Northern Ireland’s property market crisis: insights from Minsky’s Financial Instability Hypothesis

The financial crisis of 2007 has shown that standard mainstream macroeconomic models underpinned by general equilibrium theory fail to anticipate, explain and provide guidance on how to respond to such events (Stiglitz, 2011). Evidence in the Northern Ireland context has further suggested that applying these models to property markets may be inappropriate given the underlying statistical properties of these time series (Gallagher et al., 2015). These issues combined suggest that there may be merit in examining cases of financial crises through alternative theoretical frameworks and in adopting a more pluralist approach. With this in mind, this paper investigates whether Minsky’s (1975, 1986, 1992) Financial Instability Hypothesis can assist in understanding the recent property market crisis in Northern Ireland, which was severe by both national and international standards. Using qualitative evidence to analyse the behaviours of borrowers represented by property developers and lenders represented by banks over the course of the business cycle, this paper assesses the relevance of Minsky’s arguments. The findings show that Minsky’s Financial Instability Hypothesis explains the incidents observed in NI’s property market in recent years.