As asset prices have surged, putting property ownership out of the reach of many, our leaders seem unwilling to tackle key vested interests, says Kyran Fitzgerald.
A decade ago, lots of nasty stuff began to hit the fan and life for many of us got messy.
The Economist magazine was among the first to warn of a bursting in Ireland’s Noughties property bubble, with reports issued by it to this effect in 2004 and 2005 — reports which were dismissed at the time by politicians, economists, and representatives of the property sector.
The publication has returned to the fray with the suggestion that Irish homes are now “probably overvalued” by around 25%.
The difference, this time around, is that this country is no longer regarded as an outlier.
In fact, the reverse would appear to be the case.
London prices are regarded as being 50% above what is sustainable and the gap in the case of Sydney and Vancouver is much higher again.
The big knack is in knowing when to call the turn in the market.
In the UK, at present, the stratospherically-valued central London market does appear to be freezing up, yet the markets in major regional centres such as Birmingham and Manchester appear much more positive.
We still don’t quite know what it is that triggers a reversal in asset markets.
A year ago, Deutsche Bank warned that valuations in equity and bond markets were at their “most elevated in history”.
However, in the year to date, the Dow Jones Index is up by 5% while the Nasdaq has surged by 17%.
True, both the Hang Seng and Dax exchanges have witnessed corrections, but these have been modest at 5.9% and 3.3% respectively.
What we can all agree on is the fact that asset prices have surged relative to incomes since 2010 and that we have witnessed a big transfer of wealth from labour to capital.
This has had major political impacts, with the rise of forces opposed to globalisation on both the so-called hard Left and the populist Right.
In Ireland, the centre ground has held for now, yet pressures are huge.
According to a recent survey by a group called ‘World First’, Luxembourg is the only country in Europe where it costs more to rent a home than it does in Ireland.
Dublin’s high cost of living has emerged as a huge negative factor in surveys of expatriates.
Last week, Finance Minister Paschal Donohoe set out a case for the centre ground in Irish politics.
Speaking at an event in Dublin organised by a Fine Gael affiliate, the Collins Institute, Mr Donohoe acknowledged that growing inequality presents a huge challenge to those in what can be described as the political middle ground.
He noted that median US incomes are now lower than they were in 1999, while the real wages of British workers have fallen by 10% since the onset of the crisis.
He cited British historian Adam Tooze, who has pointed out, in his recent book on the financial system, that the crisis of 2007/2008 has never really ended.
Minister Donohoe naturally pointed to key achievements here, such as the huge Irish jobs recovery, our extended life expectancy, and improvements in our schools.
He also defended the role of the State as a promoter of technological progress — in funding the Internet in its early days, for example — and as a guarantor of fairness in the running of the market economy.
He also accepts that the State will have to play an increased role as the fulfilment of climate targets becomes more urgent and as the “social agenda”, including gender equality, is rolled out.
Mr Donohoe is interested in the whole idea of pre-distribution as opposed to the redistribution goals pursued by some Governments here.
Pre-distribution is about equipping people through training and education, including lifelong learning, to become more effective participants in the labour market.
It is to be distinguished from the income transfers effected through the tax and welfare system.
Ireland has actually done quite well in re-equipping its citizens, though it must be accepted that a significant block of people remain largely removed from the world of work.
Mr Donohoe accepts that the “unequal distribution of ownership” is a “growing fact of the global economy”.
He also accepts that we need to secure better management in the use of land.
However, and this is no surprise, he shies away from a discussion of the use of the tax system to encourage more intensive use of land and property assets, as well as the redistribution of windfall wealth that has accrued as a result of soaring asset values.
The Finance Minister’s caution is hardly surprising. Budget Day is just over a month away.
Moreover, he belongs to a political party which draws support from large farmers and property owners.
This in itself is no bad thing. Hard work and the accumulation of assets lies at the heart of our prosperity.
However, the current light touch, almost hands-off approach to the taxation of assets now threatens our long-term future.
Politically-driven property tax breaks did owners few favours in the run-up to the last crisis.
Investors enjoyed a short-term boost before Armageddon came rolling in.
Now, the failure to tackle opportunistic land-hoarding, combined with a large number of empty properties, particularly in larger urban areas, is greatly exacerbating the problem of high rental costs and housing undersupply.
A tax on the value of unused land and homes — one significant enough to really bite — would open up sites for development.
A survey by the housing NGO, the McVerry Trust, indicates that over 60% of voters would welcome such a tax on empty homes.
It estimates that such a move would — based on the experience of Vancouver — generate €54m a year, enabling the renovation of around 1,300 properties.
Embattled Housing Minister Eoghan Murphy indicated a year ago that he was in talks with the Attorney General and Finance Minister on introducing CPO orders aimed at vacant properties.
It is not clear how much progress has been made on this front. We eagerly await events.
In the Irish agricultural sector, we have another paradox which owes its existence to market distortion by means of subsidies.
On the one hand, rural Ireland is emptying out.
On the other, we have a situation where the price of an acre of land in Ireland, at over €9,000, is among the highest in the world.
One of the reasons for this state of affairs — leaving aside the wondrous quality of our land — is the exceptionally low turnover in land here.
Irish farming families really do hold on to the bitter end.
It is reckoned that farms are sold out of family hands after periods of ownership lasting centuries.
One result is that our farmers as a group tend to be old.
Not enough young men and women are being attracted into the industry, which as a result, lacks the turbo charge effect that innovative newcomers can provide.
The real problem is that in moving to tackle such market distortions, serving Government ministers run the risk of arousing the ire of well-entrenched vested interests and we all know what it is like when you try to separate a dog from his or her bone.
However, politicians of the centre must sometimes risk offending long-term allies if they are to build bridges with the electors of the future.
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