Monday 23 October 2017

After the bust, Enda bids for softer landing

Property once again - have we learned nothing? Tell that to thousands who know doing nothing is no longer an option, writes Jody Corcoran

Taoiseach Enda Kenny and then Tánaiste Eamon Gilmore who launched the Construction 2020 strategy for a renewed construction sector at the National Sports Campus, Abbotstown
Taoiseach Enda Kenny and then Tánaiste Eamon Gilmore who launched the Construction 2020 strategy for a renewed construction sector at the National Sports Campus, Abbotstown

The question asked by those who continue to resist the notion of the mini-boom we are about to have is nearly always the same - have we learned nothing? By and large, it is those who have had a relatively comfortable recession that ask the question more often.

After six years of austerity, though, there are many that desperately yearn for a real change in their circumstances.

And it is these who take most pleasure in the slew of news which has confirmed that - at least, at last - something is about to give.

The unease of those who question whether we have learned anything would be eased if there were more certainty as the country reaches again for what might be called a softer landing.

That unease is heightened by the perceived lack of progress in an area that is generally known as 'reform'.

The question is not whether we have learned anything, but whether anything has really changed.

But that is not to say that the mini-boom should not be welcomed for what it is.

The evidence has been there for a while to inform the Economic and Social Research Institute (ESRI), which last week predicted that there would be 3.4pc economic growth this year and 3.8pc the year after. In short, things are going to start to get a little boomier.

That level of growth may be achieved in the teeth of a property crash which has made a mockery of the notion of a soft landing.

There is further unease over the tool by which the country seems to be lifting itself again, which is, let's be honest, property.

Yes, tourism, exports and agriculture (notwithstanding the latest from Russia) have contributed, but the malaise is too deep and too wide to carry on without some form of manipulation of the main cause of the problem in the first place.

Last week, the ESRI also said property prices were, on average, 27pc undervalued, mostly outside of but also in the greater Dublin area, which has moved ahead.

This news, in particular, seems to have set off a few conniptions, but for those in most desperate need of a change in their circumstances, last week's ESRI reports were welcome news.

These people are, generally, in their late-30s, 40s and 50s, the lost generation of a lost decade, otherwise known as the disillusioned.

This is not to say that this generation alone has suffered during the crash - everybody has: those in their 20s and early 30s, the latest emigration generation, and those in their late 50s and 60s who have had their pensions destroyed.

But it is those in middle age, the generation most bound up in the property crash, who are happy to see valuations rise again.

The most immediate question to those who question whether we have learned anything is who they are prepared to leave behind as the country contrives to emerge from the abyss.

Do we leave behind the property developers, for example, the household names who largely contributed to the crash?

Or the lesser-known developers perhaps, who dabbled in the hundreds or maybe tens of millions and lived large like little kings?

Or do we just leave behind the mostly amateurs who pretended they were developers, right down to the taxi driver who intended to flip an apartment in Bulgaria?

On the other side of the coin there is a Dublin couple I know who live in a half-finished estate in what eventually was to become the outer reaches of the Dublin commuter belt during the boom.

The husband had a job in one of the fancier restaurants in commuter Ireland. It went bust and he now commutes to work in the capital three days a week.

The wife lost her well-paid, high-tech job in Dublin, but recently got a new, significantly more low-paid job in one of the multinationals, the income from which helps them make ends meet.

The estate in which they bought their boom-time home remains unfinished and there is a depressive air in the town in which they live.

They like the locals and have made a few friends, their kids are in school, but they have a mortgage of €250,000 and are in negative equity way over their heads.

In short, they feel stuck. It is not much of a life, really. So should we also leave them behind?

My view is that those in the outer reaches - Cavan, Longford, Westmeath, Offaly, Laois, Carlow and Kilkenny - will be left to re-build rural Ireland, by accident or design, in a generation or more.

The withdrawal last week of funding for the National Broadband Scheme, which could lead to a 75pc price hike for rural broadband users, is another indication of that abandonment.

Since property prices in the greater Dublin area have started to rise at an appreciable rate, around 45,000 such people have become unstuck - for them something has started to give.

They can sell if they choose, set themselves back a decade and start again; or they can stay, with less debt, and hope the ESRI's projected growth will eventually restore their shattered communities.

In truth, there were hundreds of thousands, if not more than a million or so knaves and fools who had a form of stake in the property boom. So which of them is to be left behind?

The ESRI last week also put a figure - 90,000 - on the number of new homes needed in the greater Dublin area by 2021, that is, in Dublin itself and Louth, Meath, Kildare and Wicklow.

This bold strike for a softer landing, for the many not just the few, will not be achieved without a property market which functions - that much is certain.

But a new model is required, which allows for sustainable development and tries to make sense of the mess that was left behind.

The blueprint is the Government's Construction 2020, a document which has gone to some effort to join the dots in the years ahead.

The much-maligned, though effective National Asset Management Agency, will also feed into this model with around €3bn, half of which will go towards the provision of new homes.

There are around 2,000 hectares in the greater Dublin area, half of which is more immediately ready to develop to meet a third, if not almost half of the area's urgent housing needs.

The sooner development is completed - it will take three to four years - the sooner house prices, and rents (and resultant homelessness) can be curtailed and we can approach something like a softer landing.

That is the plan, anyway.

The question is who will develop these green and brown field sites and, in time, the more peripheral and infrastructure-poor areas which could also make a contribution to supply over time?

Leaving aside prohibitive issues such as further finance, proper planning and the costs associated with building, in the end it will come back to our relationship with builders and the banks.

A Central Bank report earlier this month outlined how the banks continue to fall short.

The findings suggest that the process to address the mortgage arrears problem have improved a little over time.

But given that only 55pc of the stock of permanently-modified defaulted loans made a full repayment in December 2013, clearly more needs to be done before the arrears issue is resolved.

There are 170 or so developers in the pay of Nama: the most eye-catching figures are the three getting €200,000 a year. In total they get €15.49m a year - an average of €92,200.

If we know developers like we think we do, many may refuse to get out of bed for that amount, let alone to build the 90,000 new houses urgently needed in the greater Dublin area.

The time may come for Nama to loosen the reins to achieve or better its targets: it could be that a form of profit share with developers will be the way to go.

To answer the question, then - have we learned nothing? After a lost decade and generation, the answer is as simple as this: doing nothing is no longer an option.

Sunday Independent

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