Ireland’s stellar financial crash in 2008 and the follow-up austerity project, the largest undertaken by any country, continues to reverberate. We are trapped in an uncompetitive and semi-nationalized banking system that charges borrowers a higher interest rate than our European counterparts pay for loans.
It’s uplifting to simply blame the banks (after all, they were instrumental in causing the collapse), but it’s also easy. Lenders here are forced to hold more capital than other European banks due to the magnitude of the collapse; the highest incidence of delinquency; and the pronounced difficulty in getting hold of underlying collateral when someone is not making payments.
We don’t have an eviction culture, so there is a risk premium associated with lending in the Irish property market. You can’t have it both ways.
We also have a chronic housing and rental crisis that is based, more than anything else, on the pause in construction that followed the 2008 period. According to the Central Statistics Office (CSO), the State’s housing stock grew by just 8,800 (0. 4%) between 2011 and 2016, in stark contrast to the growth of 225,232 net new homes registered between 2006 and 2011.
Yes, the pandemic triggered the recent increase in demand and prices, but our starting point in the supply chain was considerably worse than in other jurisdictions. As of May 1 of this year, there were only 851 homes available for rent in the entire country, an all-time low, according to real estate website Daft.
And now we find that as many as 100,000 apartments from the Celtic Tiger era are in need of repair work, the result of building code violations in boom times. It is understood that the task force set up by the Minister for Housing, Darragh O’Brien, to look into the problem of defects has found that problems such as lack of fire safety material, structural defects and water ingress are present in up to 80 percent of apartments and duplexes built between 1991 and 2013, which equates to between 62,500 and 100,000 units.
It is an amazing testament to the lack of regulation that accompanied our last construction boom.
The image of the fire engine permanently parked outside an apartment block came into the public consciousness with the fiasco at Priory Hall, the notorious fire-trap apartment complex in north Dublin. The High Court ordered the 187-unit block evacuated in 2011 due to fire hazards. The cost of remediation work there has amounted to 45 million euros so far. With the council recouping part of the bill through the sale of units, the taxpayer is in a bind for €15 million.
The list has multiplied since then. St James’s Wood, Kilmainham, Dublin 8; Holywell, Swords, County Dublin; Riverwalk Court, Ratoath, County Meath; Carrickmines Green, Dublin 18; Beacon South Quarter, Sandyford, Dublin 18; Millfield Manor, County Kildare; Longboat Quay, Dublin 2 are just some of the highlights.
The bill for defects across the state is expected to be 2.8 billion euros, according to the task force, but several experts say that is a conservative estimate. Approximately 80 per cent of the defective units are in the greater Dublin area, where most of the apartment buildings were located at the time of the boom.
The bill is likely to result in a levy on the construction industry similar to that on insurance. The government’s mandatory 2 percent levy on insurance policies offered by all insurers, triggered by the collapse of the former Quinn Insurance group, is still in place 10 years later, inflating already high insurance costs.
A similar one for construction could also incorporate funding from the existing Concrete Block Grant Scheme.
“My officials, with the help of colleagues from other departments and agencies, as well as the Treasury, have been working to identify and evaluate a variety of options regarding such a lien,” Mr. O’Brien said in response to a recent parliamentary question.
A new levy will add to the cost of construction at a time of rapid construction inflation, an additional cost that will almost certainly be passed on to homebuyers in the form of higher prices. When no one is to blame, everyone pays.
Activity in the construction sector fell in June, the first contraction since April last year when the sector was constrained by public health restrictions, according to the latest BNP Paribas Real Estate Purchasing Managers’ Index (PMI) for the year. sector. The report linked a drop in new orders to mounting “price pressures“. It said companies were also more cautious about hiring due to weaker demand, with some respondents saying projects were put on hold due to cost pressures.
The central bank also recently warned that supply constraints are increasing input costs in the housing sector, which could put at risk “the necessary delivery of housing and other key infrastructure.” It forecasts that housing production would reach 31,000 in 2024, with total units delivered between 2022 and 2024, some 5,000 fewer than previously expected.
We have come a long way during the dark days of the accident and its complicated aftermath. The labor market is being transformed, as is public finance, but the sector at the center of the crisis, banking, is still ailing and the infrastructure deficit that has plagued the Irish economy for decades is arguably worse.