Presentation to the Chartered Institute of Housing

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Slides from a presentation to the Chartered Institute of Housing (CiH), June 5th 2013

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Presentation to the Chartered Institute of Housing

  1. 1. Chartered Institute of Housing in Northern Ireland ConferenceRisk & ResilienceThe Future of Housing Finance & InvestmentThe Economic Context5th June 2013Richard RamseyChief Economist Northern Irelandrichard.ramsey@ulsterbankcm.com
  2. 2. Slide 26 years since Northern Ireland’s Wile E. Coyote momentThe ‘NICE’DecadeThe ‘RUDE’AwakeningHave we hitbottom yet?
  3. 3. N.Ireland downturn: 8 Key Facts1. Unemployment (claimant count) up 41,500 (Mar 2012)2. Workforce jobs have fallen by almost 55,000 in 4 yrs to June 20123. Personal & corporate insolvencies have doubled since 2007 & still rising4. House prices down 56% from peak (by Q4 2012)5. House completions down 62% from 2006 peak6. Mortgages for home movers at lowest level since 19747. Almost 1 in 4 retail outlets are vacant in Belfast8. New car sales are 30% below 2007 levelsNI’s downturn has been longer & deeper with the recovery weaker than the UK: Why? – Housing & RoI exposure
  4. 4. Slide 4NI enjoyed Southern Comfort through the Celtic Tiger yearsWealthTrade Tourism Investment WealthWealthTradeTrade TourismTourism InvestmentInvestment
  5. 5. Slide 5TradeTourism WealthInvestmentTradeTradeTourismTourism WealthWealthInvestmentInvestmentSouthern Discomfort hangover continues
  6. 6. Slide 6One chart should remind us where we areSlide 6
  7. 7. Slide 7Is the Northern Ireland economy experiencing a recovery?“Yeah, but, no but, yeah but…”Increasingly Economists are sounding likeVicky Pollard 
  8. 8. Slide 8NI Composite Economic Index: Private Sector2nd recessionarydip3rd recessionary dip1st recessionarydip-4%-3%-2%-1%0%1%2%3%4%2002 Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 Q4Q/Q Growth859095100105110115120Index 2009 = 100Q/Q IndexSource: DFP, Index 2009 = 100Private sector recovery underway?  Yeah, but look at levels!
  9. 9. Slide 9NI’s economic recovery has quite a bit to go!NI Composite Economic Index & Component Indices-50%-40%-30%-20%-10%0%10%20%IndustrialProductionConstruction Private SectorServicesPrivate Sector Public Sector NICEI%Peak to Trough Recovery from Trough Q4 2012 Relative to PeakSource: DFPPeak Q4 2007Peak Q2 2007Peak Q2 2007Peak Q3 2006Peak Q2 2007Peak Q3 2009
  10. 10. Slide 10In N.Ireland biggest losers all have something in commonSlide 10Construction /propertyrelatedConstruction /propertyrelatedIndustrial Group % ChangeRecession Losers    ↓↓↓Utilities (Water Supply & Waste Management) ‐4.2%All Production Industries ‐9.3%Engineering & Allied Industries ‐10.2%All Private Sector Services ‐10.6%All Manufacturing ‐14.4%Total Private Sector Output (Construction + Production + Private Services) ‐14.5%Recession Big Losers    ↓↓↓Basic Metals & Fabricated Metal Products ‐20.7%Total Other Manufacturing ‐29.3%Textiles & Textile Products ‐29.7%Mining & Quarrying ‐33.3%Wood & Paper Products ‐34.9%Rubber, Plastics & non‐metal Products ‐39.5%Construction ‐44.8%Business Services & Finance ‐47.7%Source: DFP Indices of Production, Services and Construction, DARD & Ulster Bank calculationsChange in NI Private Sector OutputQ2 2007 ‐ Q4 2012
  11. 11. Slide 11Are NI house prices still falling?…‘Yeah, but, no, but, yeah, but…’N.Ireland & Republic of Ireland House Prices-50%-56%50751001251501752002005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1Index 2005 = 100NI (RPPI) RoI NI ONS*Source: DFP, CSO, ONS* mortgages only50%decline
  12. 12. Slide 12Have we seen a recovery in mortgage activity / sales?…‘Yeah, but, no, but, yeah, but…’Mortgage Activity / Residential Sales 2013 Q1*Relative to Pre-Credit Crunch Levels (2006)-100%-75%-50%-25%0%25%50%75%100%Peak toTrough DeclineRecoveryFrom TroughNet PositionAll Resi. SalesMortgages for House PurchaseFTBHome MoversRemortgagesSource: CML,DFP RPPI, * 4 Quarters to 2013
