Read Ship of Fools Online

Authors: Fintan O'Toole

Ship of Fools (14 page)

The primal nature of this land-hunger is clear from the way Irish investors started to buy up farms in Scotland and England. According to the estate agents Savills HOK, 22 per cent of queries about Scottish farms on its books came from Ireland. In 2007, almost half of all British farm land sold to foreign buyers was bought by Irish purchasers.
How could this unsustainable frenzy have been allowed to
go on? One of the keys to understanding what happened in the Irish housing market is what didn't happen. For that, we have to go all the way back to 1973, and a document with the uninviting title
Report of the Committee on the Price of Building Land.
This committee was established in 1971 as a response to the anarchic explosion of badly planned housing during the previous Irish boom of the 1960s. It was not exactly a revolutionary cabal. It was chaired by Mr Justice Kenny of the High Court (hence it is usually called the Kenny report), and consisted of two representatives of the Department of Local Government (later called the Department of the Environment), with one each from the Department of the Taoiseach, the Revenue Commissioners and the Valuation Office. It would be hard to find a more sober body of deliberators outside of a working breakfast for imams in Mecca.
The committee's task was to find a method of ‘ensuring that all or a substantial part of the increase in the value of land attributable to the decisions and operations of public authorities . . . shall be secured for the benefit of the community'. Or to put it in less sententious terms, 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. You didn't have to be a socialist, after all, to believe that it was both foolish and unjust that landowners should earn vast sums at the public expense without doing anything in return. As even the authors of a minority report taking issue with Kenny's conclusions stressed, ‘We do not think that a situation should 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 . . .'
Kenny's recommendation was relatively straightforward: local authorities should be able to purchase compulsorily land in designated areas. The owners would be paid the current (agricultural) market value, plus a premium of 25 per cent. Kenny, a distinguished jurist, gave a detailed analysis of why and how his proposal could be fully compatible with Irish law and in particular with the rights of private property guaranteed by the Irish constitution.
 
