Profiteering makes houses unaffordable

By Diana O’Dwyer

Nothing better exposes the failure of capitalism to deliver for working class people in Ireland than the housing saga of the last twenty years. First came a giant credit bubble blown up by landowners, builders, developers, property speculators, landlords and banks. Cheering them on were the establishment parties, themselves consisting largely of landlords and property-owners.

Corruption and greed fuel bubble

Between the early 1990s and mid-2000s, land costs ballooned from 15% of the cost of a new house up to 40-50%. Farmers and other landowners laughed all the way to the bank as developers amassed huge land banks. A third of donations to Fianna Fáil came from builders and developers and councillors routinely accepted bribes to rezone land for development. With the stroke of a pen, this netted the developer a parasitic windfall of up to 1000% so it was well worth a few brown envelopes.

Such crony capitalism made everyone involved filthy rich. Fuelled by all the cash sloshing around the financial markets due to rising global wealth inequality, it inflated a gigantic credit and property bubble. Because the more they lend, the more they earn in interest, the banks recklessly lent out as much they could get. From 2000-2007, Irish bank lending more than tripled to almost €400bn, while profits amounted to €21bn from 2003-8. 60% of lending was property-related and over half that was to developers and landlords not ordinary mortgage holders. The top twenty customers accounted for half of Anglo’s Irish loan book!

From boom to bust

Spurred on by half a billion euros in property-related tax breaks, all this speculation and profiteering drove new house prices up from four times the average industrial wage in 1996 to ten times it in 2007. All the while, the government assured us the problem was lack of supply and builders and developers must be incentivised to build more houses. But as they rushed to get in on the pyramid scheme before it inevitably collapsed, the end result was ghost estates and 230,000 empty houses.

Fast-forward to 2015 and house prices have fallen but housing is more unaffordable because incomes are down 20% due to wage cuts and austerity taxes. Hardly anyone can afford a mortgage and the government stopped building council housing to save the money for the banks, so the numbers renting are up 240,000 in eighteen months. In Dublin, rents are back to bubble levels and 130,000 households are waiting for non-existent council housing.

No reliance on private market

Again the politicians are telling us it’s all a question of supply and the solution is to incentivise developers and landlords with tax breaks to make property speculation profitable again. Apparently, profit margins of 40-50% aren’t sufficient because lenders are charging developers 15% interest.  Mulryan is back building houses after NAMA (coincidentally devised by long-time Ballymore director, Peter Bacon!) paid him €200,000 a year and saved him from bankruptcy. He’s warned though that he’s finding “affordable new-house building difficult to deliver”.

Clearly, capitalists like him are the cause of the housing crisis not the solution. What’s needed is large scale state investment to directly build 100,000 houses for less than half the cost by eliminating all the layers of profiteering that make housing unaffordable. We cannot rely on the private construction industry to build affordable houses, it should be nationalised so that their resources can provide affordable homes for all.