The winners and losers of the property game
Young buyers are stretcing themselves financially to buy property, enriching developers pockets at the same time. By Joe Higgins
Without knowing it, tens of thousands of average paid workers in this State are financing fabulous property developments all over the world. They are responsible for landmark buildings, prestige commercial arcades and plush residential developments in, among other places, London, New York, Prague and even China.
They have no title to these developments and do not share in the massive wealth they generate. That privilege belongs to the Irish developers who put the deals together and are building the projects. But the billions which they are investing have come from the massive profits they made in the Irish housing market, squeezed for the most part , out of working people through savage house prices and savage rents over the last 10 years.
This is the picture that emerges clearly from the series of articles which the Irish Times ran recently, profiling the wealthiest developers in the State. Although only six principal companies were featured, they account for billions invested in property and building abroad. And there are many more.
Over the last 10 years the housing market in Ireland was like a conveyor belt relentlessly transferring fortunes from young people buying new houses into the pockets of land speculators and major developers. The unrestrained greed in the market meant, that in many new housing estates, the developers had the equivalent of the price of every second house in profit.
This orgy of profiteering on a most fundamental human need has placed a massive burden on the shoulders of the younger generation. Many have been forced to take out mortgages for a duration of 40 years.
Last year the average price of a new house in greater Dublin was €375,000. Over forty years with a stable interest rate of 4 per cent total repayment on a full mortgage would amount to €750,000 and if the interest averaged 6 per cent that would be €1 million! The developers have enriched themselves beyond anything that they could have imagined 20 years ago. The banks and lending institutions have equally gorged themselves at the profit fest but, between them, they have shackled a generation of workers now in their twenties or early thirties to punishing mortgages for a substantial part of their lives.
One of the most shocking aspects of Ireland's house price scandal over the last 10 years is that no significant institution in society raised a voice in protest. The establishment politicians connived in the rip off. What has emerged in the Planning Tribunal in terms of developers bribing councillors from Fianna Fáil and Fine Gael is only a fraction of the story. Far more fundamental is the relationship that has existed for decades between the right-wing parties, especially Fianna Fáil, and developers. When the Gallaghers, house builders, facilitated Charles Haughey in lucrative land deals in the late 1950s and early 1960s a process began whereby developers commanded huge political clout and that continues to the present day. They were left to build large swathes of suburban housing, especially in Dublin, with virtually no physical or social infrastructure. Any suggestion that land speculation be outlawed and the price of building land controlled was thwarted. Today we are reaping the bitter rewards.
Debilitating traffic gridlock due to inadequate public transport and the Department of Education obliged to pay gigantic prices for new school sites are only two aspects of the legacy.
At first glance it might seem strange that no section of the media has done a thorough investigation and exposé of the real level of profiteering that has gone on. It would, for example, have been possible to do in depth features on some major housing developments, calculate the price of the land and construction costs and lay bare the vast fortunes being raked in by the developers and the bankers. It would have been possible to graphically contrast the fabulous wealth of the developers with the hard struggle of first time house buyers to make the mortgage payments each month.
In fact, many sections of the media, especially the print media, are heavily implicated in the scandal. All the main newspapers carry large property supplements each week. The bulk of advertising which they carry and from which they make substantial profits, is placed by developers and auctioneers. This is deeply compromising and has ensured that they do not bite the hand that feeds by exposing the extent of the rip off.
The utter immorality of all this is also clouded by virtue of the fact that involvement in speculation goes to the very heart of the establishment. It was a group of top doctors, lawyers and businessmen who bought 11 acres of building land in Stillorgan in 2001 for €52 million and four years later sold it for €85 million, a speculative profit of €53million. When eventually houses and apartments are built there, the young people buying them will spend decades struggling to pay the price of this profiteering. When these people were called ‘parasites' in the Dáil, the Ceann Comhairle objected.
The spiral of speculation and profiteering will crash of course. To what degree we do not yet know. Those who will be hurt will be young house owners left with negative equity and construction workers thrown on the dole. But the fortunes they made for the developers will be well salted away.
Speculating on building land and profiteering in housing should be outlawed. Urban building land should be taken into public land banks and major housing projects should be planned and built by publicly owned, and democratically run, construction companies. In this way housing need can be met at affordable prices with high standards and all necessary infrastructure included.
Joe Higgins is the former Socialist Party TD for Dublin West and currently writes a column every Wednesday in the Daily Mail.