An exploratory study into Northern Ireland's property market bubble

Abstract

Northern Ireland’s recent Property Market Bubble of 2007 has been particularly severe in comparison to other historical and international experiences (Reinhart and Rogoff, 2009). Despite this there is currently, a dearth of literature and understanding relative to the Northern Ireland case, which poses a number of challenges for key stakeholders attempting to mitigate the adverse outcomes from the event and, prevent a future occurrence. Therefore, this research is positioned to address this gap. More specifically, informed by neoclassical and Keynesian theories on asset market bubbles and organisational theory, the study explores the bubble phenomenon in Northern Ireland, the key contributory factors that led to its emergence and, seeks to provide some insight into its consequences.

To examine this topic area in more detail, underpinned by a pragmatic stance, a sequential mixed methods approach was employed. First, a quantitative recursive regression technique pioneered by Phillips and Yu (2011) was utilised to confirm and model the bubble and to date the phenomenon. Building on this, next, in-depth, semi-structured interviews were used in an exploratory triangulated manner to gain a comprehensive understanding of the key contributory factors and consequences from a stakeholder perspective.

The findings obtained confirm bubble behaviour in the context of Northern Ireland from 2005 Q3 to 2009 Q1 and illustrate that the reasons for the bubble are complex and wide-ranging. A number of contributory factors were identified including, spill-over effects from the Republic of Ireland, inadequate risk management and lax mortgage and commercial lending practices, issues associated with the internal organisational structures of the banks and, the nature of the planning system in operation over the period. However, behavioural biases in particular, herding at the individual and institutional levels were identified as playing a significant underlying role by influencing the behaviours of key participants including, banks and property developers. As such, the main conclusion drawn from the analysis is that Keynesian theory may be more applicable in understanding Northern Ireland’s recent Property Market Bubble.

Based on the findings a number of important theoretical implications and practical recommendations were developed. Theoretically, the study contributes and extends the literature in the broad area of asset market bubbles and in particular, relative to Keynesian theory. It also contributes to the knowledge base in the field of organisational theory. On a more practical level, several recommendations relative to banks, regulatory and supervisory authorities and government are forwarded.

Date of Award	Dec 2014
Original language	English
Supervisor	Elaine Ramsey (Supervisor) & Derek Bond (Supervisor)