In What Distant Deeps Or Skies, Burnt The Fire Of Thine Eyes?
Jun 24th, 2010 by Conor McCabe
I gave up on Irish journalism about 18 months ago, just after the 2008 bank guarantee scheme and the December budget of that year. And while this has done my blood pressure no end of good - it’s not the news that drives me mad, it’s the inane analysis - it also means that I am more than a little out of touch with the Zeitgeist of the chattering classes.
Yet even I cannot fail to notice that there is a consensus of sorts building up these days, around the idea of a Good Tiger/Bad Tiger in relation to the Irish economy of the past 20 years.
There are traces of it in Frank McDonald and Kathy Sheridan’s 2008 publication, The Builders: How a Small Group of Property Developers Fuelled the Building Boom and Transformed Ireland, which I am reading at the moment.
The good/bad argument is a lot more forceful in Shane Ross’ The Bankers - not that surprising given the difference in publication dates.
For this post, though, a quote from The Builders which caught my attention early on:
The economic basis of the building boom were pretty simple. Increasing national prosperity and a growing population (fuelled by rising birth rates and positive net immigration) boosted the demand for residential property and office space. During the same period, the supply of credit grew vastly… Interest rates dropped dramatically… mortgage lenders had loosened their criteria, bringing ever more buyers into the marketplace. The result was that in the 10 years to 2007, the average price of a new home in Ireland rose by 153 per cent, while construction costs went up by only 41 per cent. (p.7)
There’s a couple of things going on in this quote - including the idea that babies somehow increase the need for office space - but for now just a quick look at the bullshitters’ friend, Irish demographics.
The Irish birth rate hovered around 21.5 per one thousand of the population from the 1950s to the 1970s. It then dropped in the 1980s, from 21.5 in 1980, to 15.1 in 1990. Ireland’s birth rate may have been high in comparison with other countries, but it had been in and around the same rate (21.5) for at least the previous forty years. There was no sudden boom.
From 1991 to 1996 there was a 12% increase in the working population, with around 157,517 more people at work. Of that figure, 25% (or 40,681) were employed in personal service and childcare, 14% (or 22,137) in building and construction, 8% (or 12,593) in business and commerce, 8% (or 12,572) as managers and executives, and 8% (or 12,120) in sales. That’s 41% of all job creation taking place in what is now ‘Bad Celtic Tiger’ occupations, and at a time when, supposedly, all was good.
The ‘Good Celtic Tiger’ occupational groups of computer software occupations, Chemical, paper, wood, rubber, plastics and printing workers, Scientific and technical occupations, and Engineering and allied trades workers, accounted for 25,872 jobs - or 16.4% of the jobs growth.
The idea of good growth (i.e. high-tech exports) followed by bad growth (i.e. non-export construction and personal services) is a false one, and in fairness to McDonald and Sheridan, the idea of a good tiger/bad tiger relay race is not one they make strongly in The Builders - a book that has a bit of the Flurry Knox about it: tugging the forelock with one hand, while thumbing the knife with the other.
Ireland did became a beneficiary of net migration, however, in 1996. From that year to 2008, an estimated 403,700 people emigrated, while 861,300 migrated here. This leaves an estimated 457,600 more people in the State through migration.
Yet, over half of that figure is based on the years 2005-08, during the height of the construction bubble. The years 1996 to 1999 account for 14% of the figures for the period. Net migration, from at least 2000 onwards, the years during which Charlie McCreevy’s tax incentives were in full effect, was being fed by this boom in commercial and residential property construction, not the other way around.
So, just to recap, we have nearly 40 years of an almost static birth-rate of around 21.5, which is followed in the 1980s by a substantial drop to around 15.5. It hovers in and around this figure until 2007, which is the end of the commercial and residential property bubble and the start of the bust, at which point the birth-rate rises to 16.5. There is a turnaround in migration patterns in the late 1990s, but again this starts to break 20,000 a year after the McCreevy building boom at the turn of the millennium.
