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(en) Britain, Anarchist Federation, Organise! magazine #75 - Bubbles, Booms and Busts by GREGOR KERR

Date Fri, 29 Oct 2010 09:42:08 +0200

The years from 1995 to 2007 saw record levels of housing construction in Ireland. Construction output went up, land and house prices mushroomed and it seemed as if there was a never-ending bandwagon on which everyone was going to get rich by simply waiting for their pile of bricks to increase in value. ---- A whole new lexicon of terms and vocabulary entered the everyday parlance – terms such as ‘starter home’, ‘property ladder’, ‘first time buyer’; Newspeak phrases such as ‘affordable housing’ were bandied about. Houses and housing estates were advertised for sale by estate agents and property developers with colourful banner headlines and slogans such as ‘live the dream’, ‘live the lifestyle’ – it was almost explicitly stated that even the dreary Irish weather could be by-passed by buying an apartment or house in the latest development.

It seemed as if the dream would go
on forever. But in mid 2007, disaster
struck. With the onset of the world-
wide recession, Ireland’s very own
property bubble burst with a huge
bang and left only destruction behind
it. The dream turned to a nightmare
for many people and the vocabulary
was now dominated by terms such as
‘negative equity’, ‘ghost estates’ and
‘price collapse’.

And it wasn’t just those directly ef-
fected who felt the chill wind. As the
construction boom shuddered to an
abrupt halt, an economy hugely de-
pendent on construction employment
saw large numbers of people thrown
onto the unemployment queues. The
taxation system, dependent for years
on property transaction taxes such as
stamp duty (a tax on house purchas-
es) to offset the reduction of income
taxes in line with neoliberal ‘low-tax’
politics, suddenly found itself grossly


Amazingly, in the midst of the past
construction frenzy, homelessness had
increased, the numbers of families liv-
ing in temporary accommodation shot
up and the numbers on local author-
ity housing waiting lists went out of
control. At the same time, the private
rented sector went through a boom of
its own. But without proper standards
or regulation, thousands of fami-
lies found themselves forced to pay
astronomical rents for poor standard

Landlords in the private rented sector
were major beneficiaries of state aid
through the Supplementary Welfare
Allowance which saw, and continues
to see, vast amounts of taxpayers’
money handed over to wealthy land-
lords, many of whom were able to use
it to build up large banks of proper-
ties – a classic case of welfare for the
rich. Bearing no connection what-
soever to the reality of people’s lives
and incomes, average rents in Dublin
increased by a staggering 53% in the
3 years between 1998 and 2001.

By 2005, the State was paying a total of €350million
per annum to private landlords in rent subsidies and
a further €20million was being paid to the owners of
Bed & Breakfasts for emergency accommodation.[1]

“The number of people who were homeless doubled
during the Celtic Tiger years (from 2,500 in 1996 to
over 5,000 in 2008) as they were squeezed out of the
private rental market. Those on low incomes found
that they could afford only dingy bed-sits, unfit for
human habitation, tiny, damp, mouse-ridden, with
little heating …. illegal sub-standard accommodation,
paid for by the State! Exploitative landlords became
millionaires, with tax-payers’ money, by providing
appalling accommodation to those who had no other
choice. While City Council slums were being demol-
ished, new slums in the private rented sector were
being created.”

The numbers in need of housing have continued to
rise, with Focus Ireland estimating that there are
currently 5,000 people homeless and almost 100,000
people on local authority housing waiting lists.


Property developers had become the new elite as farm
land changed hands for lottery-type prices. All that
was necessary was to have the land rezoned from
agricultural use to ‘development’. And with such vast
sums of money to be made from rezoning, it was no
surprise that local councillors who had the power to
rezone were much sought after and sought much

Many ‘ordinary people’ bought into the dream. People
queued overnight to purchase apartments and houses
in new developments. ‘Units’ were purchased off the
plans by people who never had any intention of com-
pleting the purchase, but knew that all they had to do
was put down the deposit and when the houses/apart-
ments were actually built they’d be able to sell them
on at a profit.

The frenzy even spread outside of the borders of the
country. Eastern Europe became the new frontier and
Irish people snapped up ‘investment properties’ in
Bulgaria, Poland and elsewhere.

[1] TASC: “Out of Reach: Inequalities in the Irish
Housing System” by P.J. Drudy and Michael
Punch, 2005
[2] Jesuit Centre for Faith & Justice “The Irish
Housing System Vision, Values, Reality,” Fore-
word by Fr. Peter McVerry, May 2009
[3] Available at: http://cedarlounge.wordpress.
[4] Combat Poverty Agency “Housing Poverty
and Wealth in Ireland”, 2004, P. 21

As a metaphor for all that can go wrong with the gam-
ble that is modern capitalism, the Irish property boom
and collapse provides a perfect description. As a
lesson in the manner in which such financial gambling
impacts severely on the lives and living standards of
ordinary people while making multi-millionaires out
of a small number of people, it stands unparalleled.
And, above all, it showed us how large numbers of
people can be sold a lie, how they can buy into the
idea of certain riches.