There is a lovely Italian phrase:
dolce far niente
, the sweetness of doing nothing. The Italians presumably adapted it from Irish politics. In the case of the Kenny report, with its admirably concrete and sensible solution, the political establishment managed a far, far more
niente
response than the most sun-stunned sybarite, luxuriating in a Sardinian hammock, could ever muster. Faced with Kenny's unpalatable conclusions, those in power made a coma look like manic activity.
The way of dealing with the Kenny report was not to attack it or to defend the rights of landowners to make unearned fortunes and of property speculators to build up huge private land banks. It was simply to ignore it and, whenever anyone raised the subject, to say that it was under consideration. All parties in government at any given time agreed in principle with Kenny. All managed to believe that this conviction was like agreeing with Pythagoras' theorem - it was clearly right but you didn't have to do anything about it.
Here is a typical Dáil exchange on the subject, in May 1980, plucked from a profusion of available examples:
Mr F. O'Brien asked the Minister for the Environment his proposals for the implementation of the Kenny Report on land.
MR [GER] CONNOLLY [Minister for the Environment]: Possible methods of dealing with outstanding problems on building land costs are under consideration in my Department in conjunction with other interested Departments. I will not be in a position to formulate my proposals until consideration of the complex problem involved is finalised.
MR F. O'BRIEN: We have had this reply before. Could the Minister give some indication of when we may have some measures on land before the House for discussion?
MR CONNOLLY: When I came to the Department the first thing I had a look at was the matter raised by the Deputy. It is a complex issue and I am awaiting a number of views on it. I do not want any undue delay.
MR F. O'BRIEN: Is it lack of will on the part of the government or constitutional impediment that is causing these inordinately long delays? This has been dragging on since 1973.
MR CONNOLLY: I admit it has but I am unable to go further than saying I am having the whole position examined. I assure the Deputy I am as concerned as anybody else about the cost of building land and everything connected with it as regards housing.
MR F. O'BRIEN: Is the problem a constitutional one or is it a lack of will on the part of the government?
MR CONNOLLY: It is a complex issue.
MR F. O'BRIEN: Is it a constitutional issue?
MR CONNOLLY: That is a matter for legal interpretation . . .
During the boom years, when it was obvious that vast fortunes were being made by landowners because of public zoning decisions and on the backs of hard-pressed house-buyers, everyone in the political system agreed that it was long past time that the Kenny report was implemented.
In 2000, Bertie Ahern, pretending to respond to public concern over rapidly rising house prices, asked the All-Party Oireachtas Committee on the Constitution, chaired by the future Minister for Finance Brian Lenihan, to go back over the ground covered by Kenny and his committee. Unsurprisingly, they came to exactly the same conclusions as had been reached in 1973: that Kenny was right to suggest the compulsory purchase of development land at a price modestly above the agricultural value, and that there was no constitutional problem about doing this. The committee had heard pleas to implement Kenny's proposals from powerful official bodies like the National Roads Authority and the Railway Procurement Agency (both fed up with paying extortionate prices for land needed for transport infrastructure) and Forfas, the official advisory body for enterprise and science.
The chances that something so obviously and urgently in the public interest would actually be implemented, however, were as remote as the dark side of Pluto. Kenny threatened just one small group of people - the speculators and developers who controlled the land banks. Unfortunately, Fianna Fáil would sooner have personally insulted the Pope, Nelson Mandela and Mother Teresa before it would offend that very group. Which was not o say, of course, that it was not committed to implementing the Kenny report. As late as 2006, Bertie Ahern was still declaring his intention to bring in legislation to control the price of development land. It was cruel happenstance and downright misfortune that he never got round to it.
Nor did he even get round to the more modest measures suggested by his own consultants to rein in the flagrant self-enrichment of this tiny minority of landowners and property speculators. Peter Bacon and Associates, commissioned by the government to study the inflation of house prices in the late 1990s, recommended an ‘anti-speculation property tax' to stop people buying houses purely for investment purposes. The proposal was modest enough - an annual tax of 2 to 3 per cent of the value of the property. It was resolutely ignored.
Even the simplest of measures to bring some transparency to the operation of the market in land and property were not implemented. Almost every civilised country has a registry of land and property transactions, so that the public can see who is buying what and how much they're paying. In Ireland, this information was deliberately kept secret. The Kenny report pointed out that ‘Any member of the public should be able to find out what prices have been paid for land and the nature of the dealings in it. Under the law as it is now, this is not possible.' It suggested simple changes to the law to make this ‘essential' information available. The Oireachtas All-Party Committee repeated this call: ‘In order to encourage transparency in property markets and research, transaction details should be gathered and published by the state. All lands and titles should be registered by a specified date. Auctioneers and estate agents, who generate, supply and promote market information, should be regulated by either an independent body or the state.'
None of this was done. The government allowed dealings in land and property to remain veiled in secrecy, so that land prices could be more easily manipulated and house prices inflated by estate-agent puffery.
This determination to do nothing was not the result of mere laziness. It was ideologically driven. It stemmed from two related shifts in attitude. One was a move away from the old idea that public policy should be guided by the basic aim of allowing as many people as possible access to affordable housing. So long as this basic belief held sway, it followed that relatively cheap housing was a good thing and that sharp rises in house prices were bad. Especially after Bertie Ahern, Charlie McCreevy and Mary Harney came to power in 1997, the government stopped believing this.
Part of the problem was, of course, that Fianna Fáil was very close to the people who gained most from high property prices - the builders and developers. Another part, however, was the self-generating nature of a demand for expensive houses. Ireland gradually became a nation of speculators, betting on endless rises in house prices. People who already had houses at the start of the boom had an interest in seeing their values rise. People who bought houses at inflated prices acquired the same interest. The more people who were suckered into borrowing beyond their means to acquire houses for up to twice their real worth, the larger the critical mass of voters for whom the idea of the government acting to make housing cheaper was anathema. Quite simply, cheap housing was good if you didn't have a house and bad if you did. And in a nation of house owners, the second category was bigger and grew faster than the first. Between 1995 and 2008, around 1.1 million mortgages for house purchases were approved - a very large chunk of the electorate who had bought property in the boom years.
Working alongside this growth in the property-owning or at least property-mortgaging class was another ideological shift - towards the market as the solution to all problems.
One of the things that had traditionally helped to control house prices in Ireland was the fact that a large proportion of dwellings were built by local authorities. Housing was understood to be a social need first and a commodity second. Thus, in the mid-1940s, 70 per cent of all new housing in the state was built by local councils and city corporations. With the spread of property mania, however, housing became first and foremost a commodity or an investment. Drunk on the orthodoxy that the market was best placed to deliver this commodity, the Fianna Fáil/Progressive Democrat governments began to cut off the supply of public housing. From 27 per cent in 1985, the share of local authority housing in the overall production of new homes sank to just 6 per cent. Lip service continued to be paid to social housing, in the form of targets for 35,000 local authority houses in the first National Development Plan, but only 21,000 were actually built.
The grotesque irony was that, during a period when the main activity of the country seemed to be the building of houses, there were more and more people who didn't have, and could not afford to buy or rent, a decent home. The number of people officially recognised as being in unfit or overcrowded accommodation, homeless or unable to afford a house, increased by 105 per cent between 1996 and 2008. In the midst of a vast housing boom, there were over 100,000 households or about 236,000 people struggling to keep an adequate roof over their heads.
By an even grimmer irony, this figure was quite similar to the number of surplus houses produced by a hysterical private housing market in overdrive. Michael Punch showed that between 1996 and 2006, there were 347,000 new households formed in Ireland. Over the same period, 597,000 new houses were built. This suggests that 250,000
houses were not built to meet housing needs but were either second homes or investment vehicles. Second or investment homes went up in some areas like mushrooms: 30 per cent of the homes in Leitrim were vacant on the night of the 2006 census. But even in Dublin one house in every eight was vacant.
The main government response to this absurdity was to add another delicious twist of farce. It instituted an ‘affordable homes' scheme, under which builders and local authorities would work together to provide houses for those who could not get large mortgages from banks. This involved a double irony. In the first place, the designation of a small numbers of houses (between 2 and 4 per cent of the total) as affordable logically implied that all the other houses were unaffordable. No one paid much attention to this obvious truth. In the second place, and in a gesture beyond satire, tens of thousands of people who applied for affordable homes were turned down on the basis that they were too poor to afford them.
The property boom also produced another paradoxical novelty in Irish life - people who'd never had so much money and who were never in so much debt. As the boom went on and the property frenzy outstripped the seventeenth-century Tulip Mania, the mismatch between the earnings of ordinary workers and the cost of housing could be dealt with only by borrowing money for very long periods. People were buying what they thought of as their ‘first home', often in a place they didn't want to live in for very long, but locking themselves into thirty-year mortgages to pay for it. Between 2004 and 2007, at the height of the madness, the proportion of first-time buyers taking out a mortgage of over thirty years rose from 29 per cent to 75 per cent. Mortgages of 100 per
cent, and even 110 per cent of the cost price, became commonplace. Even in 2008, when the credit crunch had come and the collapse of the Irish property market was looming, over a quarter of first-time buyers were given 100 per cent mortgages by their banks or building societies.

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