Merry Christmas and/or happy whatever you happen to celebrate around this time of year.
Hopefully things have slowed down for you all and you’re relaxing with family and friends either at home or somewhere on vacation. I’ll be doing that here in Toronto and making pancakes for breakfast, because that’s what I like to do on Christmas morning.
If you’re in the market for some long form reading material while you relax, I recommend you check out an article in The Walrus called, After the Troubles. It’s by Toronto-based planner Joe Berridge – who is a partner at Urban Strategies – and it’s the story behind his team’s Belfast City Centre Regeneration Strategy and Investment Plan.
It’s a fascinating and entertaining read, and there are lots of comparisons between Toronto and Belfast. Here’s a little taste:
“IT WOULD BE HARD to conceive of two cities more different than Belfast and Toronto. One old world, one new; one grand, one utilitarian; one barely ticking over, one growing like topsy. And of course, one tribal, the other the epitome of post-tribe. Belfast is 96 percent white—forget about Catholic-Protestant, that’s the critical urban statistic. And yet it’s important to remember that Toronto itself was once the largest Orange town in the world. (Wikipedia asserts that every mayor of Toronto since its founding was an Orangeman until Nathan Philips, a wonderful Jewish mayor, was elected in 1954.) Even the current mayor, John Tory, draws his name from a bunch of brigands and royalist cattle thieves in the Irish backcountry.”
I spent a bit of time in Belfast when I was working in Dublin (2007) and so it was particularly interesting for me to read about his assessment of the city. Like Berridge, I found the city eerily empty during off-peak times. But it’s an architecturally rich city and a fascinating city for urbanists because of all that has happened.
Though now we are talking about “after the troubles.” Things are progressing. And that strikes me as a positive thought while I make my pancakes on Christmas morning.
In 2007, I spent the summer working in Dublin, Ireland for a boutique real estate consulting firm called Urban Capital. (For those of you who are from Toronto and know the industry, there’s no connection between the Urban Capital in Dublin and the Urban Capital in Toronto.)
At the time, they were working with a number of government agencies on the development of masterplanned communities, as well as on specific development projects. Real estate was booming and everyone wanted to be a part of it – including the band U2.
But as you all know, the following year (2008) wasn’t kind to the real estate industry and, in particular, to Ireland. That year the country fell into recession for the first time since the 1980s and became labeled as one of the “PIGS.”
I really wish I had started this blog by that point because it would be interesting to look back today on my posts from that summer and see how I was thinking about the Dublin real estate market. I remember having many Guinness-fueled discussions about whether the bull market could continue.
In any event, the Irish economy is coming back.
This year GDP is expected to grow by 5.4%, which would make it the fastest growing economy in Europe. National debt is also falling. At the end of 2013 it stood at €215 billion or about 123% of GDP. And at the end of 2014 it had fallen to €203 billion or about 109% of GDP. The national debt is expected to fall below 100% of GDP by 2018.
At the same time, Ireland also got permission to pay off its bailout loans early. That’s a good sign.
I’m thinking and reading about all of this today because I was looking through my photo collection this morning and I stumbled upon a folder titled “Dublin 2007.” The photo at the top of this post was the terrace that I had outside of my apartment in the Docklands area. I don’t think I used it once that summer.
And here’s a photo of my bedroom. It must have been the curtains that sold me on the apartment.
I had a great time in Dublin that summer. It’s a fun and young city and I remember being incredibly impressed by the quality of city building that was going on. I’m sure that wasn’t lost in the Great Recession.
Atlantic Cities just posted an article on the world’s 5 largest housing bubbles. In descending order of real growth, they are:
Israel
Norway
Switzerland
Canada
Germany
Not surprisingly, Canada is on the list. There is, of course, lots of talk both locally and abroad about the stability and sustainability of our housing market. Here’s what the article had to say about Canada:
"With real home price appreciation near 20 percent, Canada’s home price growth has been raising eyebrows. Bank of Canada governor Stephen Poloz doesn’t see a bubble, but others aren’t so sure. Climbing alongside housing prices have been levels of household debt, which surmounted 165 percent of income in the second quarter of 2013. (That’s not too far from where they were in the U.S. before it suffered its housing crisis.) And the Bank of Canada itself has even warned about risks posed by frothy condo sectors in big cities like Toronto. A few hedge funds, such as San Francisco-based Hyphen Partners, have even made high-profile bets on a Canadian housing bust. They haven’t paid off, yet.”
And here’s the full list of countries:
Overall, it’s not surprising to see that Canadian home prices have risen so dramatically since Q1-2009. As the US sank into deep recession (2008-2009), Canadian credit became cheap in order to stave off a recession of our own. This fuelled the housing market, which is an asset class that’s inextricably linked to financing costs.
The same thing happened in Ireland, which today sits at the bottom of the above list. It has seen real prices drop roughly 40% since Q1-2009. By adopting the euro currency, Ireland no longer had control over its own monetary policy (this is one of the downfalls of a centralized currency). So when the economies of the larger continental countries stuttered, interest rates were dropped. For the strong Irish economy, it ended up creating a housing bubble.
I worked in Ireland in the summer of 2007 and I remember people telling me about this. Already at this point there was concern that the market had become overheated. There are obvious parallels to what has happened in Canada, even though we don’t share a common currency. The Canadian and US economies are inextricably linked.
So will the same thing that happened to Ireland happen here in Canada? Nobody knows for sure, but I think we can take comfort in the actions taken by the feds to tighten up lending. They’re acutely aware of what easy credit has done to the housing market and they’re trying to temper it. And it’s certainly had an impact.
Early this week when I was on the panel about investing in condominiums, I asked a lot of the realtors about what they were seeing in the residential marketplace. A great number of them told me that their clients were struggling to obtain financing. A lot of deals were falling through because of it.
If you’re worried about our housing market, this should be taken as great news. Choke off credit and you choke off real estate.