In one of the most bizarre outcomes, local authorities
found themselves with stocks of ‘social and affordable
housing’, bought from developers before completion,
for which the ‘affordable’ price was now higher than
the collapsed market price.


To fully understand what happened in those crazy
years, it’s necessary to go back a number of decades
and to try to understand why home ownership in
Ireland is so important, and why, uniquely in Europe,
the policy of home ownership rather than long-term
renting became part of the Irish psyche.

In the early 1900s, housing in Ireland’s capital city,
Dublin, was renowned for its poor standard. Dublin’s
slum housing provided the backdrop for the great
lockout of 1913 which saw the fledgling trade union
movement take on the might of Dublin’s employer
class, with the employers led by William Martin Mur-
phy, himself a notorious slum landlord.

This housing situation continued into the early years
of the new Irish ‘Free State’ in the 1920s and 1930s.
In the 1940s some small effort was made to address
the problem but in reality it was the 1960s before any
real effort at slum clearance got under way.

There was by then a real housing crisis in Ireland as
a result of landlords being allowed to charge uncon-
trolled rents for unregulated and hugely sub-standard
properties, and a complete lack of an adequate social
housing building programme. This led to the forma-
tion of the Dublin Housing Action Committee which
agitated for reform and took the direct action of
squatting in empty property and encouraging home-
less families to force the provision of housing onto the
political agenda.

In the first edition of its publication, The Squatter [3],
published in June 1969, the D.H.A.C. called on home-
less families to squat empty property:
“The D.H.A.C. would like to see people squatting in
some of the empty, surplus property owned by the
foreign bums and parasites who have come in here
to tear our city to shreds in order to build gaudy of-
fice blocks and expensive hotels. We say that the
idle, surplus property of any big speculating landlord
should be squatted in. People come before profits,
and the worker’s natural right to proper accommoda-
tion comes before the legal rights of Landlords.”
Similar campaigning groups were formed at the time
in Cork, Derry and Dun Laoghaire.


Things were so bad on the housing front that even-
tually the government had to act and a huge pro-
gramme of local authority house building got under-
way, leading to the development of new suburbs such
as Ballymun, Clondalkin and Tallaght. While there
were serious deficiencies in the manner in which this
development proceeded, as vast estates were devel-
oped with no shops, public transport or employment
prospects, at least it was seen that social housing was
a necessary and important component of the delivery
of housing.

This never came however from any ideological
perspective, and the Irish political establishment
remained firmly wedded to the concept of home
ownership as opposed to renting/social housing.
Nonetheless in the 1970s and 1980s, local authori-
ties were a hugely important deliverer of housing, and
in 1975, 33% of all housing output was constructed
by local authorities. By 1985 though, this figure had
shrunk to 27%.

From the time of the 1966 Housing Act, however, local
authorities were actively promoting the privati-
sation of social housing through the medium of
tenant purchase schemes which offered subsi-
dies and incentives to local authority tenants to
purchase their homes from the local authorities
– a policy which had the obvious consequence
of reducing the overall availability of social

So while local authority house building pro-
grammes went ahead at relatively high levels
throughout the 1970s and 1980s, the rate at
which houses were being sold meant that the
actual numbers of public or social houses in the
national housing stock remained static at about
100,000 units. Private housing output also
grew during this period with the consequence
that social housing fell as a percentage of the
total housing stock from 18.4% in 1961 to
9.7% by 1991.


The late 1980s saw massive cutbacks in the
numbers of houses being built by the local au-
thorities. Government cutbacks in local author-
ity funding meant that local authority housing
output fell to below 10% of total output by
the end of the 1980s. In addition, a renewed
vigour was added to the policy of privatisation
of existing social housing.

Dublin Corporation, along with other local au-
thorities around the country, introduced a new
tenant purchase scheme in 1985 which over the
course of the following decade had the effect of
devastating the availability of social housing
“Purchase prices for local authority housing
were typically extremely favourable to tenants.

The tenant purchase scheme implemented by
Dublin Corporation in the late 1980s, for ex-
ample, entailed discounts on the market value
of housing of up to 60 per cent…..
The consequence for Irish social housing was
that by the early 1990s, of the 330,000 dwell-
ings built by local authorities over the previous
century, some 220,000 had been sold to ten-
ants….” [4]

In 1971 there were 726,400 housing units in
the country, 69% of which were owner-occu-
pied. By the early years of the new century the
stock of total housing units had risen to 1.22
million with 82% owner occupancy, and the
boom in output was still in full flow.

