NIRSA
July 30, 2010
http://www.nuim.ie/nirsa/research/documents/WP59-A-Haunted-Landscape.pdf
It’s a must read.
To prepare for reading the above report, I’d suggest you consider the movie, Carpenter’s ‘The Fog’, ghost pillaging pirates at work, http://bit.ly/bwsVvQ . Just remember, ‘The Fog’ is moving inland from the beach and the ghost estates towards your utilities.
These are the hedge funds perhaps Irish owned, perhaps those who made money on the bubble, looking for giveaway/knockdown prices on public utilities owned by taxpayers, ready to give money to Government on behalf of unwilling taxpayers, to pay for the reparations to pay for the waste of billions spent on NAMA and ANGLO and the rest of the motley banking/financial services crew.
If you are one of that crew, you might want to look at ‘On To The Next One’ , ‘…double your money and make a stack…..’, Jay Z…… http://bit.ly/5r7aTS
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p50 “If properties are off-loaded through a firesale then the negative equity of existing residents will be exacerbated vis-à-vis their new neighbours. While all housing developments should be socially mixed, it is likely that there will be some resistance by existing residents to such an outcome due to NIMBY and negative equity issues.”
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I give extracts from the report below, but you would be far better to read the report in full.
It does suggest policy changes re planning e.g full implementation of The Kenny Report and current proposed changes but though suggesting the taxation model that led to the boom requires changeover to a more equitable one based one based on property, rentier and the taxation of wealth rather than labour, it does not go into great detail here. The writings of Michael Hudson on e.g Latvia would be a good source here.
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NAMA is indicative of the government’s acceptance of a ‘commonsense’ neoliberalism (the perceived importance of banks regaining solvency and remaining independent from state control) and clientalism (NAMA works to bail out a set of elites that drove the boom into a recessionary brick wall). In this sense, it is the 53 logical illogical response to the crisis within the context of the fractured ideologies of the Irish political system. As such, its logic is skewed. In order to remedy a crisis brought about by an unsustainable property bubble, NAMA’s stated aim is to reinflate this bubble by stabilising those sectors primarily responsible at the expense of the taxpayer. Without substantive changes with respect to its economic, political and planning systems, Ireland will continue to be vulnerable to the boom and bust cycles that have left the country littered with excess housing and over-zoned land worth a fraction of its value at the height of the boom. Whilst NAMA does offer one solution to the problem, it is also a risky strategy that could cost the taxpayer dearly for several generations. More worryingly, NAMA does not address some of the fundamental problems of the Irish situation that will shape development into the long term – the cabal between politicians, developers and banks; a planning system in which local councillors representing vested interests can play a significant role, and has too few checks and balances to stop excessive zonings and permissions; crony capitalism at all scales of governance; zero-sum and local pro-growth development strategies that lack overall vision and coordination at regional and national levels; and poor housing data from which to develop evidence-informed policy analysis. It is true that the National Spatial Strategy and the new Planning and Development (Amendment) Bill do provide the potential to address some of these issues, but so far the National Spatial Strategy has been largely ignored by government policy and its programmes were amongst the first axed in public sector cuts, and in anticipation of the Planning and Development (Amendment) Bill local authorities have been seeking ways to circumvent its provisions by zoning tracts of land before its passage through the Dail, suggesting that it will be roundly resisted when implemented.
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Whilst the global financial crisis might have been a contributing factor, the Irish housing market was already running out of control, with supply outstripping potential demand in all parts of the country, and house and land prices skyrocketing to amongst the most expensive in the world. And banks had massively over-extended themselves lending to developers. The crash was inevitable. The severity of the crash was significantly exacerbated by the state’s neoliberal agenda and lack of oversight, foresight and poor policy formation with respect to both the planning system and banking sectors. Worryingly, the present government’s solution to the crisis has been another round of short-termist neoliberalism in the form of the public collectivization of private debt through detoxification, recapitalisation, and nationalisation of the 55 banks and the protection of the interests of developers and speculators at the potential expense of the taxpayer.
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This issue of oversupply is not limited to housing, but also hotels (see Bacon 2009 and O’Brien 2010), offices (see S. Kelly 2009), shopping centres, retail parks and industrial units. Ireland is awash with buildings that few people either can afford or want to purchase.
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Seventh, substantive changes in the planning system will also aid the process of recovery. To date, there has been a great deal of attention directed at banks, but very little to the agencies that zoned land, gave planning permissions and coordinated and promoted development. Multi-scalar, long term, comprehensive planning strategies, underpinned by robust evidence, and linked to coherent social, economic and environmental policies, need to be implemented that are resistant to the vagaries of local clientelism (to a certain extent the new Planning and Development 57 (Amendment) Bill will address some of these issues). As part of the revisioning of planning, houses and settlements need to viewed as homes and communities, not simply assets and opportunities (Sparks and Duke 2010). Further, there is a need for much better, timely, and harmonized housing data. There is no national register of property or property sales, meaning the surrogates such as ESB or mortgage data has to be used. What limited data there are available are released at a coarse spatial resolution, making the tracking or modelling of local housing markets impossible. Data can also have significant time-lags (e.g., vacancy is only measured once every 5 years), and different local authorities record data differently (e.g. building starts) making comparisons difficult.
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Since its announcement, the NAMA project has been roundly criticized by opposition politicians and economists (see for example, Gurdgiev 2010, Lyons 2010, Lucey 2010, McWilliams 2010a, b, c, Whelan 2010b). There is a broad concern as to whether NAMA is the right vehicle to deal with the property crisis and whether it can succeed given the make-up of the portfolio (particularly given the geography of assets and the amount of land and redundant property such as ‘zombie hotels’), the extent of the property crash, the sums being paid by the state to the banks for their ‘assets’, the validity of ascribed long-term economic values and rent yields, and the veracity of underlying economic models and calculations. It is also not clear as to how valuations are being made and whether they take into account existing levels of oversupply and evidence-informed, long-term projections of an area’s demography and labour market. Others question the fact that NAMA is paying a notional long term economic value rate rather than present market prices, thus second guessing the market and inflating the transfer to the banks at the state’s risk; and that to recover the state investment the property market will need to be re-inflated, which will mean the re-inflation of the surrounding apparatus of interests in banking, property, planning, and government. Moreover, if land is purchased by the state on the basis of existing zoning then any future dezoning by local authorities will deflate its value and lead to a loss on the investment. For those on the Right, NAMA represents state interference in the logic of the free market, disrupting its ‘natural’ recovery by artificially controlling large elements of the property market and protecting failed developers and speculators in the short term who otherwise would have gone bust, thus blocking the growth of more resilient players or new start-ups. For those on the Left it protects those who created the crisis but it does nothing to protect home owners and tenants struggling to pay mortgages and rent and who are also underwriting NAMA’s costs. Moreover, it is employing as experts (bankers, estate agents, property consultants, planners, lawyers) the very same people who acted irresponsibly to create the bubble, some of whom are overseeing transfers from their former employers. These experts are being handsomely rewarded for their services, with fees expecting to run to €2.46bn over the life course of the agency (NAMA 2009). Further, NAMA is exempt from freedom of information requests and despite managing a vast amount of state managed assets it is particularly 50 opaque in its operation. Most damaging, NAMA has so far failed to deliver on a primary aim, to create liquidity in the Irish banking sector, which has subsequently needed significant further recapitalisation. As Declan Curran (2010) has noted with reference to international evidence collated by the World Bank (Klingebiel 2000) and Financial Stability Institute (Fung et al, 2004), NAMA-style agencies that are either charged with disposing rapidly (Mexico, Spain, USA, China, Korea, Malaysia) or managing impaired assets (Finland, Sweden, Japan) need a confluence of benign conditions to succeed. In both cases, the crucial factor is a strong recovery in the wider economy and property market, with other favourable factors including: Appropriate funding and appropriate powers (e.g., the ability to change management immediately, purchase assets, offer guarantees or counterguarantees on behalf of restructured banks, grant long-term loans at subsidized rates or permit temporary regulatory forebearance) for resolving agency Banks to be resolved were small banks which made it ‘politically easier’ to resolve The largest banks were sound enough to assist in resolving the smaller banks, albeit under significant state pressure Non-performing assets were a small percentage of the entire banking systems assets Deep and sophisticated capital markets Adequate governance structures; professional management and extensive use of private sector contractors for asset disposal. The difficulty for NAMA, as he sees it, is that in the Irish case, these conditions are either not present or unlikely to emerge in the short term. Perhaps, more worryingly, the factors that were deemed to negatively affect the performance of these agencies are present to varying extents: Lacklustre demand for real estate assets Poor quality of underlying assets Lack of funding for the agency 51 Inconsistent objectives for the agency: cost minimisation and rapid disposal of assets, on one hand, and an objective to structure and time asset sales to minimise negative impact on the real estate market Assets transferred include politically connected loans which can be difficult for a government agency to handle Disparate set of assets due to unclear eligibility criteria Weak legal framework (e.g. the debtor had to agree to the sale of the assets) Controversy over incentive-based payment schemes for employees Deficient framework for foreclosures and seizure of assets. Interestingly, very few of the critiques of NAMA question the underlying neoliberal ideology that underpins the creation and operation of the agency and the whole Irish economic model. Indeed, there seems to be widespread acceptance that the core logics and principles underpinning Ireland’s economy during the Celtic Tiger period were fundamentally sound, and that the crisis and crash were simply the result of misfortune with respect to the timing of the global financial crisis, poor management and regulation, and cronyism and greed (in other words, how it was (mis)applied). In general then, criticisms do not extend to the Irish economic model, with its narrow tax base of low corporate and income tax, high indirect taxes, and lack of property taxes, and its laissez fair approach to planning and regulation. As critical urban theorist, Peter Marcuse (2009) has noted, “todays-more-than-financial-crisis” is being rationalised away as an anomaly within the system of neoliberal capitalism, a cog to be corrected rather than indicative of more systemic failures. “The financial crisis seems to be spreading, to engulf more and more people, to cause more and more unemployment, insecurity, hunger and want, a greater and greater dissatisfaction with conditions as they are, with inequality, luxury in the midst of poverty … [I]t is not the financial crisis spreading to other parts of the economy that we confront, but an economy whose contradictions are erupting in a very visible manner in the financial sector, but only as manifestations of much more deep-seated contradictions which we should not allow to be concealed in the focus on issues of regulation or deregulation in one small excrescence of a fundamentally flawed system as a whole.”
