Home Is Where the Debt Is

by Longman Oz

Wednesday, July 08, 2009 at 07:20 PM EDT

Property is organised robbery.

- George Bernard Shaw

In 1943, American psychologist Abraham Maslow published his theory of the hierarchy of human needs. At the bottom of this pyramid-shaped pecking order were our physiological (i.e. most basic) requirements, including the need for shelter. Now, while it would be excessively facile to consider the need for residential property as merely being the provision of a roof over someone’s head, it is reasonable to view housing as also being central to the preservation of our private lives and the protection of our families’ well-being. In other words, housing is, first and foremost, a fundamental social necessity.

Writing in The Irish Times last week, columnist Fintan O’Toole referred to the change in Irish government policy in the 1990s away from seeing houses as such a social necessity and treating them more as commodities. He described the new policy as being both “socially unjust” and “economically disastrous”. Moreover, the first-hand evidence that we are now confronted with in Ireland would support both of these contentions.

The Violet Beauregarde Years

Yet, for a decade, treating houses as commodities allowed the economy to expand at a phenomenal rate, gave employment to tens of thousands, and made millionaires-on-paper out of just as many more. It also allowed a select number of individuals to earn a veritable fortune and it generated the unprecedented levels of tax income that Fianna Fail used with great largesse on the way to winning three straight terms in government.

While the number of critical voices about such policies grew over time, there was always a phalanx of neo-liberal economists on hand to assuage such fears. Uneasiness over the vested interests of such experts was ultimately set aside in favour of pleasant-sounding concepts such as “soft landings” and “moderate growth prospects in the medium-term”. In effect, heads were simply stuck into the sand, where the shallow foundations of this illusory and now derisory economic miracle were already to be found.

Pasta Strands & The Art of Motorcycle Economics

Now, this may all seem like old hat at this stage. After all, acres of newsprint, gigabytes of online space, and eons of broadcasting time have already been given over to the root causes of the economic mess that we now find ourselves in.

Yet, despite the reams and reams of analysis, I am not yet sure that the message has truly sunken in yet with respect to the role and value of property in Irish society. For example, take this revealing set of remarks from a Wexford estate agent, as quoted in an article in last weekend’s The Sunday Tribune (the emphasis below is my own).

According to local estate agent Paul Doyle, the Coill Na Giúise development is one example of many houses which currently lie dormant in the Wexford area. “There are a lot of houses waiting to be sold, and though there is a trickle of uptake in those moving for necessity, there is without a doubt a backlog.” Doyle believes that in an effort to sell these houses, many owners have slashed the prices by up to 40%. “The asking price nowadays shows a reduction in cost of between 25% and 35%. However, when it comes to the sale, the true figure will stand at 40%.”

Doyle also says that a lack of financial assistance from the banks is keeping these properties stagnant. “I have been dealing with one customer who was previously approved for a €650,000 loan. Now, all he can secure is €370,000. The aid is not there for buyers and it means a lot of empty and unused properties remain. We are hoping that over the next few months assistance will become available again and that maybe we can kick-start the market and get these houses occupied.”

Naturally, it is not lost on me that an estate agent comes with a clear set of professional biases on this subject. However, Mr. Doyle is not alone in thinking that it is the buyers who are the cause of the problems in the market, because they are suddenly unable to afford the bloated house prices of recent years, and not the sellers for still living in a wonderfully sunny land where property prices only ever appreciate. Another institution still keen to extol the virtues of increasing home ownership is Fine Gael.

In its Rebuilding Ireland (yes, they really did call it that) set of economic proposals, published in March 2009, Fine Gael said that it would create a new State-owned bank whose purpose would be to inter alia “kick-start the home mortgage market by offering standard mortgages at competitive rates”. Whereas Mr. Doyle may be somewhat forgiven for promoting policies that put bread on his table, it should not be the role of the State to be providing the fuel once more to a bonfire that has already burned dangerously out of control for so long. After all, it was the noodle-headed proposal to abolish stamp duty for first-time buyers that drove the market to its highest peak in 2007.

Speaking of spaghetti-for-brains, Fianna Fail has been shamefully resolute in maintaining the line that this crisis was essentially caused by international economic conditions and that the party’s current low standing in the polls comes as a result of the controversial “tough decisions” that they have been making. Even by their impressive standards of arrogance and contempt for the electorate’s intelligence, it is a brazen and risky strategy to be so doggedly pursuing. So much so, that I wonder if they might even believe it!

