Ronald Quinlan: Developers and development are integral to recovery
Michael O'Flynn is one of Ireland's most successful and experienced developers. He spoke to Ronald Quinlan about the policies that need to be pursued to secure a functioning and sustainable property industry – something which both he and economists the world over agree is vital for a successful economy
I'VE been in the property industry for 45 years and I've seen probably three or four cycles. In a perfect world we wouldn't have property cycles, but in the real world we do. In the good times, we don't think of the downturn and in the downturn, we don't think of recovery. We just jump from one to the other, but it's in the intervening period that the serious planning needs to be done.
There's no doubt we got things wrong in the past as regards property. That doesn't automatically mean we're going to get things right in the future. It certainly means there needs to be a greater cohesion of all the parties who interact to provide property than there ever has been before. That is especially the case when you have Nama and you have some of the banks owned by the Government. You have a huge dependency on government policy to help create the development product that is going to house the jobs of the future.
I'm concerned there isn't a recognition of the need for developers. I'm also the first to admit that there were a lot of people who ended up in the developer group who didn't have the credentials, but they got funded by the banks and that's what happened. I think a serious lesson has been learnt by the banking industry that you have to match up equity, finance and the property skill set. You will never get away with having only two of those three elements again.
We now need to look forward and to realise that property is a vital part of a recovering economy. We're now at seven per cent of GDP. We should never have been at 25 per cent. The general view is that the European average of 12 per cent of GDP is where we should be.
Ireland has enjoyed a lot of success in attracting jobs over the last number of years because of the overhang of properties we had. One of the good legacies of the boom – and I hate that word – is that we created a lot of buildings where a lot of jobs got housed. People seem to think that these jobs would have come anyway.
That's not the case. My experience in the past is that Cork and the regions lost out badly because they didn't have the housing for jobs available.
But we're now in a situation where we're completely undersupplied in terms of appropriately sized commercial properties, which means that Ireland is going to be at a disadvantage in terms of housing jobs. I am absolutely certain now that we are going to have a major problem – it might be a year from now – because we won't have the space available to house any new industry. To avoid this, we need to have a serious Government-driven policy looking at cost and financing that might involve a special form of senior debt provision within the pillar banks or guarantees for FDI (Foreign Direct Investment) like we had 30 years ago to get advance factories built, or possibly mezzanine finance to help bridge the gap between the equity that's available and the loan to value.
We've got to be sure that we have a system that identifies what's needed.
At this moment in time there are a number of shortages in property areas.
The shortages in Dublin, for example, are already quite evident and the recovery in prices there is distorting the national picture. You could almost have a bubble being created shortly on some of the good sites and locations in Dublin, which again is a bounce in the wrong direction that nobody needs.
I know nobody wants to hear that we're going to run out of houses where people want to live, so we need to start planning for them and investing money in getting planning and in preparing for them.
There is a serious shortage in the commercial area. I said it a year-and-a-half ago in an interview and people were less than impressed because of the mistakes that were made in the past.
I've always had a view that we were oversupplying product, that we were not creating the physical infrastructure in the right areas to match the demand. We were trying to satisfy everyone everywhere rather than doing the market analysis of what was needed. The economics are not working quite yet but if there was a general funding available, those economics would be easier to achieve.
Developers and development are an integral part of a recovery in any economy. It's time to bring us back into the room and it's time for Government to engage directly with the industry in a way that the future decisions that are made are sustainable and achievable.