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Endless rounds of public service cutbacks may achieve some efficiencies in the system, but also a highly anaemic public sector, with weak provision of services such as education and health, and a continued dearth of key transport, energy and public infrastructure. It also further undermines the tax base and, as others have demonstrated, drastically cutting public spending has not only failed to reduce the fiscal deficit, but rather has increased it further (Burke 2010; Pentony 2010) NAMA is indicative of the government’s acceptance of a ‘commonsense’ neoliberalism (the perceived importance of banks regaining solvency and remaining independent from state control) and clientalism (NAMA works to bail out a set of elites that drove the boom into a recessionary brick wall).
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The extent to which this arrangement was normalised was extraordinary. Anybody who questioned what was happening and predicted impending disaster was vilified and ridiculed in the media by commercial economists and government politicians. Probably the most high profile example relates to Morgan Kelly, Professor of Economics at UCD, who argued that a collapse in the wider economy and the property sector was immanent (M. Kelly 2007), and who’s reputation was roundly attacked in the media, with Bertie Ahern (the Taoiseach at the time) going so far as to state that the he didn’t understand why the naysayers didn’t ‘commit suicide’ (Finfacts 2007). Even now, the TINA (There Is No Alternative) mantra is maintained, and anyone who questions government policies is accused of seeking to undermine any recovery, rather than offering constructive criticism that might lead to better outcomes. This strategy seeks to stifle criticism and try to reassure the public, and is clearly designed to serve the interests of the state and the financial sector, often at the expense of the taxpayer. 7. The Government’s Solution to the Banking and Property Crisis: NAMA The government’s response to the banking and property crisis in Ireland has been characteristic of the short-termist and reactionary modus operandi of Irish politics that then unfolds into a de facto longer term response, and seeks to protect as much as possible the interests of the developer and financial class (O’Toole 2009; Ross 2009). The government’s initial reaction to the faltering economy was to insist that the banks were well capitalised and that the housing market would slow to ‘soft landing’. However, as the crisis deepened and liquidity started to try up on the international money markets, it started to become clear that there were significant problems of capitalisation in the Irish banking sector. Banks neither had the funds to lend to investors and businesses, nor to pay back loans to international banks. Irish bank share prices collapsed (between May 2007 and November 2008 Irish shares fell in value from €55b to €4b) resulting in the introduction of a state backed bank guarantee scheme to prevent a run on the banks, wherein the state underwrote €440b of deposits and other assets (Murphy and Devlin 2009). Property buyers and investors, already cautious because of the slow down in the housing market, found it increasingly difficult to source credit, thus developers found themselves left with liquidity problems that prevented them from finishing out developments. In order to introduce liquidity into the Irish banking system the state took a two-pronged approach: (1) direct recapitalisation or nationalisation, wherein the state took a stake in the banks for preferential shares or took direct ownership, using the national pension reserve and finance procured on the international markets; (2) relieving the banks of their toxic assets by purchasing all property loans of €5m or more issued before December 1st 2008 and placing them in a new state agency to manage on behalf of the taxpayer. Somewhat controversially, all Irish banks were to participate in the strategy adopted, meaning that the two institutions with the smallest depositor base and largest portfolio of toxic debt (Anglo Irish Bank and Irish Nationwide) were protected from being wound down.
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The NAMA portfolio involves loans relating to c.1,600 borrowers, with c.100 borrowers accounting for 50% of the portfolio. All borrowers are compelled to produce full business plans as to how they aim to repay their loans. Because, under the EU stability and growth pact, countries are obliged to have a debt/GDP ratio of 60% or less, to keep the government-back bonds from appearing on the state’s accounts, NAMA is to be subsumed into a Eurostat-approved special purposes vehicle (SPV – National Asset Management Agency Investment Ltd) which is a majority privately owned entity with decision making autonomy. Private investors will provide 51% of the equity (the SPV will raise €100 million in capital), with the government holding 49% (as of March 2010, the three main investors are Irish Life Assurance, New Ireland (a subsidiary of Bank of Ireland), and major pension and institutional clients of AIB Investment Managers (AIBIM) (NAMA 2010a)). Over the proposed ten year life span of NAMA, the agency predicted that its asset management will yield €4.8 billion in profit to the Irish state (NAMA 2009) (although this was revised downwards in July 2010 – see Oliver 2010). mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
At present, there is very little detail available with respect to the loans being transferred into NAMA and the properties they relate to (for example, whether they are residential, office, retail, industrial, leisure, etc; types of land; whether land is zoned or has planning permission; whether developments are complete or under- 47 construction), nor the specific geography beyond national territories (see Table 4). As a consequence, it is difficult to determine the present status of assets and their future potential worth. Land in areas of high surplus housing and/or over-zoning is likely to fall greatly in value and to stay that way for quite some time, limiting the ability of NAMA to realize any profit, especially if it is acquired for too high a value. As Sinead Kelly (2009) has argued, the geography of NAMA assets is critical for its likely future success. She goes onto to note that in an industry that has long lived by the mantra ‘location, location and location’, the wilful neglect of spatial considerations in the Irish case is striking, stating: “The very viability of NAMA as a financial project is highly dependent on the geography of those property assets which underpin the loans which NAMA is purchasing. While certain well-located assets may indeed provide for a secure yield in the medium term, others, such as large sites lacking any urban zoning status located at the edge of small Irish towns and villages for which enormous prices were paid per hectare, are unlikely even in the very long term to prove to possess much value above that of farmland.” It is difficult to disagree with her assessment. What is particularly worrying in the Irish case is the sheer volume of impaired assets – both excess housing and land – in locations that will be the slowest to recover in any economic upswing.
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Early in the boom, Ireland suffered a housing crisis wherein demand was outstripping supply, especially in and around the cities, which were experiencing sustained household growth, house price inflation (see Figure 3), and a rise in the cost of living. In response, the Department of Environment and Local Government (DoELG), commissioned a series of housing studies (referred to as the ‘Bacon Reports’ – Bacon and Associates, 1998; 1999; and 2000) and introduced Part V into the Planning & Development Act, 2000, which required all local authorities to adopt a housing strategy in their County Development Plan and to allocate up to 20% of all new residential developments of four or more dwellings in zoned land for social and/or
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The result of these various factors, underpinned by a neoliberal philosophy of free market development and market-led regulation, was a housing bubble created as a function of housing development being driven largely by developers, rather than having adequate state oversight, regulation and coordination with respect to finance and planning, and a housing market driven by consumer panic of being unable to 44 climb on the property ladder and speculators. In turn, housing development became increasingly decoupled from any sort of realistic economic or demographic projections. This was the outcome of the interrelationship of close institutional arrangements between policy-makers and the property sector, and the diffusion of pro-growth discourses relating to housing development, investment and speculation across all levels of Irish society. affordable housing. A key goal of Part V of the Act was to disincentivise residential segregation and encourage integrated, mixed housing (in social and tenure terms). This part of the Act was constitutionally challenged in the Supreme Court by
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This reckless lending, often conducted without proper due process and exceeding stress test criteria, was exacerbated by financial deregulation and a regulatory system that failed to adequately police the banking sector (Ross 2009; 43 Murphy and Devlin 2009). The Honohan Report (2010) makes it clear that there were catastrophic regulatory and governance failures both in the financial sector itself (with respect to senior management decisions, bank auditors and accountants, and financial intermediaries such as mortgage brokers) and the Central Bank and Financial Services Authority of Ireland which overemphasised process rather than outcomes, downplayed quantification of risks, applied ‘light-touch’ and deferential regulation, and failed to implement any penalties for breaches of rules and regulations.