Expecting the Worst, but Preparing for the Best

The reason for saying this is that below the topsoil of pessimistic grumbling and muted despair that characterises many Irish people’s attitude towards the current crisis , there still lies a bedrock of belief that this recession is a nasty but temporary slump from which the Irish economy will recover reasonably quickly once the international one starts to pick up again.

How do I know this? Well, it is because they are bloody well not out on the streets screaming blue murder in protest at the almighty and lengthy shafting that has still to come their way, even after the severe budget measures of this year. Here are a few examples of what I mean by this:

• Writing in last Friday’s The Irish Times, Professor Morgan Kelly described the implications of going down the route of NAMA as “paying 10 per cent more income tax annually for the next decade”;
• The infamous An Bord Snip Nua is believed to have identified €5 billion of public sector cuts in the report that it is submitting to government. These are widely anticipated to include further public sector pay cuts, as well as substantial social welfare cuts;
• In a report that was overshadowed by the one published on the same day by the IMF, Standard & Poor’s forecast that the huge property overhang at present will continue to cause contraction in house prices until the start of 2011 (they are probably being optimistic, given that we are currently at the bottom of the interest rate cycle, there is huge unemployment, and many people’s net incomes are about to be cut further by the Government); and
• Also reacting to this property overhang in the same article as above, Professor Kelly forecast little new house building for a decade, with some unoccupied apartment blocks decaying into slums, whilst similarly empty buildings in rural Ireland will never be inhabited now.

Loosely employing Elisabeth Kübler-Ross’ “five stages of grief” model to this situation, most people still seem mired anywhere between (unfocused) anger and (sullen) depression and very few have moved onto acceptance just yet. Or, to use a different analogy, the doctors may have diagnosed the Celtic Tiger as suffering from a chronic case of viral pneumonia, but there is a deep-rooted hope out there that this may still just be a bad dose of the flu.

A final way to describe it (simply because I am having fun with this) would be as the romantic strain of groundless optimism that frequently pops up in the psyche of Irish people whenever they find that their backs are to the wall…

Greed in the Time of Famine

I would not deny that there is such a thing as a folk memory and that the psychological impact of difficult times can still be found generations after those events have occurred. For sure, the fact that Irish society can be generally classified as conservative, unimaginative, and parochial is definitely born of a cultural and historical legacy. It is equally the sort of mindset that will prefer to invest in its own patch of bricks-and-mortar, rather than quality public services. Fianna Fail, Fine Gael, and the property developers are born of this mentality. They also understand how to exploit this mentality.

However, I have always felt that too much play has been made in the media of how terrible incidents from our past affect our approach to home ownership today. Indeed, this interesting article from June 2007 by Conor McCabe would support that contention.

In my opinion, it may have been a degree of atavism that encouraged people to invest in property, but it was avarice that led to the phenomenal price increases and the explosion of people both flipping properties and looking to own portfolios of buy-to-let accommodation both here and abroad.

The fact that no one in a position of authority seriously questioned the economic wisdom of what was happening to the market and, by extention, society at large (e.g. 100% mortgages, 40-year mortages, parental guarantees, hours of commuting daily, no long-term planning for the services these new estates would need) represents the greatest failure of public policy that this State has endured since its foundation. The fact that the government of the day was complicit in fueling the property boom merely compounds what was already a grave misjudgment on its part.

As Thick As Bricks?

However, despite all of this, why does it still feel like nothing is truly changing with respect to our attitude towards home ownership, property price appreciation, and the desire to be always taking on more debt and trading upwards? What lessons are we actually learning as a society from what has happened here over the past decade? Where are the progressive politicians and academics with clearly communicated proposals for how the housing market should now function and how it should now be regulated?

Indeed, by way of some further food for thought, why is it that the Swedes seem to have been able to internalise the lessons from their property market crash of 1992, while the British ended up making the same mistakes all over again a generation later – arguably, in even worse fashion?

In that respect, it is certainly worth recalling what George Santayana had to say on this subject - ”those who cannot remember the past are condemned to repeat it.”

This article originally appeared on No Ordinary Fool.