Chartered Institute of Housing in  Northern Ireland Conference

Risk & Resilience

The Future of Housing Finance & Investment

The Economic Context 5th

June 2013

Richard Ramsey

Chief Economist Northern Ireland

richard.ramsey@ulsterbankcm.com

Slide 2

6 years since Northern Ireland’s Wile E. Coyote moment

The ‘NICE’ Decade

The ‘RUDE’ Awakening

Have we hit bottom 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 2012

3.

Personal & corporate insolvencies have doubled since 2007 & still rising

4.

House prices down 56% from peak (by Q4 2012)

5.

House completions down 62% from 2006 peak

6.

Mortgages for home movers at lowest level since 1974

7.

Almost 1 in 4 retail outlets are vacant in Belfast

8.

New car sales are 30% below 2007 levels

NI’s

downturn has been longer & deeper with the recovery  weaker than the UK: Why? – Housing & RoI

exposure

Slide 4

NI enjoyed Southern Comfort through the Celtic Tiger years

WealthTrade Tourism Investment WealthWealthTradeTrade TourismTourism InvestmentInvestment

Slide 5

TradeTourism Wealth

InvestmentTradeTrade

TourismTourism WealthWealthInvestmentInvestment

Southern Discomfort hangover continues

Slide 6

One chart should remind us where we are

Slide 6

Slide 7

Is the Northern Ireland economy experiencing a recovery?

“Yeah, but, no but, yeah but…”

Increasingly Economists are sounding like Vicky Pollard 

Slide 8

NI Composite Economic Index: Private Sector

2nd recessionary dip

3rd recessionary dip

1st recessionary dip

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2002 Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 Q4

Q/Q Growth

85

90

95

100

105

110

115

120Index 2009 = 100

Q/Q Index

Source: DFP, Index 2009 = 100

Private sector recovery underway?  Yeah, but look at levels!

Slide 9

NI’s economic recovery has quite a bit to go!

NI Composite Economic Index & Component Indices

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

IndustrialProduction

Construction Private SectorServices

Private Sector Public Sector NICEI

%

Peak to Trough Recovery from Trough Q4 2012 Relative to Peak

Source: DFP

Peak Q4 2007

Peak Q2 2007

Peak Q2 2007

Peak Q3 2006Peak Q2 2007

Peak Q3 2009

Slide 10

In N.Ireland

biggest losers all have something in common

Slide 10

Construction / property related

Construction / property related

Industrial Group % Change

Recession 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 calculations

Change in NI Private Sector OutputQ2 2007 ‐ Q4 2012

Slide 11

Are NI house prices still falling?…‘Yeah, but, no, but,  yeah, but…’

N.Ireland & Republic of Ireland House Prices

-50%

-56%

50

75

100

125

150

175

200

2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1

Index 2005 = 100

NI (RPPI) RoI NI ONS*

Source: DFP, CSO, ONS* mortgages only

50% decline

Slide 12

Have 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 Decline

RecoveryFrom Trough

Net Position

All Resi. SalesMortgages for House PurchaseFTBHome MoversRemortgages

Source: CML,DFP RPPI, * 4 Quarters to 2013

Slide 13

Remember 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 All

NI UKSource: CML, * 4 Quarters to 2013 Q1

Slide 14

…the same applies with house completions… although look at the RoI

House Completions

-100%

-80%

-60%

-40%

-20%

0%

20%

UK England Scotland Wales NI RoI

Peak-to-Trough Fall Recovery from Trough Net Position

Source: DSD, DoE & DCLG, NI as of Q3 2012, Eng Q1 13, Wal Q4 12, Scot Q3 12 & UK Q312

Slide 15

Household incomes  recovery remains a long way off

UK Average Weekly Earnings & CPI Inflation

0.8%

2.4%

0

1

2

3

4

5

6

Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13

%

Ave Weekly Earnings 3m Y/Y % (Excl. Bonuses) CPI Y/Y

Source: ONS

Income squeeze

Does not include taxes or changes to benefits

NICE Decade

Slide 16

Housing affordability has improved? ‘Yeah,  but, no, but, yeah, but…’