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As the Honohan Report (2010) notes, Ireland’s banking performance was the second poorest after Iceland during the present global downturn, and was entirely homemade on the basis of the Irish construction boom, rather than exposure to sub-prime mortgages or aggressive overseas acquisitions.
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developers and construction industry leaders who claimed that the state was intervening beyond its remit into the private housing market. Despite protests against the Act, Part V was deemed constitutional and went ahead as originally legislated, although it was amended two years later so that developers, in certain circumstances, could substitute land or money in lieu of including the required social and/or affordable housing in their private developments, thus undermining local authority provision and foregrounding the developer-led nature of the construction industry and housing sector at the time. The ability of vested interests to routinely overturn strategies designed to support the public benefit is indicative of the loose and mutable arrangements in the Irish policy sphere.
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Hooke and MacDonald (as reported by Brawn 2009) estimated that 27% of new homes in 2007 were being bought by speculators, suggesting that approximately one in four houses at the height of the boom had no immediate party to occupy it.
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The presence of these estates in the Irish landscape raises some difficult questions. Whilst demand for housing might return relatively quickly in urban areas when the economy picks up, and such estates might be used to deal with the social housing waiting list, it is likely that demand driven by demographic change will be weak in rural counties given that recessions generally lead to rural out-migration and slower recovery. It therefore seems likely that many properties in rural areas will remain empty for quite some time (as noted in our model, Table 2, this could be over 10 years in some locations). Demographic forecasts would suggest population growth will occur over the long term in Ireland, and one would anticipate population levels to rise in the future in both rural and urban areas. There are questions, however, as to whether the houses built in rural areas, in particular, will be fit for purpose by the time the market returns. In the meantime, for those residing on such estates there are clearly social and economic concerns about living with few neighbours and/or on estates that are abandoned construction sites, with no street-lighting, pavements, or finished green areas, often in locations that lack amenities, services and public transport, and owning houses that are massively in negative equity. 34
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What the data makes clear is that a number of local authorities have essentially ignored good planning guidelines and regional and national objectives; sensible demographic profiling of potential demand; and the fact that much of the land zoned lacks essential services such as water and sewerage treatment plants, energy supply, public transport or roads (Melia and Hogan 2010). Instead, permissions and zoning have been driven by the demands of local people, developers and speculators; the abandonment of basic planning principles by elected representatives; and ambitious, localised growth plans framed within a zero-sum game of potentially being left behind with respect to development. Further, central government actively encouraged its excesses through tax incentive schemes and failed to adequately oversee, regulate and direct local planning. 28
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5. Ghost Estates One result of housing supply being out of sync with housing demand has been the creation of a new phenomenon, so-called ‘ghost estates’. We have defined a ghost estate as a development of ten or more houses where 50% of the properties are either vacant or under-construction. Using that definition we have analyzed the Geodirectory database in order to identify all properties built post-2005 where 10 or more units share the same estate/street address and more than 50 percent are coded as either vacant or under-construction. We have then undertaken a ground-truthing exercise using two methods. First, we have cross-checked the results with house sale websites such as daft.ie and myhome.ie. Second, we have visited 60 of the estates in three locations (South Dublin/Kildare, South Leitrim/North Roscommon, Cork City and county) to verify their status. It is important to note that ghost estates vary markedly in their condition, from sites that are 100% under-construction through to completed estates that are finished and fully serviced (see Figure 15).
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Government has two principle levers through which it can seek to regulate property development. The first is through fiscal policy with respect to regulating access to credit and determining taxation rates. The second is through planning policy and the zoning of land and the granting of planning permissions. Explanations of the Irish property bubble have focused almost exclusively on the former, and the role of the banks, tax incentive schemes, and the failures of financial regulators. To date, the role of the planning system in creating the property bubble has been little considered. And yet, the banks could have lent all the money they desired, but if zonings and planning permissions were not forthcoming then development could not have occurred in the way that it did.
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It is our contention that an independent review of the operation of the planning system during the Celtic Tiger years be undertaken to consider fully the role of planning in the creation of the property bubble, similar to the Honohan (2010) and the Regling and Watson (2010) reports on banking and financial regulation. The review would examine planning policy formation and application, and the organisation, operation and regulation of planning within and across different agencies and at all scales in Ireland. It would investigate all aspects of the planning system and its operation, including charges of localism, cronyism and clientelism where appropriate. The inquiry should not take the form of a witch hunt or a blame game, but rather constitute a systemic review of how the planning system failed to counter and control the excesses of the boom and provide a more stable and sustainable pattern of development.
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Further, central government not only failed to adequately oversee, regulate and direct local planning, but actively encouraged its excesses through tax incentive schemes and the flaunting of its own principles as set out in the National Spatial Strategy through policies such as decentralisation.
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We suggest that seven key issues will need to be addressed before consumers regain confidence, property prices bottom out, and the housing market starts to function properly. First, supply and demand will need to be harmonized. Second, there has to be a sustained growth in the economy with an associated fall in unemployment. Third, house prices have to align more closely to average industrial earnings. Fourth, affordable credit has to be available for first time buyers and those trading up. Fifth, the uncertainties concerning NAMA and its operation have to dispelled, especially since it will be controlling a sizable share of property and land. This necessitates full transparency of the agency’s workings and the assets it is managing. Sixth, consumers have to be satisfied that the banking crisis is truly over and that financial institutions are properly regulated. Seventh, substantive changes need to occur in the planning system to ensure that it works for the common good and produces sustainable development.
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Our analysis suggests that there is little need for housing development in the state in the immediate future beyond selected social housing provision. This is not to say that this is no requirement for construction, however. Where construction could be fruitfully undertaken is with respect to public facilities such as schools and hospitals, public transport, roads, energy and broadband infrastructure. Such a targeted capital investment could, on the one hand, stimulate the economy in terms of employment and investment and provide multiplier effects across the private sector and, on the other, provide worldclass infrastructure to facilitate and encourage indigenous growth and inward investment. Any such investment should align with the National Spatial Strategy and National Development Plan and be delivered through a rigorous, responsible and sustainable planning system.
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The planning and tax systems, rather than providing checks and balances to guide and limit development, were used to facilitate the property boom by, on the one hand, providing land rezoning and planning permissions, and on the other incentivizing construction projects. The result was an enormous, inflated property bubble that was producing units in excess of any kind of realistic projections of demand and was hugely distorting the domestic economy in terms of contributions to GNP/GDP, tax receipts and types of employment.
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the Irish model sits politically somewhere between ‘Boston and Berlin’ (to use the analogy popularised by former Tanaiste Mary Harney in 2000) is not so much the indication of a country pioneering a new model of neoliberalism, as it is suggestive of the ways in which new policies and programmes were folded into the entrenched apparatus of a short-termist political culture shadowed by low-level clientelism and cronyism that works to the detriment of long-term, state-wide planning (O’Toole 2009).
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The paper has seven parts. First, we detail how the Irish economy and property sector was transformed in the Celtic Tiger period. Second, we document the extent of the present housing crisis in Ireland. Third, we examine levels of vacancy and oversupply throughout the country. Fourth, we explore the new phenomena of ghost estates. Fifth, we explain the Irish housing bubble, providing an analysis of political, economic and planning systems and policies that operated during the Celtic Tiger era. Sixth, we examine the government’s response to the crisis, focusing in particular on 8 the work of NAMA. Lastly, we draw some conclusions and make suggestions as to what needs to occur for the crisis to be resolved.
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This building frenzy was accompanied by phenomenal growth in house prices. The average new house price rose from €78,715 in Dublin, and €66,914 for the country as a whole in 1991, to €416,225 in Dublin (a 429% increase) and €322,634 for the country as a whole (382% increase) in 2007. Not unsurprisingly, second-hand homes follow the same trend, costing on average €76,075 in Dublin in 1991, and €64,122 for the country as a whole, rising to €495,576 in Dublin (551% increase) and €377,850 (489% increase) across the country in 2007 (see Figure 3; datasheet 4). In the same period, house building costs and wages only doubled (Brawn 2009). In Q3 1995 the average secondhand house price was 4.1 times the average industrial wage of €18,152, by Q2 2007 secondhand house prices had risen to 11.9 times the average industrial wage of €32,616 (datasheet 5).
