Slides from a presentation to the Chartered Institute of Housing (CiH), June 5th 2013

1. 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

2. Slide 2
6 years since Northern Ireland’s Wile E. Coyote moment
The ‘NICE’
Decade
The ‘RUDE’
Awakening
Have we hit
bottom yet?

3. N.Ireland downturn: 8 Key Facts
1. 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

4. Slide 4
NI enjoyed Southern Comfort through the Celtic Tiger years
WealthTrade Tourism Investment WealthWealthTradeTrade TourismTourism InvestmentInvestment

5. Slide 5
Trade
Tourism Wealth
Investment
TradeTrade
TourismTourism WealthWealth
InvestmentInvestment
Southern Discomfort hangover continues

6. Slide 6
One chart should remind us where we are
Slide 6

7. Slide 7
Is the Northern Ireland economy experiencing a recovery?
“Yeah, but, no but, yeah but…”
Increasingly Economists are sounding like
Vicky Pollard

8. 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
120
Index 2009 = 100
Q/Q Index
Source: DFP, Index 2009 = 100
Private sector recovery underway? Yeah, but look at levels!

9. 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%
Industrial
Production
Construction Private Sector
Services
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 2006
Peak Q2 2007
Peak Q3 2009

10. 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 Output
Q2 2007 ‐ Q4 2012

11. 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

12. 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 to
Trough Decline
Recovery
From Trough
Net Position
All Resi. Sales
Mortgages for House Purchase
FTB
Home Movers
Remortgages
Source: CML,DFP RPPI, * 4 Quarters to 2013

13. 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

14. 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

15. 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

16. 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-
Alcoholic
Beverages
Food Electricity
Gas &
Other
Fuels
Transport
Fuels &
Lubricants
Transport
Services
Total CPI Average
Earnings*
Source: ONS, *Average Earnings as of March 2013

17. Slide 17
Some well known casualties from the downturn

18. 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

19. Slide 19
NI can expect a 1980s‐style employment recovery
NI Employee Jobs Recessions / Recoveries
Pre-Recession Peaks Indexed = 100
1980s
10yrs after downturn
employment returns to peak
1990s
10yrs 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 10yrs
Time 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
2008-2012
15 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

20. 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
£bn
June 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

21. 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

22. 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

23. Slide 23
Decade ahead will HURT
Downside 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

24. Slide 24Slide 24
Economic Growth will be an uphill challenge…
Source:
The Economist
?

25. Slide 25Slide 25
…with a ‘spreadsheet recovery’
Source:
The Economist
Computer says Yes. But consumer says No!

26. Slide 26Slide 26
Not all decades have been lost! Look at Laganside!
Laganside 1994 Source: Invest NI

27. Slide 27Slide 27
Laganside today
Source: Invest NI
Titanic QuarterTitanic Quarter

28. 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

29. Slide 29
The Coyote always returns, never gives up, becomes more
innovative with whatever resources & the race never stops!

30. Slide 30

31. Slide 31Slide 31
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