Friday, March 03, 2006

The spirt of Bull McCabe fuels the Economy

The Field has to one of the greatest Irish films of all time. The Field was "bare rocks" when his father started to rent the field. The Bull turned it into the lovely field with his own "bare hands". "digging the rocks" out of it and fertilizing it with seaweed when it was threatened by being put up for sale. To him "It's MY FIELD”. The Bull’s obsession with the Field cause him to descended into insanity and he lost all because of his obsession for land. Richard Harris was robbed at the Oscar when he didn’t win. But that same obsession for land that drove the Bull is driving many in modern Ireland.

Of all the talk of “knowledge based economy”, “High Tech Firms”, “proactive shite” and “low corporate tax regime”. This celtic tigers feet are made of two things. Earth and Cement. Some 12% of the workforce work in the construction industry it accounts for 22% of the GNP of Ireland. The price of land has rocketed. Now the land on which one of Irelands most prestigious Hotels is built on is more valuable then the business its self. But what is going to be built on this site. What can make more money then a prestigious Hotel. Apartments! But this is not buying for rental income. Rental income is not going to pay back that investment. The return on the investment is going to come from selling the apartments for crazy prices. But it is not just in D4 where land prices are exploding. In the country on average 42.5% of the price of a house is the site where 10 years ago it was about 12% .

One of the sentences that grabbed me in the just published OECD report on Ireland was that (Hat Tip P O Neil) A property tax could be introduced to help fund local infrastructure. This would also redistribute some of the windfall gains that accrue to people living close to new roads and public transport links and shift the cost for local services such as water and sewerage facilities so that businesses and households each pay their fair share. While this makes economic sense, in an Irish context where over 80% of the population own their own homes, it is currently seen as a non-starter. 80% of the Irish population are owner occupiers of their own homes. Now to me that seems a bit low. I am sure that many of a leftist precession say this is an indictment of how 20% of the population are being left behind. But read that sentence again. It seems to be saying that 80% is not only high and usually but kind of ridicules. So I decided to a bit of research. I found this one survey about owner occupier housing in Industrialised nations. In Canada the figure is 65.8% In the US it is 67.9% in the UK it is 70% in everyone’s beloved Sweden it is 55% in Germany the figure is 40.5%. The country in our vicinity is Slovenia at 82%. Now add into the fact that our demography makes us the youngest populations in Europe. When for instance only 21% of young childless couples in France own a house. The fact that we have 80% is absolutely astounding and I am assuming by population the OECD means over 18. So why do we have such high house ownership.

Tenancy in Ireland has always more then the typical European class struggle yoke. The French revolution was the ruling first and second estate been taken down by the rest. It was about breaking free of the control of the upper class. It was a class struggle. The Irish battle against tenancy wars has always been intertwined with nationalism. The British aristocracy owned most of the land and the Irish were the tenants. The leader of the Land League the organisation that fought for Irish tenants rights was Michael Davitt a leading Fenian (pre-cursor to the IRB which was pre-cursor to the IRA). The winning of the land war with the Wyndham Land act 1903. Was like a victory for Ireland. Land reform in Ireland was part of the “Killing Home Rule with Kindness” policy of successive British governments. But it didn’t work in fact the opposite happened it increased nationalism and support for Home Rule. Later it probably also led to the rise of republicanism. As when the normal Irish came to own the land they questioned even more why a foreign power controlled them. Thus perhaps in the Irish psyche tenancy is a kin to being dominated and while ownership is a kin to freedom.

Maybe this is the reason so few people in Ireland let once they find a partner. Or in many case when they have enough money for a deposit. They will immediately dive into the property market. Houses prices are ridiculously out of the reach of many yet they sacrifice everything to reach. They are willing to spend 4 hours a day in traffic losing out family time. They are willing to sacrifice staying at home to raise their children to own a house. They sacrifice entertainment, fun practically everything to get ownership of an over valued piece of property.

We more then most comparable nations have a drive to own the property in which we live. Like Barry’s tea it is hardwired into our DNA. The Bull McCabe story was how obsession with land drove the man to insanity. Insanity for the Bull was murder but isn’t sacrificing everything in life for a 3-bed semi-d in Carlow also slightly insane?

7 comments:

Frank said...

The problem is that when critics of present policy and tax strategy talk about housing costs what they propose would do nothing to reduce those costs but would simply divert some of the increasing land values to bankroll empire-building by county managers. The government policy is for councils to improve their performance and effciency, not give them new sources of taxation. There is such variation in performance and value across the country that it would be madness to give local authorities more revenue-raising powers than they now have.

The increase in the order of house values in places like Spain, UK, USA, and Ireland looks like making up for the depressed property values associated with the underperforming economy during the cold war/high interest rate period before globalisation brought some rationality into the prices of goods.

Buyers and lenders bidding up the price of houses today is a mark of economic confidence in Ireland as a great location for economic activity.

phdbird said...

This is the last subconscious remnant of the famine. There's a fear of renting for life that isn't seen in most European countries. The attitude is really pessimistic - it basically means that we're safeguarding ourselves against unforseen troubles. It's about having something to leave to your children aswell. It's just expected that everyone will buy their own house, at any cost.