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the total value of mortgage debt increased from €47.2 billion in 2002 to over €139.8 billion at the end of 2007, with the average size of a new mortgage €266,000, nearly double the 2002 figure (CSO 2008; datasheet 6). The vast majority of these new mortgages were reliant on more than one income, tying the household unit into a new work and family lifestyle. Moreover, loans to developers for land and developments sky-rocketed. As Honohan (2010: 26) notes, “At the end- 2003, net indebtedness of Irish banks to the rest of the world was just 10 per cent of GDP; by early 2008 borrowing, mainly for property, had jumped to over 60 per cent of GDP. Moreover, the share of bank assets in property-related lending grew from less than 40 per cent before 2002 to over 60 per cent by 2006.”
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vacancy including holiday homes is over 300K, that vacancy excluding holiday homes is over 228K,and that the potential oversupply is over 103K
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The urban tax relief schemes were accompanied from June 1998 by the Pilot Rural Renewal Scheme for the Upper Shannon Region (introduced under the Finance Act, 1998, and covering Co. Cavan, west of the River Erne, all of counties Leitrim and Longford, north Co. Roscommon, east and south Co. Sligo; see Figure 18). The urban and rural renewal schemes provided for tax relief or incentive allowances designed to encourage people to live and construct new dwellings in designated areas and to promote new economic activity. In the case of the Upper Shannon Region renewal scheme, for example, the two main elements were: (1) business tax incentives: tax relief for the expenditure incurred on the construction or refurbishment of industrial buildings (from July 1st, 1999); and (2) residential property tax incentives: tax relief for both owner occupiers and renters. In the case of owner occupiers, dwellings could not exceed a floor space of 210 sq metres. For those who would gain tax relief as tenants of property, the dwelling had to be the main or sole residence for a minimum of three months per annum in order to counteract the potential of a proliferation of holiday homes (Department of Finance, 1999).
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Further, the planning regime had few checks and balances to stop excessive zoning and permissions being granted to developments, despite the fact that detailed demographic profiling would have indicated limited demand in many locations, and the absence in many cases of essential services such as water and sewerage treatment plants, energy supply, public transport or roads. The result is a large number of one-off housing (c. 1 in 4 of stock), sprawl and suburbanisation, and a massive amount of zoned land. Fourth, and following on from the last point, the planning system is undermined by elements of clientelism, cronyism and low-level corruption at play in the system at all levels. At the local scale, individuals and developers lobby and seek to curry favour or do deals with county councillors and constituency TDs for zoning and permissions in return for support, votes and remuneration of various kinds (favours, kick-backs, fees for ‘planning consultancy’, etc). The Irish planning system lends itself to such a relationship as a result of its division of legislative and executive functions between councillors and planners. The formulation and adoption of development plans and zoning decisions fall under the remit of elected local councillors, whilst the planning authority adjudicates over planning applications (with the planning authority a part of the local authority that local councillors oversee). The function of local authority planners is as advisors on all development planning matters, rather than being formal decision makers; elected representatives have the final say on all development plan and zoning matters, and are under no obligation to take the recommendations of experts into account. Moreover, councillors can use mechanisms such as Section 140 (of the Local Government Act 2001 – formerly Section 4 of the City and County Management (Amendment) Act, 1955) to override a specific planning decision. And, 40 while local authority staff are legally bound not to engage in work that might imply a vested interest, there is no such monitoring for councillors. This is exemplified by examples of elected representatives ‘double jobbing’ as planning agents (or consultants). Councillors need to retain their role in the planning system as democratically elected local representatives working on behalf of the local community, but their role has be tempered where necessary to follow due process and be robust against accusations of clientelism and cronyism. There are undoubtedly many good councillors and planners in Ireland, but the system has clearly not allowed them to counter the excesses and pressures of the boom and practice sustainable planning in all instances. At the national level, developers and vested interest organisations lobby and pressure Ministers with respect to regional and planning policy formation and key legislation. The property sector thus maintains close relationships with the major political parties, providing funding donations, the use of services and facilities, access to elite networks, employment/directorships after politics, and so on, in order to influence development plans, zoning and planning decisions, and planning policy. As the revelations of the Mahon Tribunal into planning corruption have suggested, this relationship has been characterised as one of mutual benefit, along with direct and indirect bribery and coercion of elected officials at all levels of government (see O’ Toole 2009). State support for the property sector is clearly evidenced by the failure of successive governments to implement the recommendations of the Kenny Report (Report of the Committee on the Price of Building Land; Government of Ireland, 1974). The report was the outcome of a committee established by the Government in 1971, “as a response to the anarchic explosion of badly planned housing during the previous Irish boom of the 1960s”. The task of the committee was “to stop landowners from getting windfall profits just because the local authorities zoned their agricultural fields for development and serviced them with sewage, roads and water”. The report suggested that “a situation should [not] continue where dealings in building land can result in large unearned profits for individuals and where local authorities have to compete with private interests in order to acquire land required for the expansion of towns and cities and to pay inflated prices for it”. The report recommended that owners should 41 be paid the current agricultural market value plus 25 per cent for their land, and detailed how this situation was compatible with Irish law. The policy was almost unanimously in the public interest, and in fact “threatened just one small group of people – the speculators and developers who controlled the large land banks”. However, since its publication successive governments have agreed in principle with the recommendations of the report, but nevertheless consistently avoided implementing them. Thus the state effectively encouraged the inflation of land values (O’ Toole 2009, pp. 106-109). Similarly, the range of tax breaks available since the early 1980s have enormously benefited developers to the detriment of the public purse, and public-private partnerships with highly favourable, low risk returns to developers have been used to implement crucial infrastructural works. Even recent initiatives, such as the Social Housing Leasing Initiative to deal with the public housing waiting list, are structured to favour the developer over the long term (in this case, private housing would be rented for 20 years then returned to the developer, rather than the state purchasing the property over the same period and then absorbing it into the social housing stock or selling it on for a profit to the taxpayer). It is perhaps unsurprising then that during the Celtic Tiger boom the property developer became a central figure in Irish political life.
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A Haunted Landscape:Housing and Ghost Estates inPost-Celtic Tiger IrelandRob Kitchin, NUIMJustin Gleeson, NUIMKaren Keaveney, QUBCian O’Callaghan, NUIM Self Critiqueing approachinvestigating itself Pravda obsolescence rates, failure to implement the Kenny ReportOn To The Next One…double your money and make a stack…..Jay Z……http://bit.ly/5r7aTS The Fog is moving inland from the beach and the ghost estates towards your utilities http://bit.ly/bwsVvQ Any government reading NIRSA should resign immediately if guilty of half the governance and fiscalfailures it outlines are true, and all are true.
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Only bit in the report I could disagree with is the following: p50 “If properties are off-loaded through a firesale then the negativeequity of existing residents will be exacerbated vis-à-vis their new neighbours. Whileall housing developments should be socially mixed, it is likely that there will be someresistance by existing residents to such an outcome due to NIMBY and negativeequity issues.” My view is residents given the vast amount of obsolescence and social entropy that can comefrom unoccupied neighbourhood housing, would prefer them to be occupied even if sold at a huge discountto future buyers.
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NAMA is indicative of the government’s acceptance of a ‘commonsense’neoliberalism (the perceived importance of banks regaining solvency and remainingindependent from state control) and clientalism (NAMA works to bail out a set ofelites that drove the boom into a recessionary brick wall). In this sense, it is the53logical illogical response to the crisis within the context of the fractured ideologies ofthe Irish political system. As such, its logic is skewed. In order to remedy a crisisbrought about by an unsustainable property bubble, NAMA’s stated aim is to reinflatethis bubble by stabilising those sectors primarily responsible at the expense ofthe taxpayer.Without substantive changes with respect to its economic, political and planningsystems, Ireland will continue to be vulnerable to the boom and bust cycles that haveleft the country littered with excess housing and over-zoned land worth a fraction ofits value at the height of the boom. Whilst NAMA does offer one solution to theproblem, it is also a risky strategy that could cost the taxpayer dearly for severalgenerations. More worryingly, NAMA does not address some of the fundamentalproblems of the Irish situation that will shape development into the long term – thecabal between politicians, developers and banks; a planning system in which localcouncillors representing vested interests can play a significant role, and has too fewchecks and balances to stop excessive zonings and permissions; crony capitalism at allscales of governance; zero-sum and local pro-growth development strategies that lackoverall vision and coordination at regional and national levels; and poor housing datafrom which to develop evidence-informed policy analysis. It is true that the NationalSpatial Strategy and the new Planning and Development (Amendment) Bill doprovide the potential to address some of these issues, but so far the National SpatialStrategy has been largely ignored by government policy and its programmes wereamongst the first axed in public sector cuts, and in anticipation of the Planning andDevelopment (Amendment) Bill local authorities have been seeking ways tocircumvent its provisions by zoning tracts of land before its passage through the Dail,suggesting that it will be roundly resisted when implemented.
