The Property Price Explosion

Land: PROBABLY the smartest investment in the years before Ireland joined the European Economic Community was farm land. Since 1973, and especially in the last two years the price of agricultural land has soared than 150 percent.

An acre costing £1,000 in 1973 today goes for £2500 to £3,000. The fertile tracts of County Dublin bring as much as £4000 an acre.r though a western mountain acre can still be 'had for less than £1000. Ten years ago quality land could have been had for £90 an acre.

The incredible rise in the price of land is divorced from the inflation rate. Ireland's entry into the EEC made farming more profitable and increased demand for farm land. The five-year period when Irish farm prices rose to the levels of other member nations ended in January. During that time farmers' incomes increased 130 percent.

In a recent interview, auctioneer Thomas Lombard said, "The Irish farmer found money in his pocket he never had before because of the EEC." Farmers' spending power increased and so did the price ofland they-were buying.

The EEC eliminated much of the risk of farming. The EEC Intervention Agency, in effect, guaranteed Irish farmers they would not be stuck with a surplus because of the fixed prices for farm products.

Banks have gone crazy lending money t.or agricultural land" since then, said 'Eombard. Looser credit, coupled with the increased profitability of farming, boosted

demand for the approximately one percent of all farm land on the open market at a given time.

Land is an asset which doesn't depreeciate and is therefore used as a hedge against inflation. The rising value of land over the last five years has made it esspecially attractive to speculators, though their effect on the record land prices is said to be exaggerated. Eighty percent of land buyers are farmers, estimated Morris Keane, agricultural advisor at the Bank of Ireland.

Though speculators are said to have only a small effect on land price increases, a minister level report on land reform, citing that three-fifths of land buyers were not full-time farmers, has recommended 'increased regulation of the land market to I improve the country's farm industry.

The market price of an acre of land is two to three.rimes too high in relation to the income possible from that acre, according to the report. A person owning land can afford the high prices of addditional land, because he can spread the cost over his-total acreage, but a small or new farmer cannot.

Irish farmers traditionally have been land starved and today there exist many economically unviable farms. These small farmers must buy additional land or get out of farming, said a spokesman for the Department of Agriculture. "If land comes up for sale nearby, a farmer must scoop it up. There's no point in waiting for a better price 20 miles away."

"No system of farming could enable someone to borrow £3000 and pay back the loan" from the income on the land bought, said Keane. "The farmer would either have to have SO percent of the piece saved or income sufficient to subsidize the purchase." The result is that it is mostly the big farmers who can afford land to day.

These conditions indicate "a trend towards fewer farms," the spokesman claimed.

Nevertheless, observers said there have been signs of prices leveling off during the past two months indicating that future land price increases should at least be in line with inflation. Regulating the sale of land to non-farmers, as promised by the Minister for Agriculture, further increases that liklihood.

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Houses

THE two-year-old flight of residential land prices seems to be heading for a dip now that the government has set mortgage ceilings, bur future land price increases should remain above the inflation rate.

The mortgage ceilings, which require banks and building societies to make 60 percent of their loans below £13,000, will incr-ease the demand for cheaper and less profitable housing. Because land prices reflect house prices, residential land will rise less dramatically ill the coming months.

Also, Charlie Hurly, who is in the commmercial department of Keane, Mahony, and Smith, predicted that bankers will be more apprehensive about lending builders money.

The desirable infill land in Dublin 2,4, and 6, going for more than £100,000 an acre, is likely to continue attracting high prices as the supply dwindles. Outside -Dublin, where land has always brought .prices closer to those of agricultural property, the dip will be most noticeable.

Since the end of 1976, a backlog of demand for housing from the stagnated 1973-76 years has driven up the price of land for residential development by 120 percent, not including inflation.

With the economic recovery in 1976 came rock-bottom interest rates and looser credit. The Fianna Fail government has made good on their election promises, introducing £1000 grams to housebuyers and raising the SDA loan limits. Demand for houses have soared. People owning homes have seen thier value jump 24 perrcent despite a 6.2 percent inflation rate.

These factors made housing construcction good business, increasing the demand for residential development land.

Now that mortgage ceilings will screen out some demand for houses, especially the more expensive ones, Hurly said the decline surely will "permeate back to land prices. "