Saturday 25 January 2020

Richard Curran: Does the ECB want us all to be good little Frankfurters?

The lights never go out at the European Central Bank HQ in Frankfurt. Photo: Ralph Orlowski
The lights never go out at the European Central Bank HQ in Frankfurt. Photo: Ralph Orlowski
Richard Curran

Richard Curran

As stakeholders met in Dublin for a forum on tackling homelessness and the housing crisis, the problems don't look like being fixed any time soon.

The blame game around the contributing factors keeps rumbling on: constitutional property rights; planning; developers looking for too much money; developers not having enough money; building costs; lack of finance; greedy landlords putting up rents; reluctant and bust landlords trying to stay afloat; Nama and the Central Bank mortgage lending caps.

As a defender of the mortgage caps for some time in this column, I was a little concerned when senior Central Bank adviser Lars Frisell addressed the issue at an event in Sweden recently.

Defending the measures, he said they cannot be blamed for causing a shortage of housing supply, and I think he is right. He said they were aimed at protecting borrowers and ensuring the stability of the banking system. And I think he is right there too.

But he then went on to refer to how the mortgage lending rules "should contribute to a shift in both housing demand and supply towards rental accommodation. This highlights the need to remove unnecessary barriers to the provision of rental housing as well as the need for an appropriate framework of rights and obligations for tenants."

Is this part of the Central Bank's plan - to consciously encourage a shift away from home ownership and towards renting? Or is it just a side-effect of its mortgage lending caps?

The mortgage rules have worked well from the Central Bank's point of view by slowing down the rapid rate of house price growth in Dublin in particular. But it raises the question of whether there is something bigger going on here.

Would the Central Bank prefer to see more people renting? After all, fewer home owners would greatly diminish the chances of a boom/bust cycle. Given that the Central Bank is effectively answerable to the ECB, would the ECB like to see a situation in Ireland where there is less home ownership and a much greater level of home rental?

It is reassuring to think that the ECB is keeping a watchful eye to ensure we don't have another banking crash, but it would be very disconcerting if it were promoting policies aimed at shifting the patterns of home ownership in Ireland.

That would be overstepping the mark, and not the first time in its dealings with us in recent years.

In his presentation, Frisell talked about how important it was for the lending caps to slow down the rate of turnover of house purchases. In other words, it would take longer for people to find a buyer for their house. "This effect is an anticipated, if not necessary, result of the regulation. And in so far as longer lead times stem from households taking more time to reflect on how they invest their own, hard-earned money, it is arguably a good thing."

But the number of residential property transactions actually increased last year, albeit from a low base. Many of the buyers were investors who want to cash in on high rents.

Frisell also quoted work done by colleagues in the Central Bank last year before the caps were introduced. The paper he referred to said: "It has been argued that there will be an increase in demand for rented accommodation, which may lead to a rise in rents. In addition, any increase in rents could have implications for the affordability in the sector and government services that provide relief.

"On the other hand… as discussed, it is not necessarily the case that the cost of renting will increase as a result of the proposed measures, since the supply of rental accommodation may also increase."

But this is exactly what has happened. Rents have been going up and the supply side is not being met.

It may well be that the Central Bank underestimated the purchasing power of the Irish landlord, who isn't always like their German counterparts, interested in a slow, steady rental income over decades.

It may be that a Germanic-style long-term renting market would be good for us. But that isn't going to happen for a decade at least. The transition is proving very painful.

The Central Bank is entitled to intervene to avoid a lending frenzy, but it shouldn't be the driving force behind a fundamental shift away from home ownership, even if it is something that Dame Street's bosses in Frankfurt might like.

Life after UTV won't be easy for Wireless Group

Wireless Group, formerly known as UTV Media, published a detailed set of 2015 results last week. But one figure missing was the extent of losses at UTV Ireland.

Back in August, they were expected to be around £11.5m. Having flogged off its television business last year, the accounts focus mainly on "continuing businesses" and don't dwell too much on what has been sold.

When it comes to UTV Ireland, this is a bit of a "don't mention the war" scenario.

But what a year for the company! The year began with the launch of a new TV channel and ended with the sale of its entire television division.

Wireless Group chairman Richard Huntingford strongly hints that the decision to sell UTV in Northern Ireland was partially driven by the losses racking up in the new TV business south of the border.

With losses in Dublin increasing, the date for when it would turn a profit was getting further away.

"With the path to profitability extended, your board considered a £100m cash offer from ITV for our television business as an opportunity to release immediate value for our shareholders while substantially improving our risk profile."

The prospects for the new slimmed-down group are better but it won't be an easy road. It is now focussed on radio, with good stations in Britain and Ireland. It has very low debt and a borrowing facility of £35m. The problem is what to buy?

Operating profit at its British radio business fell last year from £11.7m in 2014 to £11.3m in 2015. In Ireland, operating profit from radio fell from £4.3m to £3.3m.

So its radio assets hold good market positions but their profitability shrunk last year. Operating profits at its digital services business, Tibus and Simply Zesty, tanked from £954,000 to £124,000.

Wireless Group knows it will have to grow to justify retaining a stock market listing. Otherwise a break-up or sell-off of the group might make more sense.

It has a good track record in acquiring and running radio assets and plans to expand with new digital stations in the UK, which it knows will lose money initially.

The group is diminished without UTV in Belfast, but better off without UTV Ireland. Getting back to growth won't be easy.

Chadwick retirement is end of an era for Grafton

It really is the end of an era at Grafton Group with the announcement that Michael Chadwick is retiring from the board. He joined Grafton in 1975 and built up the business in the 1980s and 1990s.

Never a conventional chief executive or chairman, he retained a sizeable shareholding in the company, today worth around €180m, but for years he forfeited his entitlements to salary and bonus.

For example he should have received €444,000 in 2000 but only took €40,000. Even when he did take his full remuneration in 2003, he didn't take up executive share options which he could easily have enjoyed. He has saved the company millions in uncollected remuneration.

He was well paid through dividends in Grafton over the years and collected €2m in dividends last year alone.

Turnover when he became executive chairman in 1985 was €60m. Today it is a London-listed company with a market capitalisation of £1.6bn (€2bn).

A keen sailor, and co-owner of the Dun Laoghaire Marina, he should enjoy sailing off into the retirement sunset.

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