There is a lot of talk that we have a ‘property bubble forming’, with virtually no supply, a growing population and a trend towards smaller households as things like separation and divorce become more common, it simply lacks ‘bubble’ qualifications.
But it does have ‘boom’ written all over it, we have had many such booms and busts in Irish history, I have spent much of the last two years researching just this very thing with Frank Quinn from Blackrock College of Further Education.
We have had many price rises and falls in the last 300 years, often we saw that after a crash the next boom would result in overcrowding because back then, as now, supply became ‘short’ in the areas that it was needed.
A boom is about rapid price appreciation, it doesn’t mean you have a bubble. You could have the price of anything boom and there wouldn’t be a bubble, a bubble is where prices go so far beyond any intrinsic or underlying value that when it eventually falls apart instead of a stagnation or reduction in prices you get a crash.
We saw this in the last property crash, but equally, we had a similar boom time during the early Celtic Tiger years, from 1995 to 2001 property prices rose quickly but they were not beyond intrinsic value, after that they went haywire, the first bit was a boom, the second bit was the bubble.
The problem with a boom is that it creates a level of confidence that is a key ingredient in a bubble. Nobody ever sits around praying for a bubble and catastrophic crash to occur, but they do become brainwashed and start to believe things can only go one way.
Booms help reinforce this belief and in time it can (although not always) lead to a mania of activity and that’s when you get your classic ‘bubble’. Sadly, we are already too far behind the ball to ensure we prevent this boom, because it’s easier to prevent a boom than fix a bust.
So just remember, it’s a boom not a bubble, but booms can lead to bubbles and bubbles always burst.
(article originally appeared in the Irish Sun)
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