Home | Topics | NAMA

Ireland - haunted by Ghost Estates - bank costs climbing - video report

Printer-friendly versionPDF version

The issue of ghost estates in Ireland is more than empty houses. It's a symbol of the country's descent from the Celtic Tiger leading the European charge of prosperity to a broken state, crippled by what most would agree was a universal greed: greed of consumers, developers and those who Irish people blame the most, the banks.

As Ireland tallies the bill for rescuing Anglo Irish Bank Corp., the unfinished houses on 600 ghost estates are a reminder of how a founding member of the euro became home to the region’s biggest banking crisis. Anglo Irish, once the biggest lender to property developers, may require as much as 6.4 billion euros ($8.7 billion) of additional capital, the country’s central bank said today in a statement. The government seized Anglo Irish in 2009 and already poured 22.9 billion euros into the Dublin-based bank. “The property market went wild,” said Alan Mee, an architect in the capital and lecturer at University College Dublin. “Now we are left with the consequences.”

The country’s central bank said Anglo Irish may require another 5 billion euros if losses widen. Finance Minister Brian Lenihan also said that the government may take a majority stake in Allied Irish Banks Plc, the nation’s second-biggest bank, because of the company’s capital shortfall. The government already has injected about 33 billion euros into five banks, more than the 31 billion euros the government expects to collect in taxes for this year. Anger is mounting in a country that has endured income tax increases and a cut to state workers’ pay of 13 percent. “The banks got into trouble because they got caught up in the mass psychology of an unprecedented property bubble,” Irish central bank Governor Patrick Honohan, 61, said in a speech to a business lobby group. “There is no disputing the fact that the trouble of the banks is directly attributable to their having lent too much for investment in land and property.”

About 553,000 houses were built in the 10 years through 2005 in the country of 4 million people, as homebuilding expanded at twice the pace of the rest of Europe, according to the institute for regional analysis. Some will end up in the control of National Asset Management Agency, the body set up by the government to absorb risky loans. If borrowers can’t pay, the agency can take control of the real estate. Some may be demolished, Brendan McDonagh, chief executive officer of NAMA, said in April.

NIRSA Report - A Haunted Landscape: Housing and Ghost Estates in Post-Celtic Tiger Ireland

During the Celtic Tiger boom Ireland experienced a phenomenal growth in property construction and house prices. Construction became a major component and driver of the Irish economy. Both development and its underlying finances were allowed to become massively over-extended, creating an enormous property bubble. Rather than the much hoped for ‘soft landing’, the bubble popped in spectacular fashion leading to a radical transformation of the property market, with tumbling house prices and widespread negative equity, and a collapse in construction activity.

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.

As well as a catastrophic failure in Ireland’s banking and financial regulatory system, there has been a catastrophic failure of the planning system. In a housing boom planning should act as a counter-balance to the pressures of development in order to maintain a stable housing market and try to prevent boom and bust cycles. Planning should provide checks and balances to the excesses of development and act for the common good, even if that means taking unpopular decisions. However, during the Celtic Tiger period a laissez-faire approach to planning predominated at all levels of governance that was insufficiently evidence-informed with respect to long-term demographic demand, market conditions and issues of sustainability, and which marginalised and ignored more cautious voices. Both the fiscal and planning levers of development were overly pro-growth. As a result, not only was there an unsustainable growth in property prices, but this was accompanied by a property building frenzy that led to a significant oversupply of housing (as well as offices, retail units and hotels) in almost all parts of the country. The level of over-development that has occurred will take years to correct and seriously hamper the recovery of the housing market and the operation of NAMA. Indeed, there are legitimate questions as to whether NAMA can succeed in its aims over its intended life-span.

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.

What the data reveal is a pattern of development that ran counter to what one would have expected or hoped for - those local authorities that had the most vacant stock in 2006, subsequently built the most new housing, now have the highest surpluses of stock, and have the most land zoned for future use.




Short URL
Asymptotix on Twitter

Are the key legislative pillars such as Basel II & III, UCITS IV and Solvency II forcing you to re-examine how you identify, measure and manage risk and capital?

Asymptotix work closely with our partners to help clients develop a more proactive, systematic and integrated approach to governance and risk management to deliver proper value.

Asymptotix can offer the support you need to deliver on time. Read more...

Is the goal of your website to sell services or products, educate, or collect data?

A positive customer experience is vital to conversion, no matter what your conversion goals may be. Our designers and developers will create a positive experience to maximize your conversions and deliver the optimal return on your investment. We strive to find the perfect balance between the web site’s design and functionality.

Asymptotix implements interactive solutions for European companies. From corporate websites to social communities, our clients will tell you an investment in building a scalable online experience will deliver long-term tangible benefits.

Based in Luxembourg we can help you all over Europe. Our multi-lingual team can work with projects and speak your language! Read more...