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Whilst the global financial crisis might have been a contributing factor, the Irishhousing market was already running out of control, with supply outstripping potentialdemand in all parts of the country, and house and land prices skyrocketing to amongstthe most expensive in the world. And banks had massively over-extended themselveslending to developers. The crash was inevitable. The severity of the crash wassignificantly exacerbated by the state’s neoliberal agenda and lack of oversight,foresight and poor policy formation with respect to both the planning system andbanking sectors. Worryingly, the present government’s solution to the crisis has beenanother round of short-termist neoliberalism in the form of the public collectivizationof private debt through detoxification, recapitalisation, and nationalisation of the55banks and the protection of the interests of developers and speculators at the potentialexpense of the taxpayer.
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This issue of oversupply is notlimited to housing, but also hotels (see Bacon 2009 and O’Brien 2010), offices (see S.Kelly 2009), shopping centres, retail parks and industrial units. Ireland is awash withbuildings that few people either can afford or want to purchase.
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Seventh, substantive changes in the planning system will also aid the process ofrecovery. To date, there has been a great deal of attention directed at banks, but verylittle to the agencies that zoned land, gave planning permissions and coordinated andpromoted development. Multi-scalar, long term, comprehensive planning strategies,underpinned by robust evidence, and linked to coherent social, economic andenvironmental policies, need to be implemented that are resistant to the vagaries oflocal clientelism (to a certain extent the new Planning and Development57(Amendment) Bill will address some of these issues). As part of the revisioning ofplanning, houses and settlements need to viewed as homes and communities, notsimply assets and opportunities (Sparks and Duke 2010). Further, there is a need formuch better, timely, and harmonized housing data. There is no national register ofproperty or property sales, meaning the surrogates such as ESB or mortgage data hasto be used. What limited data there are available are released at a coarse spatialresolution, making the tracking or modelling of local housing markets impossible.Data can also have significant time-lags (e.g., vacancy is only measured once every 5years), and different local authorities record data differently (e.g. building starts)making comparisons difficult.
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Since its announcement, the NAMA project has been roundly criticized by oppositionpoliticians and economists (see for example, Gurdgiev 2010, Lyons 2010, Lucey2010, McWilliams 2010a, b, c, Whelan 2010b). There is a broad concern as towhether NAMA is the right vehicle to deal with the property crisis and whether it cansucceed given the make-up of the portfolio (particularly given the geography of assetsand the amount of land and redundant property such as ‘zombie hotels’), the extent ofthe property crash, the sums being paid by the state to the banks for their ‘assets’, thevalidity of ascribed long-term economic values and rent yields, and the veracity ofunderlying economic models and calculations. It is also not clear as to how valuationsare being made and whether they take into account existing levels of oversupply andevidence-informed, long-term projections of an area’s demography and labour market.Others question the fact that NAMA is paying a notional long term economic valuerate rather than present market prices, thus second guessing the market and inflatingthe transfer to the banks at the state’s risk; and that to recover the state investment theproperty market will need to be re-inflated, which will mean the re-inflation of thesurrounding apparatus of interests in banking, property, planning, and government.Moreover, if land is purchased by the state on the basis of existing zoning then anyfuture dezoning by local authorities will deflate its value and lead to a loss on theinvestment. For those on the Right, NAMA represents state interference in the logic of the freemarket, disrupting its ‘natural’ recovery by artificially controlling large elements ofthe property market and protecting failed developers and speculators in the short termwho otherwise would have gone bust, thus blocking the growth of more resilientplayers or new start-ups. For those on the Left it protects those who created the crisisbut it does nothing to protect home owners and tenants struggling to pay mortgagesand rent and who are also underwriting NAMA’s costs. Moreover, it is employing asexperts (bankers, estate agents, property consultants, planners, lawyers) the very samepeople who acted irresponsibly to create the bubble, some of whom are overseeingtransfers from their former employers. These experts are being handsomely rewardedfor their services, with fees expecting to run to €2.46bn over the life course of theagency (NAMA 2009). Further, NAMA is exempt from freedom of informationrequests and despite managing a vast amount of state managed assets it is particularly50 opaque in its operation. Most damaging, NAMA has so far failed to deliver on aprimary aim, to create liquidity in the Irish banking sector, which has subsequentlyneeded significant further recapitalisation.As Declan Curran (2010) has noted with reference to international evidence collatedby the World Bank (Klingebiel 2000) and Financial Stability Institute (Fung et al,2004), NAMA-style agencies that are either charged with disposing rapidly (Mexico,Spain, USA, China, Korea, Malaysia) or managing impaired assets (Finland, Sweden,Japan) need a confluence of benign conditions to succeed. In both cases, the crucialfactor is a strong recovery in the wider economy and property market, with otherfavourable factors including: Appropriate funding and appropriate powers (e.g., the ability to changemanagement immediately, purchase assets, offer guarantees or counterguaranteeson behalf of restructured banks, grant long-term loans at subsidizedrates or permit temporary regulatory forebearance) for resolving agency Banks to be resolved were small banks which made it ‘politically easier’ toresolve The largest banks were sound enough to assist in resolving the smaller banks,albeit under significant state pressure Non-performing assets were a small percentage of the entire banking systemsassets Deep and sophisticated capital markets Adequate governance structures; professional management and extensive useof private sector contractors for asset disposal.The difficulty for NAMA, as he sees it, is that in the Irish case, these conditions areeither not present or unlikely to emerge in the short term. Perhaps, more worryingly,the factors that were deemed to negatively affect the performance of these agenciesare present to varying extents: Lacklustre demand for real estate assets Poor quality of underlying assets Lack of funding for the agency51 Inconsistent objectives for the agency: cost minimisation and rapid disposal ofassets, on one hand, and an objective to structure and time asset sales tominimise negative impact on the real estate market Assets transferred include politically connected loans which can be difficultfor a government agency to handle Disparate set of assets due to unclear eligibility criteria Weak legal framework (e.g. the debtor had to agree to the sale of the assets) Controversy over incentive-based payment schemes for employees Deficient framework for foreclosures and seizure of assets. Interestingly, very few of the critiques of NAMA question the underlying neoliberalideology that underpins the creation and operation of the agency and the whole Irisheconomic model. Indeed, there seems to be widespread acceptance that the corelogics and principles underpinning Ireland’s economy during the Celtic Tiger periodwere fundamentally sound, and that the crisis and crash were simply the result ofmisfortune with respect to the timing of the global financial crisis, poor managementand regulation, and cronyism and greed (in other words, how it was (mis)applied). Ingeneral then, criticisms do not extend to the Irish economic model, with its narrow taxbase of low corporate and income tax, high indirect taxes, and lack of property taxes,and its laissez fair approach to planning and regulation. As critical urban theorist,Peter Marcuse (2009) has noted, “todays-more-than-financial-crisis” is beingrationalised away as an anomaly within the system of neoliberal capitalism, a cog tobe corrected rather than indicative of more systemic failures.“The financial crisis seems to be spreading, to engulf more and more people,to cause more and more unemployment, insecurity, hunger and want, a greaterand greater dissatisfaction with conditions as they are, with inequality, luxuryin the midst of poverty … [I]t is not the financial crisis spreading to other partsof the economy that we confront, but an economy whose contradictions areerupting in a very visible manner in the financial sector, but only asmanifestations of much more deep-seated contradictions which we should notallow to be concealed in the focus on issues of regulation or deregulation inone small excrescence of a fundamentally flawed system as a whole.”
