by Conor McCabe
The strategy group had highlighted the tax relief measures as a serious flaw within the scheme. However, the whole point of the scheme was to create a tax haven for investors and developers. And as this was the intention, it was no surprise that the Minister and the government declined the group’s advice and allowed the scheme to run its course, with devastating results for the affected towns. The Shannon area was about to drown in a sea of concrete and decking. As to who would benefit from such an outcome, on that the strategy group was quite clear: high net-worth individuals and corporate investors.
From 1999 to 2006, a total of 6,452 housing units were constructed in Leitrim. The 2006 census showed that the number of households in the county had risen by 1,547 since 2002. Almost 22 per cent of all housing in Leitrim was vacant. A similar pattern occurred in Longford, with 5,842 houses built under the scheme up to 2006, a household increase of only 1,736, and a vacancy rate of 22 per cent. Overall, the census found around 216,000 empty housing units in the State – this did not take into account holiday homes, of which there were 49,789. Fifteen per cent of all housing in the country was empty. In 2010, the website Life After NAMA, which is run by academics based at NUI Maynooth, concluded that there were 302,625 empty housing units in the State, and again this figure was exclusive of holiday homes.108 Large swathes of Ireland, entire communities, were being used solely as tax avoidance by investors, who had been encouraged for decades to do so by successive Irish governments.
By 2007, it was obvious that the Irish property bubble was about to burst. In an article for The Irish Times, the UCD economist Morgan Kelly wrote that ‘The question is no longer whether the Irish property market will have a soft landing or a hard landing but what kind of hard landing it will have’.109 He pointed out the high level of vacant houses in the State, and that ‘almost none of the 70,000 or so new units built this year have been sold’. His was a pessimistic, yet entirely realistic, assessment of the situation, and as such was roundly criticised and dismissed by the economic experts who were brought in to undermine any realistic attempt to understand the true dynamics of the Irish economy. The chief economist with IIB Bank, Austin Hughes, said that ‘The proportion of unoccupied dwellings here is slightly below the EU average’ and that ‘a surge in spending power that made ownership of holiday homes and accommodation for children at college almost commonplace is one element in this rise in so-called “empty” homes’. In July of that year, the Taoiseach, Bertie Ahern, told a conference of the Irish Congress of Trade Unions that he was fed up with those who spoke of serious problem within the Irish economy. He said that ‘sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide, because frankly the only thing that motivates me is being able to actively change something.’ Fourteen months later, the Irish banks would need the largest bail-out in the history of the Irish State, and the property market was on its slide towards disaster.
The 2002 census contained an interesting statistic. Irish owner-occupancy levels had dropped in the 1990s, from a high of 79 per cent in 1991, to 77 per cent ten years later.110 By 2006, owner-occupancy stood at just under 74 per cent. In EU terms, Ireland was eighteenth in homeownership levels, out of twenty-nine nations listed by Eurostat.111 Ireland was bucking European trends with a declining level of home ownership, yet the popular narrative has Ireland with the highest rate of home ownership in Europe and, unlike the rest of Europe, obsessed with owning their homes. It does not matter that seventeen other countries – Spain, Italy, Greece, Portugal, Norway, Cyprus, Malta, Iceland, Latvia, Romania, Lithuania, Poland, Bulgaria, Estonia, Hungary, Slovenia and Slovakia – all have higher rates of home ownership than Ireland or that the EU average rate is 76 per cent. Never let the facts get in the way of a story.