Where does this leave the residential property market? Whereas the birth-rate argument in terms of demand is a bit weak, to say the least, the turnabout in migration and the rise not just in the workforce but in the general population is not. There are more people working, and there are more people here.
Job growth in the 1990s warrants a separate post in itself, as does the second issue in the Builders quote - namely housing supply and demand - and hopefully I’ll get to that over the weekend, but I just want to flag that from 1991 to 1996, just over 40% of Ireland’s job growth is accounted for by construction and personal services occupations.
The actual picture of Ireland in the 1990s is a lot more complicated than the one gaining currency among both the Left and the Right at the moment, of two tigers, not alike but opposite in dignity, in fair Éire where we lay our scene.
Another myth debunked, the demographic foundation of the housing boom. Keep up the good work. One question. Will these pieces form the substance of that book you’re working on?
Thanks left. Yep. This is me teasing stuff out for the book. If you read anything and think it’s wrong or doesn’t make sense please let me know. I know I can get pig-ass moody in my comments but I do appreciate the criticism. I’m just not very good at expressing that appreciation.
The gas thing about the birth-rate as a factor in the housing boom is that it takes, what, at least 25 years from birth to mortgage? That would mean that Ireland should have been coming out of a 30-yr housing boom in late 1990s/early 2000s. But this was never about providing houses, it was all about providing mortgages, and if I can get that across in the book - what it means when a society has a housing policy focused on providing mortgages rather than dwellings - then I’ll be happy.
I think you’re doing a convincing job of exposing that it was all about selling mortgages rather than building homes, and that it goes back for decades. One thing at the back of my mind, which is that you’re painting a very one-sided picture in a sense, which is ok as a polemic as we’ve had nothing but the other side as brainwash for years. But I’m thinking back to the early 70s when I was a young kid growing up on one of the new private estates in Dublin’s outer ‘burbs, my parents were the same sort of people bought into that suburban dream of home ownership as the more recent crop who bought into that dream in Gorey or Navan or wherever. My parents grew up in corporation housing in the Liberties and Crumlin, and they actively wanted to move out to the ‘burbs and live that middle-class dream of owning their own home and getting away from the social problems where they came from. My point is that in your analysis of how the financial industry colluded with developers and government to fleece working people of the fruits of their labour, i.e. by selling them property at an inflated price relative to prices in other countries for example, you are over-looking or at least disregarding the very real desire of those individuals to step onto the private property ladder. There are push and a pull factors at play, supply and demand, and your analysis is quite rightly focusing on the distortion of the market by the suppliers, but maybe you should pay some attention to the demand also? Of course in an ideal world we’d have state provision of decent housing for all, which would remove that aspirant middle-class home ownership dynamic…
Well that’s true Left, but at the same time I was brought up on a Dublin corporation housing estate, where the idea of owning your own home was the same as the idea of owning your own helicopter. As one of my neighbours told me last year when I interviewed her for the oral archive, when the Dublin Corporation Buy-out scheme came into operation in the mid to late 1970s, and houses were being sold for 5,000 pounds, to her 5,000 pounds might as well have been 5 million pounds. It was only because of the local councillor - Sean Kenny - who talked her into going for the purchase scheme that she now owns her house. Virtually the same thing was said to me by my uncle, who lives in Finglas. Again, he rented his corporation house from 1949 up to the late 1970s, when the purchase scheme came in. He would still be renting now were it not for that scheme.
There’s a great study on housing done by Tony Fahey, where he looks at home ownership and social housing in Ireland, and he talks about these government purchase schemes. He found that at least 25% of all private housing in Ireland comes from the buy-out schemes. In other words, where it not for the privatisation of social housing, particularly urban social housing from 1967 onwards, we’d be looking at private/rental housing in Ireland in the order of 60/40 - 60% private, 40% rental, about the same rate as Austria, France and the Netherlands. The majority of households would be privately-owned households, but you wouldn’t have an economy based around it.
