I set this as an exam question once and very few people tried to answer it.
"Is is inconsistent to support a rise in house prices but oppose a rise in the price of a pint?"
Its a very good point...
Sadly we live in a society where we have been conditioned to putting a significant % of our after-tax income into one asset, which we are told will provide for our future, so naturally we want it to increase in value. In fact we want it to increase more in value than not only the price of a pint, but also the price of a holiday home in Spain /California (where we may aspire to retire to and live like Kings, 30 years from now).
Property became such an easy ride for so long, that resources and capital were wastefully deployed into one asset which did nothing to further our productivity or improve our competitiveness globally. It didnt create any real wealth. It was never really going to, because a 400 sqft 1-bed apt can be replicated a million times over, every iteration using cheaper materials. Its not as if we had just invented the wheel.
Its no surprise that places like Germany have a low home-ownership rate, yet are possibly the worlds best nation at improving productivity and their own competitive position relative to the rest of the world. They don't invest in something if it doesnt look like it will yield a 10% + return p.a. or do something useful.
We did the exact opposite. Became over obsessed with one asset that we cannot export, created a tax structure that encouraged us to build property we did not need and ignored all the warning signs that we were risking heading into a multi-decade crisis after years of waste.
What are we left with now? Apartments we dont need or want, hotels that will never be filled and banks, that quite frankly have become walking zombie's.
All that GDP, when we called ourselves the richest nation on earth, was financed with debt. The debts still need to be fully repaid, yet we have little to show for all that money we borrowed. Who cares if MrX can borrow EUR 1million to buy a banana and sell it to someone else for EUR 1 million. Yes, 2mln EUR of GDP was recorded, but nothing of any use was left behind, except the 1mln loan that still exists and grows at an interest rate bigger than the return on the banana.
I think as a nation we have just proved how a high level of GDP, when that GDP is financed with external debt and put into an unproductive domestic asset will eventually lead to wealth destruction not creation.
It was a classic fallacy of the boom years in Ireland that GDP = Wealth. Yes, it is, but only if its generated from activities that will provide a return greater than the interest rate on the debt and/OR is mostly funded from domestic savings. In our case, neither applied as it went into a low return asset, that collapsed in value and we borrowed from abroad for the majority of the GDP growth
We took the easy option for 10-15 years and now will pay a price for who knows how long as we struggle with the highest levels of debt of any nation in the world (Govt + Private + Corporate) and an economy that has few other natural sources of growth to pick up the slack and pay off those debts.
If one good thing comes from this crisis, it will be that the next generation will hopefully have the courage to say 'no' and pursue other sources of wealth creation by actually creating something useful that people in this country and other countries need and want. Hopefully, at some point they wont have to emigrate and the banks will be more willing to take risks in financing new business ventures / ideas, as opposed to just saying "No, but we could lend you X to buy this shiny new apartment!"