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Endless rounds of public service cutbacks may achieve some efficiencies in the system, butalso a highly anaemic public sector, with weak provision of services such as educationand health, and a continued dearth of key transport, energy and public infrastructure.It also further undermines the tax base and, as others have demonstrated, drasticallycutting public spending has not only failed to reduce the fiscal deficit, but rather hasincreased it further (Burke 2010; Pentony 2010) NAMA is indicative of the government’s acceptance of a ‘commonsense’neoliberalism (the perceived importance of banks regaining solvency and remainingindependent from state control) and clientalism (NAMA works to bail out a set ofelites that drove the boom into a recessionary brick wall). In this sense, it is the53
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The extent to which this arrangement was normalised was extraordinary. Anybodywho questioned what was happening and predicted impending disaster was vilifiedand ridiculed in the media by commercial economists and government politicians.Probably the most high profile example relates to Morgan Kelly, Professor ofEconomics at UCD, who argued that a collapse in the wider economy and theproperty sector was immanent (M. Kelly 2007), and who’s reputation was roundlyattacked in the media, with Bertie Ahern (the Taoiseach at the time) going so far as tostate that the he didn’t understand why the naysayers didn’t ‘commit suicide’(Finfacts 2007). Even now, the TINA (There Is No Alternative) mantra is maintained,and anyone who questions government policies is accused of seeking to undermineany recovery, rather than offering constructive criticism that might lead to betteroutcomes. This strategy seeks to stifle criticism and try to reassure the public, and isclearly designed to serve the interests of the state and the financial sector, often at theexpense of the taxpayer. 7. The Government’s Solution to the Banking and Property Crisis: NAMAThe government’s response to the banking and property crisis in Ireland has beencharacteristic of the short-termist and reactionary modus operandi of Irish politics thatthen unfolds into a de facto longer term response, and seeks to protect as much aspossible the interests of the developer and financial class (O’Toole 2009; Ross 2009).The government’s initial reaction to the faltering economy was to insist that the bankswere well capitalised and that the housing market would slow to ‘soft landing’.However, as the crisis deepened and liquidity started to try up on the internationalmoney markets, it started to become clear that there were significant problems ofcapitalisation in the Irish banking sector. Banks neither had the funds to lend toinvestors and businesses, nor to pay back loans to international banks. Irish bankshare prices collapsed (between May 2007 and November 2008 Irish shares fell invalue from €55b to €4b) resulting in the introduction of a state backed bank guaranteescheme to prevent a run on the banks, wherein the state underwrote €440b of depositsand other assets (Murphy and Devlin 2009). Property buyers and investors, alreadycautious because of the slow down in the housing market, found it increasinglydifficult to source credit, thus developers found themselves left with liquidityproblems that prevented them from finishing out developments. In order to introduceliquidity into the Irish banking system the state took a two-pronged approach: (1)direct recapitalisation or nationalisation, wherein the state took a stake in the banksfor preferential shares or took direct ownership, using the national pension reserve andfinance procured on the international markets; (2) relieving the banks of their toxicassets by purchasing all property loans of €5m or more issued before December 1st2008 and placing them in a new state agency to manage on behalf of the taxpayer.Somewhat controversially, all Irish banks were to participate in the strategy adopted,meaning that the two institutions with the smallest depositor base and largest portfolioof toxic debt (Anglo Irish Bank and Irish Nationwide) were protected from beingwound down.
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The NAMA portfolio involves loans relating to c.1,600 borrowers, with c.100borrowers accounting for 50% of the portfolio. All borrowers are compelled toproduce full business plans as to how they aim to repay their loans. Because, underthe EU stability and growth pact, countries are obliged to have a debt/GDP ratio of60% or less, to keep the government-back bonds from appearing on the state’saccounts, NAMA is to be subsumed into a Eurostat-approved special purposes vehicle(SPV – National Asset Management Agency Investment Ltd) which is a majorityprivately owned entity with decision making autonomy. Private investors willprovide 51% of the equity (the SPV will raise €100 million in capital), with thegovernment holding 49% (as of March 2010, the three main investors are Irish LifeAssurance, New Ireland (a subsidiary of Bank of Ireland), and major pension andinstitutional clients of AIB Investment Managers (AIBIM) (NAMA 2010a)). Overthe proposed ten year life span of NAMA, the agency predicted that its assetmanagement will yield €4.8 billion in profit to the Irish state (NAMA 2009) (althoughthis was revised downwards in July 2010 – see Oliver 2010).
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At present, there is very little detail available with respect to the loans beingtransferred into NAMA and the properties they relate to (for example, whether theyare residential, office, retail, industrial, leisure, etc; types of land; whether land iszoned or has planning permission; whether developments are complete or under-47construction), nor the specific geography beyond national territories (see Table 4). Asa consequence, it is difficult to determine the present status of assets and their futurepotential worth. Land in areas of high surplus housing and/or over-zoning is likely tofall greatly in value and to stay that way for quite some time, limiting the ability ofNAMA to realize any profit, especially if it is acquired for too high a value. AsSinead Kelly (2009) has argued, the geography of NAMA assets is critical for itslikely future success. She goes onto to note that in an industry that has long lived bythe mantra ‘location, location and location’, the wilful neglect of spatialconsiderations in the Irish case is striking, stating:“The very viability of NAMA as a financial project is highly dependent on thegeography of those property assets which underpin the loans which NAMA ispurchasing. While certain well-located assets may indeed provide for a secureyield in the medium term, others, such as large sites lacking any urban zoningstatus located at the edge of small Irish towns and villages for which enormousprices were paid per hectare, are unlikely even in the very long term to proveto possess much value above that of farmland.” It is difficult to disagree with her assessment. What is particularly worrying in theIrish case is the sheer volume of impaired assets – both excess housing and land – inlocations that will be the slowest to recover in any economic upswing.
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Early in the boom, Ireland suffered a housing crisis wherein demand was outstrippingsupply, especially in and around the cities, which were experiencing sustainedhousehold growth, house price inflation (see Figure 3), and a rise in the cost of living.In response, the Department of Environment and Local Government (DoELG),commissioned a series of housing studies (referred to as the ‘Bacon Reports’ – Baconand Associates, 1998; 1999; and 2000) and introduced Part V into the Planning &Development Act, 2000, which required all local authorities to adopt a housingstrategy in their County Development Plan and to allocate up to 20% of all newresidential developments of four or more dwellings in zoned land for social and/or
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The result of these various factors, underpinned by a neoliberal philosophy of freemarket development and market-led regulation, was a housing bubble created as afunction of housing development being driven largely by developers, rather thanhaving adequate state oversight, regulation and coordination with respect to financeand planning, and a housing market driven by consumer panic of being unable to44climb on the property ladder and speculators. In turn, housing development becameincreasingly decoupled from any sort of realistic economic or demographicprojections. This was the outcome of the interrelationship of close institutionalarrangements between policy-makers and the property sector, and the diffusion ofpro-growth discourses relating to housing development, investment and speculationacross all levels of Irish society.affordable housing. A key goal of Part V of the Act was to disincentivise residentialsegregation and encourage integrated, mixed housing (in social and tenure terms).This part of the Act was constitutionally challenged in the Supreme Court by
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This reckless lending, often conducted without proper due process andexceeding stress test criteria, was exacerbated by financial deregulation and aregulatory system that failed to adequately police the banking sector (Ross 2009;43Murphy and Devlin 2009). The Honohan Report (2010) makes it clear that there werecatastrophic regulatory and governance failures both in the financial sector itself (withrespect to senior management decisions, bank auditors and accountants, and financialintermediaries such as mortgage brokers) and the Central Bank and Financial ServicesAuthority of Ireland which overemphasised process rather than outcomes,downplayed quantification of risks, applied ‘light-touch’ and deferential regulation,and failed to implement any penalties for breaches of rules and regulations.
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As theHonohan Report (2010) notes, Ireland’s banking performance was the second poorestafter Iceland during the present global downturn, and was entirely homemade on thebasis of the Irish construction boom, rather than exposure to sub-prime mortgages oraggressive overseas acquisitions.
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developers and construction industry leaders who claimed that the state wasintervening beyond its remit into the private housing market. Despite protests againstthe Act, Part V was deemed constitutional and went ahead as originally legislated,although it was amended two years later so that developers, in certain circumstances,could substitute land or money in lieu of including the required social and/oraffordable housing in their private developments, thus undermining local authorityprovision and foregrounding the developer-led nature of the construction industry andhousing sector at the time. The ability of vested interests to routinely overturnstrategies designed to support the public benefit is indicative of the loose and mutablearrangements in the Irish policy sphere.
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Hooke and MacDonald (as reported byBrawn 2009) estimated that 27% of new homes in 2007 were being bought byspeculators, suggesting that approximately one in four houses at the height of theboom had no immediate party to occupy it.