Now the only subsidies which the government
provided were to the builders and develop-
ers who availed of tax breaks and write-offs
to build massive numbers of houses for sale
at exorbitant prices to a population who had
bought the myth of ‘ownership’, but were doing
so in a society and in an economy where the
private sector had total control and profit was
king. This is a fact that is of crucial importance
in understanding the extent of the debt crisis
which the desire to get on ‘ the housing ladder’
has caused for ordinary people during the years
of the ‘boom’.


Mainstream political and social discourse
around housing policy in Ireland is usually
predicated on the theory that there is some-
thing uniquely Irish about our desire for home
ownership, and that unlike continental Europe-
ans we’re not really “into” either social housing
or long-term renting. Some commentators put
this down to folk memories of the Famine and
evictions by absentee landlords.

What is almost completely missing from this
superficial analysis of housing policy is the fact
that it was state subsidies and interventions
that resulted in the surge in ownership rates
in the last 30 years of the twentieth century.
Because of the government’s ideological com-
mitment to ‘ownership’, local authority tenants
were essentially able to buy houses for about
40% of the cost of building them. But when
this same drive for ‘ownership’ continued into
the years of the boom it did so in a completely
different economic climate.

Now the only subsidies which the government
provided were to the builders and develop-
ers who availed of tax breaks and write-offs
to build massive numbers of houses for sale
at exorbitant prices to a population who had
bought the myth of ‘ownership’, but were doing
so in a society and in an economy where the
private sector had total control and profit was
king. This is a fact that is of crucial importance
in understanding the extent of the debt crisis
which the desire to get on ‘ the housing ladder’
has caused for ordinary people during the years
of the ‘boom’.


The figures for the numbers of houses built in
Ireland during the boom years (1995 – 2007)
are truly mind-blowing. Just under 750,000
housing units were completed in this period
with 2006 being the peak year when over
93,000 homes were completed.

Two factors contributed to an increased de-
mand for housing. Firstly, the years 1996 to
2006 saw a dramatic demographic change
with the population increasing by about 20%,
or 800,000 people. For a place whose most
famous export had always been its people, this
level of immigration into the country was truly

“prices bore no relation
to average wages and
forced workers to take
on debt that was and
is going to cripple them
for decades to come.”

This period also saw a reduction in average
household size from 3.2 in ’96 to 2.8 in ’06.
The combined effect of these two factors was
to bring about an increase of over 30% in the
number of households. Even with this however, the
number of houses built bore little relation to the
“…house completions per 1,000 of population in
2006 were 50 per cent higher than in 2002, 137 per
cent higher than in 1996 and 292 percent higher
than in 1991”[5]

The 2006 Census showed that there were 216,533
empty housing unites in the country (excluding the
49,789 houses which were described as holiday
homes)[6]. Estimates as to the current number of
vacant houses vary with an article on the website
‘Ireland after NAMA’ assessing it to be 302,625[7].


Whatever the precise figure, it is clear that there
was absolutely no connection between demand and
supply. The normal rules of capitalism would surely
have dictated that prices should have plummeted,
but the opposite was in fact the case – as more
and more housing units were pumped out onto the
market, prices went through the sky. The hous-
ing market became a frenzy of people camping out
overnight to get the chance to buy in new develop-
ments and people paying prices that a few years
previously were not even dreamt of. Average new
house prices increased by 344% between 1994 and
2007, with prices in Dublin increasing by 408%.

These prices bore no relation to average wages and
forced workers to take on debt that was and is go-
ing to cripple them for decades to come. The table
below, taken from an article on the website “Iop-
positerish Left Review”, illustrates starkly the huge
divergence between average house prices and aver-
age wages in the years of the property bubble.[8]

International standards and ‘best practice’ has
always seen the ratio of average house price to
average income, known as the “house affordabil-
ity ratio” as being between 2.5 and 4 to 1. As can
be seen from the above graph, this ratio deviated
hugely from the norm during the bubble years.
Indeed, even as property prices started their crazy
upward movement, in 1997 the ratio was already at
5:1. And over the course of the following 10 years
the ratio shot up to over 11:1. The price of putting
a roof over one’s family’s head had truly lost all con-
nection with any level of reality.

These prices were only made possible because
banks and building societies put together finance
packages that were not dreamt of before. 100%
mortgages became the norm, the link between a
person’s income (which obviously dictated ability to
re-pay) and the amounts s/he was being lent was
stretched beyond breaking, and, most frighteningly
of all for housebuyers, 25 to 30 year mortgages
became the norm.


This has serious consequences for people. Not only
does the interest paid clock up hugely the longer
the term of the mortgage, but the proportion of a
person’s lifetime earnings paid for their house has
mushroomed compared to previous generations.
Now, as prices plummet, people find themselves
paying these massive mortgages for properties
worth a fraction of the money they have to pay to
the mortgage company or bank.

