Behind the building boom there’s a nightmare scenario in the making

THERE is no doubt we have never had it so good in this country.

Irish property is worth €667 billion, the equivalent of approximately €150,000 for every man, woman and child. We are awash with paper millionaires, but people would do well to remember Mark Twain’s dictum that the three greatest falsities in life are lies, damn lies, and statistics.

Borrowing is going through the figurative roof. Our debts now stand at over €282 billion. Borrowing jumped by 30% in the past 12 months.

People would do well to remember what happened in Japan in the 1990s. At the beginning of that decade, Japanese property was worth four times more than all the property in the United States, even though Japan is only about the size of California. The Imperial Palace and its grounds were worth more than the whole of Canada. In order to purchase a house, people had to take out multi-generational mortgages. The typical cost of a house increased 50-fold over the previous 30 years.

While not quite reaching those mammoth proportions, our property prices have been mounting inexorably.

The Government recognised the need to do something by commissioning economist Peter Bacon to recommend ways of bringing down house prices without precipitating a collapse. He suggested initiatives that he predicted would bring down prices by as much as 10% to 15%, but instead they have gone up by an average of 14.9% every year from 1997 to 2005.

Normally, rising prices slow demand, but a bubble generates buyer enthusiasm and leads to increased demand thereby forcing prices to rise even higher. If prices exceed demand, the bubble stops growing and may burst.

Lending institutions are encouraging the bubble by providing 100% mortgages, and the Government is contributing to the problem by subsiding high rents.

Over 40,000 people are currently receiving €368.5 million to supplement their rents. As a result, 40% of rented accommodation is now being subsidised by the Government. This has the impact of propping up high rents. Maybe the aim is to help the poor, but the long-term impact amounts to the subsidisation of speculators and further fuels the economic lunacy.

There has been an unprecedented demand for houses in this country because, for generations, our young people emigrated, but in the midst of the Celtic Tiger economy they are staying at home and getting into the property market. Others have been returning, and for the first time in our history we have been experiencing a massive influx of immigrants.

To pay back the exorbitant mortgages for new houses, people will have to earn more, which means that prices will inevitably go up and our competitiveness will deteriorate. Our dream could turn into a nightmare if we do not learn from the mistakes of others. If we looked at the United States, it would have been obvious where we were going in relations to drugs and crime — we have gone there anyway.

In the final week of 1989, Japan increased interest rates. Within four days the stock market began to fall. By the following March, Japanese stocks had lost a quarter of their value. The slide continued. By September 1992, stocks were down by 65%. House prices stayed up at first, as people held on to property in the hope of a recovery. But by 1992, prices had fallen by 60%. In the next eight years they dropped another 20%, with consequences for the whole nation. Japan’s great post-war economic miracle had turned sour.

Of course, just because the property market crashed in Japan does not mean there will be a similar crash in Ireland. But are we more industrious or conscientious than the Japanese? What makes us so special that it could not happen here?

Shortly before his death, Charlie Haughey said our current government was the worst in this State’s history. He was not far wrong; but the dubious distinction of the worst government must belong to Haughey’s own GUBU administration of 1982. It was conceived in the Gregory deal and witnessed the appointment of Dick Burke of Fine Gael as Irish commissioner to the EU in an ill-conceived electoral stunt.

This was followed by the diplomatic fumbling in relation to the Falklands War, and the disclosure of the override affair in which the telephones in Haughey’s office were found to have been capable of being used to bug any telephone conversations in Leinster House or Government Buildings.

Those scandals were followed by the mother of all GUBUs — the arrest of murderer Malcolm MacArthur in the apartment of the Attorney General.

AFTER that came the Dowra Affair in which a man was arrested by the RUC while on his way to court in Louth to testify against the brother-in-law of Justice Minister Seán Doherty.

The man was held for no legitimate reason for the day and the court was not informed, so the case against Doherty’s brother-in-law was thrown out.

It was only after the fall of that disgraceful government that the unconstitutional telephone wiretapping of Geraldine Kennedy and Bruce Arnold was exposed.

This Government has been generating its own GUBUs, such as the bungling of decentralisation and the outrageous squandering of some €65 million on useless electronic voting machines.

But at least nobody died in the voting machines, which cannot be said about some of the other foul-ups, such as the mess in the health system, the carnage on our roads, and the deadly growth of crime.

When Fianna Fáil and the Progressive Democrats came to power in 1997 in the wake of Veronica Guerin’s murder, they promised stringent measures to fight crime, including the introduction of zero tolerance. But today illegal drugs are more prevalent than ever, and more than a quarter of young people between the ages of 15 and 25 admit to having used illegal drugs.

There were four gun murders in 1998, compared with 21 in 2005. The Government promised to rectify the appalling situation involving people on bail committing crimes, but it has again failed dismally. People on bail committed at least 48 homicides during 2004 and 2005.

The carnage has been growing steadily worse on our roads, despite all the hype and empty promises. The initial benefits of the points system have been squandered.

Of the 25,000 people charged with driving without a licence, only 3,000 have been convicted.

Almost half the photographs taken by speed cameras were useless, and 40% of drivers stopped with excess alcohol beat the system. In addition, there are some 100,000 uninsured drivers on our roads.

All we have been getting are empty promises and a degree of public relations spin that would make anyone dizzy.

Minister Martin Cullen — the guru of electronic voting and the personification of political bumbling — topped it all recently with the suggestion that the Dublin tunnel should be called after Charlie Haughey. With such political judgement, nobody should be surprised at his lousy performance in the various ministries.

This Government may not be the worst, but it has done more damage than the GUBU gang of 1982 because the latter only lasted for nine months.

The current nightmare has been going on for nine years, and the real damage will become more and more apparent in time.