Winds said...

Bit late off the mark, here sorry.

A couple of comments: per se, there is nothing wrong with high levels of home ownership...where I have problems (and very serious problems) is that there seem to be a lot of people out there with two houses. So I have no objection to a tax being imposed on non-primary homes - i.e., on second houses or on investment properties.

There is no point in comparing our rental rates with other countries until we have similar legislation. Currently, I'd have to say that ultimately, the relationship between tenants and letters is one of mistrust. Although I'd have to say that neither party is wholly innocent of contributing to the lack of trust, my recent experience is that there are a lot of so called investors out there who feel that all they have to do is lie back and rake in the money, that they have no responsibilities, and that their tenants have excessive rights which they would prefer to see curtailed. Because of the way the rental market works here, I find it non-reliable as a mode for setting up home. But that could be because the last two houses I lived in were sold from under me. In both cases, the relevant landlords did everything they could possibly do to circumvent adhering to the law and the terms of the leases which they signed.

I'm not one who would buy property at *any* cost because currently, I think the property sales side of things is maybe even more screwed up than the rental market. But I must say that I find the attitude to property in Ireland to be very immature at the moment. Both rental and ownership have their own benefits and disadvantages depending on what stage of your life you're at. This whole argument on which one is better is, in my opinion, over simplified.

Many people in this country forget that the primary purpose of a house is to provide shelter for people. Seeing it as solely a money-making exercise means that the actual utility of the house takes second place. You can see this in a lot of the units being built now - they're not being built with the needs of their occupants at the forefront.

Frank's closing paragraph, in my opinion, suggests vested interests, to be honest. I'm not of the opinion that it represents anything other than exploitation on the part of the financial houses, and panic on the part of many buyers. I would only see sense in that position if rents were tracking mortgages. At the moment, they are not, and there is plenty of evidence to suggest that in some areas, rents are trailing mortgage costs by as much as 50%.

There are reports that up to 40% of units completed last year remain unoccupied, plus rents are more or less static (daft says they've gone up but that's not my experience, I must say). Assuming you believe a house is for people to live in, that would suggest we've enough houses for people to live in, plus plenty of rental accommodation...I'm afraid that I can't see the current situation in the property market as positively as Frank, in other words, but I'd venture to say that the wish to own is less a hangover from the famine, and more linked to prevailing legislation.

In principle, it should be possible for everyone who wants, to own a house...it is not, of itself, fair that many people are priced out of the market while many other people have several properties.

Simon said...

interesting post winds. basically the point I was trying to make was that Irish people seems to have a stronger desire to own then the rest of europe. I think it is more then just about investment.

About the 40% unocupied figure. I find that a bit shocking. But i guess alot of that is in places where there is little demand for houses. Donegal, Daingain places like that.

While people being priced out of the market is not fair but thats capitalism for you.

Frank said...

Winds,

No vested interest, and more's the pity. I don't even own a house.

The fact is our entire economy is founded on making something out of nothing. As you rightly stated, the utility value of a house is central. The way the market operates is very different today from what it was twenty years ago. So is the Irish economy. Both of these facts are reflected in present asset values, and the relative values of different classes of asset. People pay up front for a fraction of the house price, and prices are based on a mass of individuals' best guess at the future economic value of its utility, of which confidence is a major component.

We are now beginning to see more talk of 'the housing system', and think less of the house one buys as being the one you'll live out your days in.

Two addditional advantages of home purchase are the tax reliefs available on mortgage interest payments, and the security of the equity (full or part)accrued in a property.

phdbird said...

Good posts - and I agree on the most part. But I still think there's something more deep-rooted to it in Ireland. This Bull McCabe attitude that makes people hysterical about owning. And I think that goes deeper than pure legislation.

Frank said...

On Simon's core point about the high proportion of homeowners, and Winds' experiences in the rented sector, I would like to see a larger and more professionally managed rented sector so that people didn't feel forced into buying due to lack of choice.

in the 2002 Census (which doesn't count unoccupied houses or flats) the proportion prviate dwellings ownes outright or being bought was 77.4% (990723/1279817). Private rented was 11% (141459/1279817), and council rented was 6.9% (88206/1279817). Dept of Environment figures recorded over 100,000 council tenancies at the time so either a lot of tenants didn't return the form or they are sitting on houses they're not using, or the Dept figures are incorrect, or a combination of the above. Also, about 40% of private sector tenants were on social welfare rent subsidies.

I think planning has been at fault because it has refused to allow a newbuild equivalent of the bedsit or studio flat which would allow a single or separated person of modest means to live independently with theri own catering facilities, WC, and shower or bath. Planning has restricted and distorted supply, in other words, meaning that house-sharing is the only option for people who aren't ready to purchase or who don't want to pay so much in rent for an apartment that they'll never be able to save the deposit to start buying a place. In 2002 in the entire state there were only 70,474 purpose-built apartments, a quarter of which were local authority stock. Only 22,463 of all the purpose built apartments were of the studio or one-bedroom size. The planning regulations pertaining to apartment size were based on the notion that an apartment should be designed as an alternative to a conventional house, neglecting the need for transitional or supplemental accomodation.