  13. 13. Slide 13Remember NI has been hit much harder than the UK with a weaker recovery…NI & UK Mortgage Activity 2013 Q1*Relative to Pre-Credit Crunch Levels (2006)-100%-75%-50%-25%0%First-Time Buyer Home Movers Remortgages AllNI UKSource: CML, * 4 Quarters to 2013 Q1
  14. 14. Slide 14…the same applies with house completions…although look at the RoIHouse Completions-100%-80%-60%-40%-20%0%20%UK England Scotland Wales NI RoIPeak-to-Trough Fall Recovery from Trough Net PositionSource: DSD, DoE & DCLG, NI as of Q3 2012, Eng Q1 13, Wal Q4 12, Scot Q3 12 & UK Q312
  15. 15. Slide 15Household incomes  recovery remains a long way offUK Average Weekly Earnings & CPI Inflation0.8%2.4%0123456Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13%Ave Weekly Earnings 3m Y/Y % (Excl. Bonuses) CPI Y/YSource: ONSIncomesqueezeDoes not include taxesor changes to benefitsNICEDecade
  16. 16. Slide 16Housing affordability has improved? ‘Yeah, but, no, but, yeah, but…’Cumulative % Change in UK Consumer Pricessince Credit Crunch began (Aug 07 to Apr 13)8.2%20.2%0%10%20%30%40%50%60%70%Food &Non-AlcoholicBeveragesFood ElectricityGas &OtherFuelsTransportFuels &LubricantsTransportServicesTotal CPI AverageEarnings*Source: ONS, *Average Earnings as of March 2013
  17. 17. Slide 17Some well known casualties from the downturn
  18. 18. Slide 18No recovery in construction sector so farNorthern Ireland Employment(Employee Jobs)-40%-30%-20%-10%0%10%All Sectors Services Manufacturing ConstructionPeak to Trough Recovery from Trough Q4 2012 Relative to PeakSource: DFP, QES
  19. 19. Slide 19NI can expect a 1980s‐style employment recoveryNI Employee Jobs Recessions / RecoveriesPre-Recession Peaks Indexed = 1001980s10yrs after downturnemployment returns to peak1990s10yrs after peakemployment rose by 19%80859095100105110115120125Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs 8yrs 9yrs 10yrsTime Since Pre-Recession PeakIndex1980s 1990s 2008-2012Employment troughed (-7.5%)13 quartersafter 1979 Q4 peak & was 6.9% below peakafter 18 quarters2008-201215 quarters of decline before job losseslevelling off. 18 quarters after 2008 Q2 peakNI jobs have fallen by 5.4% as of Q4 2012 Q2In 1990 UK recession, NI employmentfell slightly & troughed 2 years after thepre-recession peakSource: DFP & UB Calculations
  20. 20. Slide 20Slide 20The deficit is coming down…‘Yeah, but, no, but…’UK Public Sector Net Borrowing (PSNB)Excluding Royal Mail & Asset Purchase Facility Transfers+5bn+32bn +60bn+71bn+46bn+76bn+42bn0204060801001201401602011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18£bnJune 2010 Forecast March 2013 Forecast (excluding Transfers)Source:OBR£332bn extra borrowing required relative to June 2010forecast required over 7 years would fund the NHS for 2.5
  21. 21. Slide 21Slide 21Paying off debt mountain = higher taxes & spending cutsUK Public Sector Net Debt0250500750100012501500175020002001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18£BnSource: ONS, OBR March 2013One Trillion Pounds of Debt1.5 Trillion Pounds of Debt
  22. 22. Slide 22Slide 2212‐yr public spending feast followed by 7‐year famineUK Public Spending Growth in Real Terms(excluding Debt Interest & Social Security)-10%-5%0%5%10%15%1951-52 1962-63 1973-74 1984-85 1995-96 2006-07 2017-18Y/YSource: IFS February 2013We are here18.6% cut in 7yrs @60% ofDepartmental cuts have been made
  23. 23. Slide 23Decade ahead will HURTDownside risks to NI growth e.g. EZUnemployment to stay higher for longer…. a lost decade for the under 25’s?  Households face devaluation in S.O.L, debt de‐leverageFactors present in ‘NICE’ era have gone into reverse ‐ Next decade ahead will HURT – Higher Unemployment Rising Taxes / Tariffs Fiscal austerity in NI – To be continued….Ongoing housing demand & supply problems
  24. 24. Slide 24Slide 24Economic Growth will be an uphill challenge…Source: The Economist?
