There is a line of argument along these lines coming from some of the Euro-sceptic economic commentators and others who are facing up to the reality of current circumstances.
It is that following our entry into the Euro, Ireland was constrained by interest rates so low that they were not in Ireland’s national interest. This is given as a key reason for the expansion of Ireland’s property bubble. This rationale presents the issue of our property bubble as if it was out of government control.
It is true that EU interest rates set by the European Central Bank are outside Ireland’s control and Ireland is not in a position to devalue its currency. However the reasons for the property bubble were a lot more than low interest rates.
In 2002, it was reckoned that a property bubble was developing in the UK and prices were rising to exceptionally high levels. Thre were 150,000 house completions that year in the UK. In Ireland, there were 75,0000 house completions and by 2006, there were 90,000 completions. Ireland’s population is just over four million and the UK has just short of 60 million. For a country of less than 10% of their population, we were producing half the number of houses.
Were interest rates the main reason for this bubble or was there something else about the way business is done in Ireland that might help with an explanation. As with cars, there was a certain amount of catch up going on in the 1990s in Ireland with regard to housing. There were too few houses for our growing population and with returning emigrants and the beginning of immigration as well as a population that was changing in terms of family size with a huge increase in single person households.
There was a basis to significant growth in housebuilding in the 1990s but by 2002 it had gone beyond unsustainable and something needed be done. Remember that in the 1980s, there were an average of 15,000 house completion. Attention needed to be paid to other areas where the skills of construction workers were needed so as to take some heat out of the market. At the time, there was an argument that an increased supply of housing would help reduce the prices.
On the one hand the market was responding to increased demand for housing, while at the same time prices were increasing by 10% and 20% and even 30% each year. Housing need could have been met at affordable prices, but this was not to happen. We could have been spared a bubble and the reality of hundreds of thousands of vacant properties.
It was also in 2002, when the government caved into pressure from the developer lobby in regard to the Planning Act 2000. Instead of allocating 20% of completions for social and affordable housing, developers were successful in amending that stipulation to a negotiable level which could also be in the form of a development levy. With this amendment, construction of housing increased even more and almost all housing was for sale on the private market.
The prospect of more development levies for councils and no social housing was more impetus for price increase and housing construction increase. It was vital to actually take heat out of the market at the time, as house prices were now ten times the average wage.
The government made a disastrous mistake in regard to their cave in to the developers lobby. What was needed for development to meet the needs of communities. What happened was housing construction in its hundreds and thousands without consideration for other services.
Councils did not liaise with state agencies to plan for increase populations so that for example in Balbriggan just as the population reached 19,000 and unemployment started to increase significantly, they failed to respond when the local social welfare office closed down. A crisis in lack of school places led to the opening of an all black school.
The reason why developers built houses instead of schools, hospitals and community centres is that there was a concrete incentive to do so. Regarding the allocation of schools in a given area, there is all kinds of book passing between patron bodies, local authorities and the Department of Education. Build ten houses on an investment of €2m and the developer can sell at €3million was the kind of forecast a developer could make in regard to housing. They could not do that in regards to provision of other kinds of building and hence the prevalence of unbalanced and unsustainable development.
Book passing aside, it is the responsibility of the public service to provide public service. If they had of been active with a plan in each given area and not been the pawns of clientalist politicians there would be a more even spread of resources around the country. As well as banks and developers, the public sector did have a role in overseeing an unsustainable bubble.
There must be a provision for dismissal of public servants and pay should be related to performance while appointments should be accessible to the public for application as opposed to promotions on the basis of seniority. Leadership of the civil and public service must come from the top and this means significant pay cuts capping top pay level pay at €125,000.
This kind of level of pay where the tops in the service earn no more than three or four times the bottom, would bring a fresh realism to addressing the issues facing this country. The argument that if pay for top executives was brought down to such levels, then the best at the top would leave. Let them leave as there will always be replacements. As appointed civil and public services they are appointed so the imagination and the brilliance ought to be coming from our politicians and how we get that is another task altogether.