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The presence of these estates in the Irish landscape raises some difficult questions.Whilst demand for housing might return relatively quickly in urban areas when theeconomy picks up, and such estates might be used to deal with the social housingwaiting list, it is likely that demand driven by demographic change will be weak inrural counties given that recessions generally lead to rural out-migration and slowerrecovery. It therefore seems likely that many properties in rural areas will remainempty for quite some time (as noted in our model, Table 2, this could be over 10 yearsin some locations). Demographic forecasts would suggest population growth willoccur over the long term in Ireland, and one would anticipate population levels to risein the future in both rural and urban areas. There are questions, however, as towhether the houses built in rural areas, in particular, will be fit for purpose by the timethe market returns. In the meantime, for those residing on such estates there areclearly social and economic concerns about living with few neighbours and/or onestates that are abandoned construction sites, with no street-lighting, pavements, orfinished green areas, often in locations that lack amenities, services and publictransport, and owning houses that are massively in negative equity.34
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What the data makesclear is that a number of local authorities have essentially ignored good planningguidelines and regional and national objectives; sensible demographic profiling ofpotential demand; and the fact that much of the land zoned lacks essential servicessuch as water and sewerage treatment plants, energy supply, public transport or roads(Melia and Hogan 2010). Instead, permissions and zoning have been driven by thedemands of local people, developers and speculators; the abandonment of basicplanning principles by elected representatives; and ambitious, localised growth plansframed within a zero-sum game of potentially being left behind with respect todevelopment. Further, central government actively encouraged its excesses throughtax incentive schemes and failed to adequately oversee, regulate and direct localplanning.28
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5. Ghost EstatesOne result of housing supply being out of sync with housing demand has been thecreation of a new phenomenon, so-called ‘ghost estates’. We have defined a ghostestate as a development of ten or more houses where 50% of the properties are eithervacant or under-construction. Using that definition we have analyzed theGeodirectory database in order to identify all properties built post-2005 where 10 ormore units share the same estate/street address and more than 50 percent are coded aseither vacant or under-construction. We have then undertaken a ground-truthingexercise using two methods. First, we have cross-checked the results with house salewebsites such as daft.ie and myhome.ie. Second, we have visited 60 of the estates inthree locations (South Dublin/Kildare, South Leitrim/North Roscommon, Cork Cityand county) to verify their status. It is important to note that ghost estates varymarkedly in their condition, from sites that are 100% under-construction through tocompleted estates that are finished and fully serviced (see Figure 15).
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Government has two principle levers through which it can seek to regulate propertydevelopment. The first is through fiscal policy with respect to regulating access tocredit and determining taxation rates. The second is through planning policy and thezoning of land and the granting of planning permissions. Explanations of the Irishproperty bubble have focused almost exclusively on the former, and the role of thebanks, tax incentive schemes, and the failures of financial regulators. To date, therole of the planning system in creating the property bubble has been littleconsidered. And yet, the banks could have lent all the money they desired, but ifzonings and planning permissions were not forthcoming then development could nothave occurred in the way that it did.
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It is our contention that an independent review of the operation of the planningsystem during the Celtic Tiger years be undertaken to consider fully the role ofplanning in the creation of the property bubble, similar to the Honohan (2010) andthe Regling and Watson (2010) reports on banking and financial regulation. Thereview would examine planning policy formation and application, and theorganisation, operation and regulation of planning within and across differentagencies and at all scales in Ireland. It would investigate all aspects of the planningsystem and its operation, including charges of localism, cronyism and clientelismwhere appropriate. The inquiry should not take the form of a witch hunt or a blamegame, but rather constitute a systemic review of how the planning system failed tocounter and control the excesses of the boom and provide a more stable andsustainable pattern of development.
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Further, central government not only failed toadequately oversee, regulate and direct local planning, but actively encouraged itsexcesses through tax incentive schemes and the flaunting of its own principles as setout in the National Spatial Strategy through policies such as decentralisation.
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We suggest that seven key issues will need to be addressed before consumers regainconfidence, property prices bottom out, and the housing market starts to functionproperly. First, supply and demand will need to be harmonized. Second, there has tobe a sustained growth in the economy with an associated fall in unemployment.Third, house prices have to align more closely to average industrial earnings. Fourth,affordable credit has to be available for first time buyers and those trading up. Fifth,the uncertainties concerning NAMA and its operation have to dispelled, especiallysince it will be controlling a sizable share of property and land. This necessitates fulltransparency of the agency’s workings and the assets it is managing. Sixth,consumers have to be satisfied that the banking crisis is truly over and that financialinstitutions are properly regulated. Seventh, substantive changes need to occur in theplanning system to ensure that it works for the common good and producessustainable development.
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Our analysis suggests that there is little need for housing development in thestate in the immediate future beyond selected social housing provision. This isnot to say that this is no requirement for construction, however. Whereconstruction could be fruitfully undertaken is with respect to public facilities such asschools and hospitals, public transport, roads, energy and broadband infrastructure.Such a targeted capital investment could, on the one hand, stimulate the economy interms of employment and investment and provide multiplier effects across the privatesector and, on the other, provide worldclass infrastructure to facilitate and encourageindigenous growth and inward investment. Any such investment should align withthe National Spatial Strategy and National Development Plan and be deliveredthrough a rigorous, responsible and sustainable planning system.
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The planning and tax systems, rather than providingchecks and balances to guide and limit development, were used to facilitate theproperty boom by, on the one hand, providing land rezoning and planningpermissions, and on the other incentivizing construction projects. The result was anenormous, inflated property bubble that was producing units in excess of any kind ofrealistic projections of demand and was hugely distorting the domestic economy interms of contributions to GNP/GDP, tax receipts and types of employment.
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the Irish model sitspolitically somewhere between ‘Boston and Berlin’ (to use the analogy popularised byformer Tanaiste Mary Harney in 2000) is not so much the indication of a countrypioneering a new model of neoliberalism, as it is suggestive of the ways in which newpolicies and programmes were folded into the entrenched apparatus of a short-termistpolitical culture shadowed by low-level clientelism and cronyism that works to thedetriment of long-term, state-wide planning (O’Toole 2009).
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The paper has seven parts. First, we detail how the Irish economy and property sectorwas transformed in the Celtic Tiger period. Second, we document the extent of thepresent housing crisis in Ireland. Third, we examine levels of vacancy and oversupplythroughout the country. Fourth, we explore the new phenomena of ghost estates.Fifth, we explain the Irish housing bubble, providing an analysis of political,economic and planning systems and policies that operated during the Celtic Tiger era.Sixth, we examine the government’s response to the crisis, focusing in particular on8the work of NAMA. Lastly, we draw some conclusions and make suggestions as towhat needs to occur for the crisis to be resolved.
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This building frenzy was accompanied by phenomenal growth in house prices.The average new house price rose from €78,715 in Dublin, and €66,914 for thecountry as a whole in 1991, to €416,225 in Dublin (a 429% increase) and €322,634for the country as a whole (382% increase) in 2007. Not unsurprisingly, second-handhomes follow the same trend, costing on average €76,075 in Dublin in 1991, and€64,122 for the country as a whole, rising to €495,576 in Dublin (551% increase) and€377,850 (489% increase) across the country in 2007 (see Figure 3; datasheet 4). Inthe same period, house building costs and wages only doubled (Brawn 2009). In Q31995 the average secondhand house price was 4.1 times the average industrial wageof €18,152, by Q2 2007 secondhand house prices had risen to 11.9 times the averageindustrial wage of €32,616 (datasheet 5).
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the total value of mortgage debt increased from €47.2 billion in2002 to over €139.8 billion at the end of 2007, with the average size of a newmortgage €266,000, nearly double the 2002 figure (CSO 2008; datasheet 6). The vastmajority of these new mortgages were reliant on more than one income, tying thehousehold unit into a new work and family lifestyle. Moreover, loans to developersfor land and developments sky-rocketed. As Honohan (2010: 26) notes, “At the end-2003, net indebtedness of Irish banks to the rest of the world was just 10 per cent ofGDP; by early 2008 borrowing, mainly for property, had jumped to over 60 per centof GDP. Moreover, the share of bank assets in property-related lending grew fromless than 40 per cent before 2002 to over 60 per cent by 2006.”
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vacancy including holiday homes is over 300K, that vacancy excluding holidayhomes is over 228K,and that the potential oversupply is over 103K
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The urban tax relief schemes were accompanied from June 1998 by the Pilot RuralRenewal Scheme for the Upper Shannon Region (introduced under the Finance Act,1998, and covering Co. Cavan, west of the River Erne, all of counties Leitrim andLongford, north Co. Roscommon, east and south Co. Sligo; see Figure 18). The urbanand rural renewal schemes provided for tax relief or incentive allowances designed toencourage people to live and construct new dwellings in designated areas and topromote new economic activity. In the case of the Upper Shannon Region renewalscheme, for example, the two main elements were: (1) business tax incentives: taxrelief for the expenditure incurred on the construction or refurbishment of industrialbuildings (from July 1st, 1999); and (2) residential property tax incentives: tax relieffor both owner occupiers and renters. In the case of owner occupiers, dwellings couldnot exceed a floor space of 210 sq metres. For those who would gain tax relief astenants of property, the dwelling had to be the main or sole residence for a minimumof three months per annum in order to counteract the potential of a proliferation ofholiday homes (Department of Finance, 1999).