Your point is a good one about the state actively distorting the market, and the cultural norms of society, by promoting privatisation of the public housing stock. Is there any evidence from the time whether the developers viewed this as a positive or a negative, like whether they saw the state as a competitor in the market to sell housing units? Also, how was the purchase of privatised housing financed mostly, was it via the commercial banking sector, i.e. normal mortages, or were there public loan schemes in place where people could borrow from the local authority, in which case did the private banking sector see the state as a rival in teh market to sell housing-related debt?
I don’t have the answer to all those questions at the moment Left, but up to the 1980s the second-largest provider of mortgages were local authorities. Basically, up to 1975 it was building societies, local authorities, and assurance companies.
Here’s a breakdown in Excel. I still have to graph the figures, but you might find them interesting. The figures come from the 1970s Quarterly Household Bulletin.
Just on public funding. 80% of ALL housing built in the state from 1923 to 1991 was funded in some measure by the public purse. Very, very few people built a house without state grants.
Good stuff. Don’t give us all the answers just yet anyhow, I want a reason to get your book when it comes out
I don’t know if your analysis will look at a different dimension to the nature of the market for housing/mortgages: the rules governing private rented accommodation. Unfortunately, my ‘insights’ on this are not drawn on statistical data or a systematic analysis, but a handful of anecdotes. But they might provide food for thought.
Anecdote one. Some years ago, RTÉ Radio had a short series of 15-minute programmes where a public figure spoke about a European country they had a particular grá for. David Hanley was one of the presenters, and his country was Denmark. The reason was how private rented tneants awere treated, as told through an account of how a journalistic colleague in DK had to handle the house he owned. Mr DK got a promotion that entailed a move to another city. He decided to rent out his home in the original city, rather than sell it.
Some years later, he got transferred back to his original city, and initiated — without any grumbling — the process of ending his tenant’s tenancy. Because he had been away from a number of years, he had to give his tenant a full year’s notice and he had to go to the local court to prove that the eviction was so that he could re-occupy the house and not because he wanted to re-let it at a higher rate. Unless my memory is playing tricks (and this programme was so long ago, it could be), this court appearance was automatic, and not because the tenant objected. The rationale for this system, Hanley explained, was that the rented property had become the tenant’s home and he was entitled to strong protection of his right to that home.
Anecdote two. A decade ago, an Austrian friend put me up in his apartment in Vienna. He was renting, and we got talking about the way the system worked. Two things struck me as interesting: (a) his rent was index linked and (b) his landlord was a pension fund for one of the public sector unions. The first of these meant that when the demand for housing in Vienna rose rapidly during the Bosnian wars, his rent did not go up in pace with the rise in rents for new tenancies. (It’s possible that his rent was affected by that if that fed into the index to which his rent was linked, but even then it would be diluted.)
Anecdote three. I seem to recall — this could be checked reasonably easily, but I’m not in the mood to! — that when the law on private rented tenancies here was changed a few years ago, the minister refused to amend the bill to the maximum permitted rent increases to an consumer or retail index (do we have both of those? I became aware of the possibility that there could be a difference only this week when I saw some of the coverage of the UK budget and the linking of some social welfare benefits in it to the “wrong” one of those indices). Instead, private rents would be allowed to increase with the market for private rents.
Connclusion. It seems to me that one of the factors that probably helped with the driving up of house prices was the state of the private rented market and its regulation in Ireland. With poor security of tenure and little (indeed, “no”?) protection against exorbitant rent increases, many of those who earned too much to qualify for local authority housing were forced to play the buying game.
tomboktu - your conclusion is absolutely spot on. BTLs were the biggest scam perpetuated on a whole generation . Unless Mom and Dad were willing to fork out, they would have been left with no option but to keep throwing money after someone else’s mortgage, with absolutely nothing other than a (temporary) roof over their head in return. The one thing people need is security in relation to housing, otherwise it isn’t a home.
if you didn’t climb onto the property ladder sooner, rather than later, you would wind up paying Weimar Republic prices for just a bit of shelter.
Greed ignites booms, but panic drives them.