Presentation to the Chartered Institute of Housing
Chartered Institute of Housing in Northern Ireland ConferenceRisk & ResilienceThe Future of Housing Finance & InvestmentThe Economic Context5th June 2013Richard RamseyChief Economist Northern Irelandrichard.email@example.com
Slide 26 years since Northern Ireland’s Wile E. Coyote momentThe ‘NICE’DecadeThe ‘RUDE’AwakeningHave we hitbottom yet?
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
Slide 4NI enjoyed Southern Comfort through the Celtic Tiger yearsWealthTrade Tourism Investment WealthWealthTradeTrade TourismTourism InvestmentInvestment
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
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
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
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
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
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
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
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
Slide 17Some well known casualties from the downturn
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
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
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
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
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
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
Slide 24Slide 24Economic Growth will be an uphill challenge…Source: The Economist?
Slide 25Slide 25…with a ‘spreadsheet recovery’Source: The EconomistComputer says Yes. But consumer says No!
Slide 26Slide 26Not all decades have been lost! Look at Laganside!Laganside 1994 Source: Invest NI
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
Slide 29The Coyote always returns, never gives up, becomes more innovative with whatever resources & the race never stops!
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