On 8 June 2006, The Irish Times printed a report by John Holden which perfectly reflected the blend of dinner-party philosophising and lazy assumptions that has come to characterise so much of the public narrative on Irish housing. He stated that Ireland, ‘at 77 per cent has one of the highest rates of home ownership in Europe,’ that ‘home ownership is by no means an international preoccupation,’ and that ‘The Plantation, Land Wars, and the famine years are certain to have had some impact on every Irishman wanting his own plot’. He made the argument for a historical obsession with land after interviewing P.J. Drudy of the Centre for Urban and Regional Studies, who said that Irish people buy their dwelling as ‘there is not great incentive to get into private rental accommodation. The standard is not good enough, particularly at the lower end, and the rents are as high as average mortgage repayments.’ Michael Dowling of the Independent Advisers’ Federation said that ‘Irish people have seen the returns on property and so continue to keep the market buoyant’ and that ‘other European cultures are less interested in property [as an investment]. They tend to invest more in business and enterprise.’ Professor Musterd of the University of Amsterdam told Holden that home ownership in Europe isn’t all related ‘to a history of oppression or landlessness’. All to little avail. The factual myths and pseudo-historical analysis carried the day.
Later that year, the Chief Executive of the Irish Bankers’ Federation, Pat Farrell, said that Ireland’s home-ownership level stood at 82 per cent, and that the EU average was 63.5 per cent (75 and 66 per cent respectively). He went on to say that the growth in wages was a key factor in driving the demand for housing, and that any curtailment of prices and 100 per cent mortgages would be against the national interest. In 2009, the deputy editor of The Irish Times, Fintan O’Toole, said that ‘87 per cent of Irish households own their own homes, compared to an EU average of 61 per cent.’112 These myths and made-up figures were bandied about as if they expressed some profound truth about the Irish people, even though the home-ownership figures related not to the island of Ireland but to the twenty-six counties. Not only was owner-occupancy part of the Irish gene, apparently so was partition.
Yet we have seen that it took decades to convince the urban working class that home ownership was one of their innate desires. In the end it was the privatisation of urban public housing in the 1960s and ’70s which led to the rise in home-ownership levels, going from 25 per cent in urban areas in 1961 to over 75 per cent in 1986. By then, a private mortgage was effectively the only route open to families who needed a house, and public housing had become a by-word for poverty and violence. The middle classes had won. It had taken seventy years, but Ireland had become ‘respectable’. It had become a nation of homeowners, living mainly in suburbs with a modicum of facilities and infrastructure, the likes of which would have horrified Ebenezer Howard.
However, housing cannot be explained simply in terms of itself. It is both a social necessity and an economic activity. Its development in Ireland in the twentieth century cannot be separated from these two spheres. The key elements of the official narrative of the banking crisis and property collapse – that Irish commercial and residential property prices lost all contact with value and demand and by doing so crippled an economy, and that the Irish State must nationalise those losses while protecting the rights of private property – are not the result of the need for housing in the cities. But this is the way that the banking crisis is explained; that ‘we lost the run of ourselves’ and ‘we all went crazy’ with buying houses. The Irish housing market recorded its highest ever level in 2007, with the average price for new and second-hand houses at €322,634 and €377,850 respectively. These figures dropped by between 5 and 7 per cent in 2008, and by October 2010 the average price had dropped below €200,000 for the first time in eight years. At least 150,000 Irish householders were now in negative equity. Yet in 2007 the median wage in Ireland – that is, the 50 per cent mark – was €25,000 before tax, and €29,000 for those in employment for more than one year. At the height of the boom, Irish property prices were between eleven and fifteen times the median wage. Where was the money coming from? And why was this actively encouraged by succ
essive governments via national economic policy?
The myths which saturate the subject of housing in Ireland, the false histories and pop psychologies, the sheer laziness of analysis which is brought to bear on the topic, these have been the concerns of this chapter. It has been an attempt to give an overview of the actual development of housing in Ireland over the past ninety years based on the facts, and not fantastical assumptions such as an Irish property gene which dates back to the famine, but only in the twenty-six counties, and is somehow different and unique to similar patterns of home ownership in the rest of Europe. However, a picture of what happened, no matter how factual it may be, is not an explanation of why things happened. We have to look at the Irish economy, its history and dynamics, in order to make sense of why the Irish housing market and subsequent property bubble turned out the way it did, and why the bank guarantee and NAMA were pushed through as solutions, with total disregard to the predicted effects and consequences. And in order to get to grips with the economic development of Ireland in the twentieth century, to tease out the dynamics which surrounded government policy, we need to go back to agriculture and the livestock exports which dominated the Irish economy until the 1970s, when foreign investment and industrial exports finally took over. No more glib and easy answers. No more mythical DNA. We need to look at how the machine worked, and why it worked the way it did.
