A few years back, I took my family over to Ireland for my brother-in-law’s wedding. He has recently moved back to Australia with his wife and kids and judging by this article in the New York Times, he sold up his property in Dublin in the nick of time. The luck of the Irish perhaps!
While working in the information economy policy area, we looked at the Irish miracle and admired their stunning economic recovery, blessed with EU funds and a young population. People flocked there, reversing the historical Irish emigration around the globe. It was a hub for IT services with generous taxation concessions and a well-educated local population. The Guiness was pretty good too I heard!
But it appears now that the bubble has well and truly burst. Unemployment is approaching 10% and housing prices have fallen by nearly 50%. Like the UK, many expats are heading home as the economy shrinks and jobs disappear. Part of the issue it appears is the rapid increase in housing’s share of the economy (from 5% to 14%) as demand for housing increased. The voices that asked the government to try and dampen demand were not heeded as the good times rolled. Unlike the US situation where banks faltered with their lax lending practices to individuals, Ireland’s banks faltered through their lending to property developers.
I keep wondering if these financial problems will occur to this extent in Australia. We have seemed to be spared the major banking errors through our better regulatory practices. We do not have a large number of expats who will go home if the going gets tough (Australia is their home now). We are more of a lag economy so the effects of the US economy will take time to filter through the Chinese economy and then to our economy so we may not have seen the worst of it here as yet. However, we do have particular areas that will be more affected by others, where house prices have increased disproportionately and where people may be less inclined to live in a future of high fuel costs (today’s low reduced petrol prices will not continue for long) and changing economy – more on that in a blog post for another day.