Cumulative % Change in UK Consumer Prices since 'Credit Crunch' began (Aug 07 to Apr 13)

8.2%

20.2%

0%

10%

20%

30%

40%

50%

60%

70%

Food &Non-

AlcoholicBeverages

Food ElectricityGas &OtherFuels

TransportFuels &

Lubricants

TransportServices

Total CPI AverageEarnings*

Source: ONS, *Average Earnings as of March 2013

Slide 17

Some well known casualties from the downturn

Slide 18

No recovery in construction sector so far

Northern Ireland Employment (Employee Jobs)

-40%

-30%

-20%

-10%

0%

10%

All Sectors Services Manufacturing Construction

Peak to Trough Recovery from Trough Q4 2012 Relative to Peak

Source: DFP, QES

Slide 19

NI can expect a 1980s‐style employment recovery

NI Employee Jobs Recessions / Recoveries Pre-Recession Peaks Indexed = 100

1980s10yrs after downturn

employment returns to peak

1990s10yrs after peak

employment rose by 19%

80

85

90

95

100

105

110

115

120

125

Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs 8yrs 9yrs 10yrsTime Since Pre-Recession Peak

Index

1980s 1990s 2008-2012

Employment troughed (-7.5%)13 quarters after 1979 Q4 peak & was 6.9% below peak

after 18 quarters

2008-201215 quarters of decline before job losses

levelling off. 18 quarters after 2008 Q2 peak NI jobs have fallen by 5.4% as of Q4 2012 Q2

In 1990 UK recession, NI employment fell slightly & troughed 2 years after the

pre-recession peak

Source: DFP & UB Calculations

Slide 20Slide 20

The 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

+42bn

0

20

40

60

80

100

120

140

160

2011/12 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 2010 forecast required over 7 years would fund the NHS for 2.5

Slide 21Slide 21

Paying off debt mountain = higher taxes & spending cuts

UK Public Sector Net Debt

0

250

500

750

1000

1250

1500

1750

2000

2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18

£Bn

Source: ONS, OBR March 2013

One Trillion Pounds of Debt

1.5 Trillion Pounds of Debt

Slide 22Slide 22

12‐yr public spending feast followed by 7‐year famine

UK 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 2017-18

Y/Y

Source: IFS February 2013

We are here

18.6% cut in 7yrs @60% of Departmental cuts have been made

Slide 23

Decade ahead will HURTDownside risks to NI growth e.g. EZ

Unemployment to stay higher for longer…. a lost decade for the under 25’s?  

Households face devaluation in S.O.L, debt de‐leverage

Factors 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 24

Economic Growth will be an uphill challenge…

Source: 

The Economist

?

Slide 25Slide 25

…with a ‘spreadsheet recovery’

Source: 

The Economist

Computer says Yes.  But consumer says No!

Slide 26Slide 26

Not all decades have been lost! Look at Laganside!

Laganside

1994 Source: Invest NI

Slide 27Slide 27

Laganside today

Source: Invest NI

Titanic QuarterTitanic Quarter

Slide 28Slide 28

Reasons to be cheerful! Far-off fields (e.g. BRICs & Emerging markets) are greener ……diversify export base

NI’s private sector employee jobs increased by 2,000 in 2012

NI’s Pharmaceuticals output is currently at a record high

Global demand for food & pharmaceuticals to rise well into the future

NI’s public expenditure cuts are do-able

Recent FDI into NI & expansion of indigenous firms: e.g. Allstate, Wrightbus

2012 was a record year for the tourism industry

City of Culture / World Fire & Police Games 2013, G-8, All-Ireland Fleadh

ICT / software sector is booming

Opportunity 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 is spent & where. An ongoing forensic analysis of current public expenditure & public service delivery is required

Slide 29

The Coyote always returns, never gives up, becomes more  innovative with whatever resources & the race never stops!

Slide 30

Slide 31Slide 31

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