2
AGRICULTURE
The popular narrative of the Irish economy in the twentieth century has the State as inward-looking and protectionist until the arrival of Whitaker and Lemass to positions of leadership in the late 1950s, which propelled the country into the modern era. The details and complexity of the story may vary from teller to teller, but essentially that’s the tale.
But Ireland was always part of the modern era. Its role was to provide agricultural produce for the industrial centres of Britain, and this was done mainly in the form of live cattle exports. The domestic economic power blocs which developed on the back of that export trade resisted almost all attempts at either reform of that trade, or the development of other forms of trade which might jeopardise their income. The lack of a sufficiently strong industrial base to combat the self-interests of the ranchers and cattle exporters had a profound effect on the development of Ireland in the twentieth century. The Whitaker/Lemass initiative in the late 1950s and early 1960s centred on the development of a ‘third way’ for the Irish economy.
Instead of creating export-led industries which would have lessened the State’s reliance on Britain and countered the economic power of the live cattle exporters, Whitaker/Lemass decided on the importation of fully developed, and foreign-owned, companies which would give Ireland an industrial presence without any of the pain of self-development. However, the main boost to the Irish economy was not so much the new factories, but the construction of these new factories – the majority of which, especially the pharmaceuticals, did not source their raw materials from Ireland. Furthermore, the development of secondary industries surrounding the transplanted factories was neglected to almost a criminal degree. Builders and contractors, land speculators, banks and financial institutions, import and export service providers – these were the main beneficiaries of the Whitaker/Lemass revolution.
What we see in the 1960s and early 1970s is the development of an indigenous industrial class which is adept mainly at providing financial, building and port services, rather than actual goods.1 An economic model such as this, which is overly reliant on construction as its base, is a recipe for boom/bust disaster, and that, unfortunately, has been the Irish experience for the past forty years.
THE RISE OF THE GRAZIER
‘The grazier lives at ease, and the poverty in the district is a disgrace to human nature.’2
John Quin, Esq., land proprietor, County Wicklow, 1847.
Speaking in the Dáil in 1922, the Cumann na nGaedheal TD J.J. Burke said that agriculture was ‘The rock on which our economic structure rests … the one sound and staple thing in the present welter of commercial uncertainty and insecurity’.3 The Free State’s economic links were such that in 1924, Britain and Northern Ireland accounted for 98 per cent of the total export sales of £51.58 million.4 Agriculture accounted for 86 per cent of that figure. Live cattle export sales that year mounted to £17.2 million, or 35 per cent of the total amount.5
According to the 1926 census, there were around 25,000 graziers in the Irish Free State at that time.6 Their status and income were dependent on the exportation of live cattle to Britain, and they did everything they could to protect that trade, often at great expense to the rest of the country. In the eyes of the rancher, the natural business of Irish agriculture was pasture. It was God’s will that Ireland was such a lush and green country. Cattle fattening was the natural order of things; the best utilisation of Ireland’s blessings. It was providence that made Ireland the way it was, and it was simply providence that ranchers were able to make millions from such opulent blessings. At the same time, it was an unfortunate providence that consigned those not provident enough to be cattle ranchers to poverty and emigration. God had blessed the Irish, it seems; he just hadn’t blessed all of them.
