Wednesday 17 January 2018

Grappling with groupthink

Paul McNeive

One of the things that has struck me while writing this column is how readily a "groupthink" develops on particular property issues. The "groupthink" grows legs and after that is rarely challenged.

Here are a selection of current "groupthink" property issues and just for fun, the opposing view. See where your thinking lies:

Groupthink 1: "Upward only" rent reviews": Greedy landlords screwed tenants in the boom and used the "upward only" rent review clauses to avoid halving rents to market levels when the economy collapsed.

The government parties promised to undo "upward only"clauses but reneged once elected. High rents and the "upward only" review clauses have caused many retailers to close down.

The Alternative View: Retailers making big profits in the boom drove up rents with rapid expansion plans and paid "over the odds" to keep competitors out of the best locations.

Retailers freely entered into standard leases with landlords who paid for these shops based on the rents being paid.

Promises to undo the "upward only" reviews always looked unconstitutional and would mean tearing up thousands of leases.

Halving the rents due to taxpayers through NAMA would cost the taxpayer another €1.5bn and would sabotage NAMA sales. If rents were halved, tenants would have a huge advantage over retailers who bought their shops and can't half repayments to their bank.

Why should profitable retailers halve their rents because other retailers are making losses? In a recession, businesses go bust. Reducing rents by half means landlords go bust instead of tenants. Many landlords have agreed rent reductions with their tenants.

Groupthink 2: Rates Revaluations:

The rates revaluations are unfairly creating enormous cost increases, especially for larger retailers and threatening jobs. For example Brown Thomas is complaining that its rates are increasing from €700,000 p.a. to €1.1m p.a.

Retailers point out that services are reducing and crime in town centres is damaging trade.

The Alternative view: The rates revaluation is long overdue and is in fact based on rental values. The bigger shops on the prime streets are paying more and secondary retailers, office and industrial occupiers are paying less. In fact smaller retailers have been subsidising Brown Thomas's rates for years.

The UK has just postponed a rates revaluation and it's reckoned that Sainsburys, Tesco, Asda and Morrisons will be subsidised to the tune of £1.3bn over the next two years by small retailers.

One reason rates are too high is that the local authorities are overstaffed at management level. Whilst private sector businesses were closing or slashing jobs and costs, local authority staff were enjoying pay increases under Croke Park Agreements.

Groupthink 3: Mortgage Arrears:

Restrictions on how banks collect mortgage arrears will provide relief for thousands of homeowners in arrears.

The Alternative View: These restrictions undermine the essence of a mortgage where a lenders only security is the ability to repossess the property. State owned banks will be forced into softer deals on mortgage arrears and the shortfall is yet again payable by the taxpayer.

Because our system will be seen as soft on mortgage arrears, when the banks go back to the markets to borrow money to lend to future purchasers, they will be charged higher rates of interest.

So the next generation of house buyers will have higher mortgage repayments because of this generation's defaulters.

Groupthink 4: House prices:

Houses are fundamentally a good investment.

The Alternative View: Houses are deteriorating from the moment they're built, so their value should depreciate. The land a house is built on is a "neutral" asset and its value should remain constant.

House prices only appreciate because governments restrict the supply of houses (through planning), incentivise people to buy houses and because house buyers regard houses as their pension. House price increases are illogical "demand pull inflation." (See online magazine:

Groupthink 5: High land prices cause high house prices.

The Alternative View: High house prices cause high land prices.


In January I'll be speaking at the Laya Healthcare Summit in the Convention Centre and sharing a stage with Space Shuttle Commander Chris Hadfield.

I particularly enjoy speaking at the Convention Centre as I spent a lot of my estate agency career working on property in the docklands and it's fantastic to see the area hitting critical mass.

Knight Frank, who were letting agents for London's Canary Wharf always said that a turning point there was a letting to a coffee shop/newsagent and hardware store.

For my money, in years to come I think we'll look back at the opening of The Marker Hotel as a tipping point in Dublin's docklands regeneration.

Irish Independent

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