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Further, the planning regime had few checksand balances to stop excessive zoning and permissions being granted todevelopments, despite the fact that detailed demographic profiling would haveindicated limited demand in many locations, and the absence in many cases ofessential services such as water and sewerage treatment plants, energy supply, publictransport or roads. The result is a large number of one-off housing (c. 1 in 4 of stock),sprawl and suburbanisation, and a massive amount of zoned land.Fourth, and following on from the last point, the planning system is undermined byelements of clientelism, cronyism and low-level corruption at play in the system at alllevels. At the local scale, individuals and developers lobby and seek to curry favouror do deals with county councillors and constituency TDs for zoning and permissionsin return for support, votes and remuneration of various kinds (favours, kick-backs,fees for ‘planning consultancy’, etc). The Irish planning system lends itself to such arelationship as a result of its division of legislative and executive functions betweencouncillors and planners. The formulation and adoption of development plans andzoning decisions fall under the remit of elected local councillors, whilst the planningauthority adjudicates over planning applications (with the planning authority a part ofthe local authority that local councillors oversee). The function of local authorityplanners is as advisors on all development planning matters, rather than being formaldecision makers; elected representatives have the final say on all development planand zoning matters, and are under no obligation to take the recommendations ofexperts into account. Moreover, councillors can use mechanisms such as Section 140(of the Local Government Act 2001 – formerly Section 4 of the City and CountyManagement (Amendment) Act, 1955) to override a specific planning decision.And,40while local authority staff are legally bound not to engage in work that might imply avested interest, there is no such monitoring for councillors. This is exemplified byexamples of elected representatives ‘double jobbing’ as planning agents (orconsultants). Councillors need to retain their role in the planning system asdemocratically elected local representatives working on behalf of the localcommunity, but their role has be tempered where necessary to follow due process andbe robust against accusations of clientelism and cronyism. There are undoubtedlymany good councillors and planners in Ireland, but the system has clearly not allowedthem to counter the excesses and pressures of the boom and practice sustainableplanning in all instances. At the national level, developers and vested interest organisations lobby and pressureMinisters with respect to regional and planning policy formation and key legislation.The property sector thus maintains close relationships with the major political parties,providing funding donations, the use of services and facilities, access to elitenetworks, employment/directorships after politics, and so on, in order to influencedevelopment plans, zoning and planning decisions, and planning policy. As therevelations of the Mahon Tribunal into planning corruption have suggested, thisrelationship has been characterised as one of mutual benefit, along with direct andindirect bribery and coercion of elected officials at all levels of government (see O’Toole 2009). State support for the property sector is clearly evidenced by the failure of successivegovernments to implement the recommendations of the Kenny Report (Report of theCommittee on the Price of Building Land; Government of Ireland, 1974). The reportwas the outcome of a committee established by the Government in 1971, “as aresponse to the anarchic explosion of badly planned housing during the previous Irishboom of the 1960s”. The task of the committee was “to stop landowners from gettingwindfall profits just because the local authorities zoned their agricultural fields fordevelopment and serviced them with sewage, roads and water”. The report suggestedthat “a situation should [not] continue where dealings in building land can result inlarge unearned profits for individuals and where local authorities have to competewith private interests in order to acquire land required for the expansion of towns andcities and to pay inflated prices for it”. The report recommended that owners should41be paid the current agricultural market value plus 25 per cent for their land, anddetailed how this situation was compatible with Irish law. The policy was almostunanimously in the public interest, and in fact “threatened just one small group ofpeople – the speculators and developers who controlled the large land banks”.However, since its publication successive governments have agreed in principle withthe recommendations of the report, but nevertheless consistently avoidedimplementing them. Thus the state effectively encouraged the inflation of land values(O’ Toole 2009, pp. 106-109). Similarly, the range of tax breaks available since theearly 1980s have enormously benefited developers to the detriment of the publicpurse, and public-private partnerships with highly favourable, low risk returns todevelopers have been used to implement crucial infrastructural works. Even recentinitiatives, such as the Social Housing Leasing Initiative to deal with the publichousing waiting list, are structured to favour the developer over the long term (in thiscase, private housing would be rented for 20 years then returned to the developer,rather than the state purchasing the property over the same period and then absorbingit into the social housing stock or selling it on for a profit to the taxpayer). It isperhaps unsurprising then that during the Celtic Tiger boom the property developerbecame a central figure in Irish political life.
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IT’s All About Anglo!
July 19, 2010
Notice how Lenny is wringing his hands of blame for the financial meltdown. In his Ballroom of Romance fairy tale, the DofF slowly leaked power into the Dept of Taoiseach during the time Cowen was in charge of Finance.
Here’s another reading of the meltdown. Its all about Anglo. From early 2008 warning signals were coming out of Anglo all was not what it seemed.
“An investigation was launched after it emerged that Anglo had transferred €7.45 billion to IL&P as an interbank loan – but when that money was lodged back to Anglo from IL&P it was treated as customer deposits rather than an interbank loan. The effect boosted the balance sheet of Anglo Irish Bank, potentially misleading investors into believing the bank was more stable than the precarious position it held.”
There’s a good chance under the Regulator, Neary, the above scam wasn’t implemented once, but a number of times.
Similarly on the date of the guarantee, http://bit.ly/cM2FRT the possible exposure/liability of the state to Anglo was given at €8 bn, yet its now flagged as €22 bn , with a total cost to the state if Nama tranfers are included of upwards to €50 bn.
Given the emerging catastrophe scenario of Anglo following the time of the guarantee, Lenihan still persists in calling the Guarantee exposing the state to upwards of €500 bn , the correct decision.
Sadly, given the growing shambles of NAMA and deteriorating ratings by Moody’shttp://bit.ly/ce5dOO , Ireland INC Lenihan/DofF bailout of Ireland is reckoning up to be the worst and most expensive bailout of any country in memory.
The markets are not reassured by Lenihan’s ‘fools rush in’ blanket guarantee, NAMA and subsequent response to Ireland INC’s banking crisis, in spite of warnings by Merrill Lynch et al. Its clear the blanket guarantee put everyone on Ireland Inc into an economic ferry feted like the Titanic as it set off with Ballroom of Romance celebrations. Few saw the rear cargo door of the ferry was not properly closed and water was beginning to pour below deck.
It would appear Ireland INC is creating the perfect storm for an
even more catastrophic double dip recession that will hit as soon as austerity measures hit the fan.
All of this was not meant to be.
In the Ballroom of Romance the ugly sisters of Anglo and Nationwide were leading the ball. The notion they could fail flagged by Merrill Lynch et al was bagged and buried throughout 2008.
When the ball was over, the notion that Anglo could be excluded from the guarantee was stamped out by politico/FF cronies of Lenihan including Lenihan himself. The blanket guarantee bet the country’s taxpayers against the potential losses of Anglo and the Irish banks. NAMA was made ready to fly away into profit on the updraft of recovery fed by the blanket guarantee.
The roulette wheel was spun. The downgrading of Ireland INC by Moody’s represents the defeat of Lenihan’s policy to save Anglo at any cost to the Irish taxpayer:
Moody’s downgrades Irish government debt rating
(AP) – 4 hours ago
DUBLIN — Moody’s ratings agency on Monday downgraded Irish government bonds by one notch due to a deteriorating economic outlook, a heavy debt burden and liabilities in the banking system.
Ireland was hit hard by the global financial crisis as a collapse in the property market nearly took down the banking system. It was also among the first European countries to impose painful austerity measures to tackle the outsized public debt load.
In a statement from its office in Frankfurt, Moody’s s Investors Service said it dropped its rating on the government bonds from Aa1 to Aa2.
“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” says Dietmar Hornung, Moody’s lead analyst for Ireland.
Moody’s noted that government tax collections have fallen has gross domestic product has declined since 2008. The general government debt-to-GDP ratio has risen from 25 percent before the crisis to 64 percent and is still rising, Moody’s said.
The rating agency said it was also concerned about Ireland’s weaker growth prospects because of the severe downturn in the financial services and property sectors, and a contraction in private sector credit.
The third factor worrying Moody’s was “the crystallization of contingent liabilities from the banking system, as represented by a series of recapitalization measures” and the need for Ireland to create a National Asset Management Agency (NAMA) to take away bad loans from banks.
Standard & Poor’s downgraded Irish bonds from AA+ to AA in March last year, while Fitch Ratings cut Ireland from AAA to AA- in two steps last year, according to Barclays Capital.”
Notice the ‘third factor above’. Its a formal statement the rating agencies are deeply worried at the policy chosen by Lenihan and DoFF, the policy of saving Anglo, the FF croney bank.
Anglo is a leech on our democratic freedoms, a travesty of justice, a casino bank that should be wound down asap with a proper Garda fraud investigation.
Should Neary be behind bars for his role in the schenanigans? Instead of which, the Irish taxpayer is being milked for upwards €50 bn squandered on a property roulette monopoly by the FF/Anglo/Nama oligarchy.
Lenihan has lost the bet and all bets are off as we head towards default.
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