Yet, no matter how green the grass grew, no matter how flat the fields were, there was nothing natural about the Irish live cattle trade. It was a modern industrial assembly line, one which stretched for hundreds of miles, from the smallholders of Sligo to the slaughterhouses of Deptford, and one for which the cattle ranchers supplied the raw material. The graziers did not produce beef. They did not produce shelf-ready products. They exported livestock to British fatteners and slaughterhouses, and it was there that the products which ended up on the kitchen table were made. This system of production had deep historical roots – so much so that almost all attempts to disentangle the Irish economy from such a lopsided relationship as one which saw calves on grass as the ne plus ultra of agricultural and industrial ambition, were completely frustrated up until the 1950s, at which stage the importation of foreign industry was put forward as the seemingly perfect partner to the livestock business.
Although not a straight line by any means, the first hints of this assembly line can be seen as far back as the early 1700s. This does not mean that the move to open up Ireland to foreign investment in the 1950s was caused by the Cromwellian invasion and the Battle of the Boyne – that is not how history works; it’s not a game of pool where one event hits off the other causing it to move. Rather we need to go back to the 1700s in order to observe how deep the roots run of the ‘middleman’ or comprador class in Ireland, as well as those of the grazier – as deep, in fact, as the factory owner in England. This is not surprising, as they are interrelated, albeit in a highly unequal way. In historical terms, to mangle a phrase, England’s opportunity was Ireland’s difficulty, never the other way around.
In 1687, Sir William Petty suggested that Ireland should be a cattle ranch for Britain. That year he published A Treatise of Ireland, in which he proposed the transportation of a million people from Ireland to the UK, where they would live ‘in a more cultivated country, and in more elegant company and variety of entertainments’, leaving 300,000 behind as herdsmen and dairywomen to help ‘breed and feed 6 million of beefes [sic] of 3-years-old a piece’. The reasons for this were not just economic. Petty wanted:
… to cut up the roots of those evils in Ireland, which by differences of births, extractions, manners, languages, customs, and religions, have continually wasted the blood and treasure of both nations for above 500 years; and have made Ireland, for the most part, a diminution and a burthen, not an advantage, to England.7
His plan was never implemented – at least not in the way that he envisioned – but three key elements did remain up to the middle of the twentieth century: to Britain, Ireland was a source of trouble, a source of labour, and a source of food. The idea that it was the job of Ireland to provide for England was one that proved stubbornly resistant to the passing of time.
The def
eat of the Irish confederate forces and subsequent Cromwellian settlement (1649-62) saw an upheaval in Irish land ownership. The soldiers of the New Model Army who fought during the campaign were given land as payment for services. ‘Adventurers who had helped to finance the military campaign in Ireland,’ writes the historian Donald Woodward, ‘soldiers, and those who bought them out, replaced many of the previous landowners.’8 It should be noted that the change in land ownership did not mean dispossession for the majority of Irish people, simply because the majority of Irish people were not landowners. The Cromwellian settlement meant a change in ownership, but it also meant a change in landlord, and with this a new dynamic enters Irish social and economic life.
Most of these new landowners did not cultivate the land themselves. They were, after all, soldiers, not farmers. ‘Owing to the uncertainty of their possessions and, perhaps, lack of ability,’ writes Woodward, ‘they mostly confined their activities to stock raising and letting land at high rents to the Irish.’ A lot of the new landlords were absentee, and so they relied on Irish agents to let the land and administer their affairs. These intermediaries, or middlemen, became a significant presence in Irish agriculture, often letting vast tracts of land from English-based landlords, and then subletting that land to Irish tenants. These rents needed to be paid with coins, and so for the tenant-farmer the rearing of cattle became a commercial necessity. Cattle was soon a cash crop for the payment of rent, and by the late 1660s the new landowners were claiming that cattle exporting was their chief trade.9 Pastoral (or livestock) farming required less effort and less commitment than tillage, and was ‘much better fitted to the condition of men who were consigned to a fugitive property’.10 They invested little time in fattening, preferring to breed livestock for quick export, the trade in which ‘was so flourishing that it seemed scarcely worthwhile to spend money in fattening in order to procure good meat and dairy produce for sale abroad’.11