As an aside, an aspect of house prices that is never
commented on is that nobody other than the very
wealthy buys a house or apartment for the sale
price. Those of us who have to rely on mortgages
to be able to buy end up paying the sale price
plus whatever interest the mortgage company can
squeeze out of us. And as the banking crisis
has developed, one of the ways in which the
banks hope to redress their liquidity problem
is through increasing the mortgage rates they
charge their customers, despite the fact that
the rates at which they borrow has remained
relatively static.

I’ve already referred to the fact that the con-
nection between house prices and what was
considered ‘affordable’ had lost all link with
reality. Neither was there any connection be-
tween either house building costs or the con-
sumer price index (C.P.I.). Between 1994 and
2005 house prices rose four times faster than
house building costs and seven times faster
than the C.P.I.


So what were the triggers which contributed
to the property bubble? Which of them could
be put down to international trends and which
were uniquely Irish?

Firstly, land prices, especially in Dublin, went
through the sky. Between 1995 and 1998,
average development land prices went up by
approximately 200%. The portion of house
prices accounted for by land cost went up from
21% to 36% during this period. This happened
principally because a small number of develop-
ers had built up huge land banks over previous
decades and their near-monopoly position al-
lowed them to release land as they wished and
charge as they wanted.

As far back as 1974, the government-appointed
Kenny Report had recommended that all land
designated for urban development should be
compulsorily acquired by local authorities for a
controlled price. But this was never implement-
ed and by 2003, just 25 individuals or compa-
nies owned 50% of the building land in Fingal.
“With this kind of power, the landowners were
able to push up the prices they got from build-
ers. Before the boom, land made up about 10
to 15 per cent of the cost of a house. At the
height of the boom, it made up a breathtaking
40 to 50 per cent. Given the huge absolute rise
in house prices, this generated vast profits for
those who controlled the land.”[9]


Probably the greatest driving force behind the
building frenzy was the array of tax incen-
tives which the government made available to
property developers. The 1981 Finance Act
introduced what were called “Section 23” incen-
tives which provided tax relief for the capital
expenditure incurred in the construction, re-
furbishment or conversion of rented residential
accommodation. The 1986 Urban Renewal Act
ensured that “Section 23” incentives were con-
centrated in urban areas. And in subsequent
years, a succession of urban renewal, rural re-
newal, seaside area and town renewal schemes
were introduced.

“Section 23 allowed investors to write off all
but the site costs of an apartment or town
house against their total rental income in the
first year, including rents from other properties
owned, with any unused tax relief being carried
forward indefinitely. After a slow start, Section
23 eventually became one of the main drivers
of development, with investors often snapping
up the lion’s share of new housing schemes.
And, as if this wasn’t enough to keep the de-
velopers happy, further tax breaks were made
available over the years for multi-storey car
parks, holiday homes in jaded seaside resorts,
hotels anywhere and everywhere, and student
accommodation. In most cases, these incen-
tives meant that the capital cost of qualifying
new developments could be written off against
an investor’s tax liability over a 10-year period.
What’s more, anyone leasing office or retail
space in a designated area got tax allowances
equivalent to double their annual rent bill and
didn’t have to pay a penny in commercial rates
for ten years.”[10]

These tax incentives proved very costly to the
State; a review carried out by Goodbody Eco-
nomic Consultants in February 2006 concluded
that they cost the Exchequer almost €2 billion
in tax foregone – another example of welfare
for the wealthy. This equated to a handout of
over €40,000 per residential unit – handed to
the developer by the state, added to the price
paid by the purchaser.

This level of tax incentivisation of investment
meant that up to 90% of the tax-subsidised
properties were purchased as investment,
freezing out first-time buyers and resulting in
windfall profits for landowners.


By virtue of space, this article can only touch
briefly on what proved to be a period of mas-
sive gambling in the history of modern Irish
and European capitalism. It was a gamble that
paid off massively for a small number of people
and cost the majority of us huge losses. When
Lehman Brothers collapsed as a result of the
gamble that was and is international capitalism,
the Irish property bubble exploded spectacu-

Irish capitalism has never had a housing policy.
Rather than housing being seen as a way of
providing homes and shelter for the citizenry, it
was instead seen to be a way of making money.
The U.S. economy had its sub-prime mort-
gages, the Irish economy had its tax incentives
and land rezoning – two sides of the same coin
which resulted in economic misery which will
last for generations.

[5] Jesuit Centre for faith & Justice op.cit. P. 3
[6] see http://beyond2020.cso.ie/Census/TableView-
[7] http://irelandafternama.wordpress.
[8] see http://www.irishleftreview.org/2010/06/08/
[9] O’Toole, Fintan “Ship of Fools. How Stupidity and
Corruption Sank the Celtic Tiger” P. 104
[10] McDonald, Frank & Sheridan Kathy, “The Build-
ers”, P. 5
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