may need to raise more equity. When you’re explaining, you’re losing, however, and even a change in leadership may not be sufficient to ensure Tullow’s independence for much longer.

Paying attention to climate and commuting

It was fitting that Swedish climate activist Greta Thunberg was this week announced as Time Magazine’s person of the year. For this week appeared to be the one in which EU leaders truly began paying attention.

On Wednesday, following an EU summit, European leaders expressed support for the commission’s Green New Deal, which aims to achieve a climate neutral EU by 2050. By 2030, the target is to have between 50 and 55 per cent of emissions reduced, something that will prove challenging for the Republic.

On Friday, the ESRI released a report indicating how this transition could be made easier. The think tank said carbon emissions could be at least 20 per cent lower by 2030 if the Government withdrew a raft of fossil fuel subsidies including those in the transport and peat production sectors.

And if they were to go one step further by increasing carbon tax by €6 annually from next year, Co2 emissions would decline by 31 per cent by 2030.

But very often we’re presented with ways to reduce carbon emissions while the associated economic cost can be significant . With the ESRI measures, however, the cost to the economy will be “modest” and the hit to household incomes would be “negligible”.

Irish Times columnist and former tech chief executive, Chris Horn made the point this week that, “in a tight labour market with a public highly attuned to climate change, no-commute jobs may rapidly become the only way to attract and retain a skilled workforce”.

In the week after the ESRI also said that congestion is fast becoming a constraint on the economy, it’s hard to argue against that. Not commuting and helping the environment – now there’s something a lot of people could get behind.

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