To entice more buyers into the property market, cheap finance was needed, so the traditionally cautious banks were introduced to the concept of ‘light touch regulation’, and soon began competing aggressively with each other for new speculative business. Some stockbrokers and commentators cheered it on demanding that the other banks deliver the same kind of profits as Anglo Irish Bank. And the newspaper industry itself had a vested interest in the frenzy. They were doing very well from property advertising.
In my own constituency of Dun Laoghaire, the Council was required (under the new Planning Act) to draw up a housing strategy to meet house building targets set by the Department of the Environment. The strategy resulted in a stated need to increase housing units by 50 per cent in a county which was already well stocked. This necessitated additional re-zoning of land – including, for example, the lands of Dun Laoghaire Golf Club on Glenageary Road, which then moved to a new course at Ballyman on the Wicklow border. When a majority of the elected Council sought to challenge this particular instance of over development, they were met with an ‘instruction’ from the Fianna Fáil Environment Minister, Martin Cullen, and the re-zoning went ahead.
The Labour Party was consistently critical of the way Fianna Fáil pursued inflationary policies in the property market in those years. Following the merger of Democratic Left and Labour in 1998, the then leader Ruairí Quinn appointed me as Party Spokesperson on Environment and Local Government, with a specific mandate to address the problem of rising house prices and affordability. In early 1999, I established a Housing Commission, chaired by Dr P.J. Drudy, Professor of Economics at Trinity College, Dublin. This Commission produced a report that acknowledged the need to increase housing supply to serve a growing economy and population, but warned against incentivising property speculation and excessive lending. It included a comprehensive set of recommendations to address the housing problem. These were dismissed as ‘communistic’ by the Progressive Democrat Housing Minister, Robert Molloy. Charlie McCreevy’s answer to critics of his Government’s economic policy was to encourage people to ‘party on’. In a similar vein, as late as 2007, Taoiseach Bertie Ahern wondered aloud why those who were negative about the economy did not just go and ‘commit suicide’.
It was generally accepted that housing output needed to be around 50,000 units per annum, but at the peak in 2006/7, over 90,000 units were being completed. This was clearly unsustainable, as were average prices of €350,000 for a second-hand home – almost ten times the average industrial wage. And despite the wishful thinking that there might be a ‘soft-landing’, the property crash came forcefully and suddenly in early 2008. House prices dropped rapidly. By the end of 2010, they had fallen 40 per cent from peak. Many young families found themselves with mortgage debt considerably greater than the value of their properties. Builders were stranded on sites which would not now realise their costs, and with assets no longer covering their borrowings from banks.
The construction sector, which, at its peak in 2006, represented 23 per cent of GDP, was now in free fall and the wider economy was being dragged down with it. Sites were closing; construction workers were being laid off; builders’ providers, architects and conveyancing solicitors were among the first to be hit. House completions declined by 80 per cent between 2007 and 2010, taking 7.5 per cent off the country’s GDP. Real GDP fell by 3.5 per cent in 2008 and 7.6 per cent in 2009. By the end of 2010, GDP had fallen 15 per cent in just three years. As the economy shrank, purse strings tightened. Domestic spending dropped, such that the Central Statistics Office reported in 2009 the largest annual fall in retail sales since 1975. New car sales fell by two thirds in 2009.
As job losses mounted and unemployment soared, our Spokesperson on Enterprise, Willie Penrose, highlighted the unprecedented nature of the crisis numerically. The year-on-year increase in the live register was 146,000 in February 2009; 36,500 in the month of January alone. By April there were 200,000 more on the register than at the time of the 2007 General Election. Soon job losses were experienced in sectors unrelated to construction. In the first few months of 2009, redundancies were announced in Ericsson (300), SR Technics (1,200), Ryanair (200), LR Donnelly in Limerick (470) as well as Bulmers in Clonmel, Waterford Crystal, Elan, Dell, Schering Plough and Acuman. By the end of 2010, the live register had climbed to 13.4 per cent and was heading for half a million. We could see small and medium businesses closing in unprecedented numbers all around the country. This was very clearly the worst economic crisis in the ninety-year history of our State. No job was secure and no business safe.
Next, the State’s finances felt the impact. The exchequer had become overly reliant on taxes from the property sector, and this source of revenue disappeared almost overnight. People were spending less too, so VAT receipts were down, and every additional unemployed person cost the State €20,000 a year between lost taxes and increased social welfare payments.
The exchequer returns for January 2009 showed tax revenues down by €857 million (19 per cent) on the same month in the previous year. There had been a surplus of €630 million in January 2008. Now, a year later, there was a deficit of €744 million: a yearon-year reversal of €1.4 billion in the monthly figures. By December 2010, the State was taking in only €7 for every €10 it was spending. This could not continue for ever. The State would have to reduce its spending, try to increase income from new sources over time and, in the meantime, it would have to borrow the difference.
But therein lay a massive new problem. The State had guaranteed the banks and it turned out they were in a much worse state than Brian Cowen and Brian Lenihan had imagined. And it seemed no one knew to what extent. Estimates of the billions involved grew every month. International lenders began to doubt Ireland’s ability to keep control and to repay its debts. The interest on our borrowings began to rise exponentially. The ten-year bonds’ yield went from 4 per cent in 2006 to 14.55 per cent in July 2011. Eventually the ratings agencies – on whose somewhat arbitrary opinions international lenders partly base their decisions – consigned Irish bonds to ‘junk’ status. By the end of 2010, with a perfect storm of mounting debt and a deteriorating economy, Ireland was unable to pay its way and unable to borrow. The country was hurtling to bankruptcy or to bailout.
The Fianna Fáil-led Government was slow to see all this coming. Summer 2007 was a time for celebrating their three-in-a-row election win and for bonding with their new coalition partners, the Green Party. From September 2007 until April 2008, they seemed mostly preoccupied with their Leader’s difficulties at the Mahon Tribunal.
The Mahon Tribunal (originally the Flood Tribunal) was set up in 1997 to examine allegations of corruption in the planning process in Dublin, including the activities of Minister Ray Burke, who resigned from politics when the Tribunal was established. The Tribunal continued for over ten years, despite court challenges and considerable political hostility, eventually producing a set of reports which detailed and documented extensive corruption and malpractice in the rezoning of lands in County Dublin.
As I had served as a member of Dublin County Council during the period under investigation, I was very familiar with the subject matter. I was called to give evidence and I was ‘commended’ by the Tribunal in their final report. It was not so for others. In September 2007, the Tribunal began to publicly examine payments which had been made to Bertie Ahern at various times. These payments included a ‘whip-round’ among some of his friends during a difficult time in his personal life. The collection had taken place after a dinner in a Manchester hotel, and a suitcase full of cash was brought to him in Dublin, by a UK-based Irish businessman. All the money amounted to tens of thousands of euros. But there was difficulty in tracing it because the former Minister for Finance did not have a personal bank account for about five years. There was enormous uncertainty and confusion about who lodged what monies and when to a particular account.
Ahern’s answers were less than clear. In a Dáil exchange on the issue, I suggested