  25. 25. Slide 25Slide 25…with a ‘spreadsheet recovery’Source: The EconomistComputer says Yes.  But consumer says No!
  26. 26. Slide 26Slide 26Not all decades have been lost! Look at Laganside!Laganside 1994 Source: Invest NI
  27. 27. Slide 27Slide 27Laganside todaySource: Invest NITitanic QuarterTitanic Quarter
  28. 28. Slide 28Slide 28Reasons to be cheerful! Far-off fields (e.g. BRICs & Emerging markets) are greener ……diversify export baseNI’s private sector employee jobs increased by 2,000 in 2012NI’s Pharmaceuticals output is currently at a record highGlobal demand for food & pharmaceuticals to rise well into the futureNI’s public expenditure cuts are do-ableRecent FDI into NI & expansion of indigenous firms: e.g. Allstate, Wrightbus2012 was a record year for the tourism industryCity of Culture / World Fire & Police Games 2013, G-8, All-Ireland FleadhICT / software sector is boomingOpportunity to radically change the economy for the better…. but will it be grasped?NI requires a relentless focus on cost – the level of public expenditure, how it isspent & where. An ongoing forensic analysis of current public expenditure &public service delivery is required
  29. 29. Slide 29The Coyote always returns, never gives up, becomes more innovative with whatever resources & the race never stops!
  30. 30. Slide 30
  31. 31. Slide 31Slide 31DisclaimerThis document is issued for information purposes only for clients of Ulster Bank Group who are eligible counterparties or professional customers, and doesnot constitute an offer or invitation to purchase or sell any instrument or to provide any service in any jurisdiction where the required authorisation is not held.Ulster Bank and/or its associates and/or its employees may have a position or engage in transactions in any of the instruments mentioned.The information including any opinions expressed and the pricing given, is indicative, and constitute our judgement at time of publication and are subject tochange without notice. The information contained herein should not be construed as advice, and is not intended to be construed as such. This publicationprovides only a brief review of the complex issues discussed and readers should not rely on information contained here without seeking specific advice onmatters that concern them. Ulster Bank make no representations or warranties with respect to the information and disclaim all liability for use the recipient ortheir advisors make of the information. Over-the-counter (OTC) derivates can involve a number of significant and complex risks which are dependent on theterms of the particular transaction and your circumstances. In the event the market has moved against the transaction you have undertaken, you may incursubstantial costs if you wish to close out your position.Ulster Bank Limited Registered Number R733 Northern Ireland. Registered Office 11-16 Donegal Square East, Belfast, BT1 5UB. Authorised and regulated bythe Financial Services Authority. Member of The Royal Bank of Scotland Group.Ulster Bank Ireland Limited, a private company limited by shares, trading as Ulster Bank, Ulster Bank Group and Bank Uladh. Registered No. 25766.Registered Office Ulster Bank Group Centre, George’s Quay, Dublin 2. Ulster Bank Ireland Limited is regulated by the Financial Regulator. Member of TheRoyal Bank of Scotland Group.Calls may be recorded.

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