2 - Celtic Tiger period and Subsequent Crash

The Celtic Tiger lasted from 1994-2007. It was a period of high real economic expansion, which led to a property bubble - housing prices rose by 292%.

Government policy caused an influx of foreign investment, creating ideal conditions for a bubble. Particularly, US multinational corporations experiencing a domestic boom were encouraged to relocate operations to Dublin due to a combination of Ireland’s EU membership, grant aid, capable workforce and low corporation tax rate. Simultaneously, financial liberalisation and inadequate regulatory supervision enabled the financing of excessively rising property prices to continue, with the country’s Financial Regulator later described as ‘asleep at the wheel’.

Source: Taxfoundation.org

Source: Boomandbust.co.uk

Sparked by governmental stimulation, all three sides of the bubble triangle were satisfied:

• Unprecedented credit expansion, as Irish banks borrowed heavily from international capital markets, was partially justified by inflated tax revenue derived from stamp duties on house sales – a self-fulfilling prophecy. Lyons finds that a ‘10% increase in ... loan-to-value was associated with a 9% rise in sale prices’, demonstrating how increased availability of credit to institutions, developers and individuals, fuelled the housing bubble.
• Housing marketability was high. Market liquidity was improved by the extensive availability of mortgage lending throughout the period.
• Rampant speculation around increasing property prices was added to by mainstream media outlets which contributed to ‘bubble frenzy’. Incentivised to promote new developments by advertising revenue, the Irish media portrayed an over-optimistic view of the housing market, largely ignoring the existence of the bubble.

 

Source: Mark O’Toole / Bank of Ireland

 

As the 2000s progressed, the property boom gained momentum, accelerating after 2003 with prices vastly exceeding fundamental values in an ever-inflating economy. ‘The reason it's on the rise is because … the boom times are getting even more boomer’ said Taoiseach Bertie Ahern in 2006.  At its 2007 peak, Ireland was building half as many houses as Britain, despite having only 1/14 its population.

Source: Researchgate.net 

Inevitably, the unsustainable bubble collapsed in mid-2007 due to a combination of factors, signficantly contributing to the Irish banking crisis. A property price crash in 2009 left prices below pre-Celtic Tiger levels and a subsequent recession followed.